Delhi HC: Re-examination of GST Refund Due to Mismatch Without Viewing Reconciliation Statement

The Delhi High Court, in its recent ruling, directed the Goods and Service Authority to review the case where the GST refund was cancelled merely on the basis of a mismatch and without even taking the Reconciliation Statement into account.

The petitioner, M/s. Shivbhola Filaments Pvt. Ltd., questioned the impugned order through which, the petitioner preferred to file several appeals against eight different orders all dated 31.12.2020, given by the Adjudicating Authority, was cancelled.

The petitioner is engaged in the business of manufacturing Polypropylene Yarn and Polypropylene narrow woven fabric, which are subject to 12% and 5% GST, respectively.

The petitioner contended that they manufacture the products Granules, Master Batch, and Spin Finish Oil, and the raw materials they use are subject to GST at an 18% rate. The petitioner said that input tax credit on payment made on inputs in the discharge of its tax liability on output was not availed due to the inverted tax structure.

Refund applications had been filed by the petitioner on 23.10.2020 for different tax periods from August 2018 to March 2019. The petitioner was sent a “Notice of Rejection of Application for Refund” dated 18.12.2020 GST SCNs (Show Cause Notice) concerning each of its refund applications. Additionally, the petitioner was asked why its refund applications should not be cancelled.

The petitioner’s applications for refund were suggested to be cancelled on the grounds of a mismatch with the returns filed in Form GSTR 2A by the petitioner. In response to the issued show cause notice, the petitioner provided a reconciliation statement for each tax period.

The Adjudicating Authority did not give a chance to the petitioner to put a point from his side, argued the petitioner. Consequently, the refund cancellation orders needed to be set aside. Additionally, the reconciliation statement scaling down its refund claims had been provided by the petitioner. However, it was cancelled based on a mismatch in the filed returns.

Apparently, the appellant has mentioned the value of waste of HSN 55051090 in the reconciliation statement which is subject to GST at the rate of 18%. Also, the goods of HSN code 5402 of traded goods are not categorized as inverted rated goods.

The authorities in charge cannot simply cancel a refund application merely on the grounds of any mismatch found and not allowing the taxpayer to give an explanation.

A two-member bench comprising of Justice Vibhu Bakhru and Justice Amit Mahajan overruling the impugned order allowed the petitioner’s application that filed to seek a refund before Adjudicating Authority for considering the sum payable to the petitioner after giving a chance to the petitioner to be heard.