HC: Authorities Fail to Include Materials for Establishment of Supplies in Relation to Refund of ITC Claimed

The Delhi High Court, in its decision to re-establish the appeal to the appellate authority, stated that the GST authorities failed to consider the supporting evidence for the input supplies related to the Input Tax Credit (ITC) being claimed.

The petitioner, K S Commodities Pvt Ltd, is involved in exporting agricultural products. During the relevant tax period (December 2021), they exported rice and sugar. The petitioner asserted their entitlement to an ITC refund for input supplies used in exporting these commodities.

The petitioner applied for an ITC refund for the zero-rated supplies. The Adjudicating Authority evaluated the petitioner’s refund application and proposed its rejection.

Subsequently, the Adjudicating Authority issued a Show Cause Notice (SCN), raising concerns, including the petitioner’s purchase of sugar with a 0.1% GST applicable and the utilization of Notification No.41/2017 dated 23.10.2017.

It was also suggested that the refund should be limited to the extent reflected in the petitioner’s return in Form GSTR-2A. Additionally, the petitioner was requested to provide a reconciliation statement.

Despite the petitioner’s response, the Adjudicating Authority rejected the refund application, mainly on the grounds that the petitioner couldn’t state a clear connection between the input supplies for which the ITC refund was claimed and the export of the commodities.

The petitioner appealed this decision to the Appellate Authority, but it was dismissed in the impugned order. The impugned order stated that the Commissioner rejected the refund claim because the petitioner couldn’t prove that the credited inputs were directly linked to the export of the specific commodity, sugar.

Read Also: Input Tax Credit Guide Under GST: Calculation with Examples

Furthermore, as the petitioner also exported rice during the relevant tax period, the Appellate Authority found that the petitioner didn’t differentiate between the inputs used for rice and sugar export.

The Appellate Authority noted that since the petitioner had already received a refund for the inputs used in rice export, their refund claim for sugar needed to be denied.

The petitioner contended that they had provided the necessary documents and invoices to demonstrate a direct correlation between the claimed inputs and the export of sugar.

The bench comprising Justice Vibhu Bakhru and Justice Amit Mahajan pointed out that both the Order-in-Original dated 27.10.2022 issued by the Adjudicating Authority and the challenged order from the Appellate Authority failed to address the aforementioned invoices and evidence presented by the petitioner.

Furthermore, it was observed that neither of these orders provided any explanation for why the authorities did not consider this material as relevant in establishing the direct connection between the claimed input supplies and the export of sugar.

In setting aside the questioned order, the High Court restored the petitioner’s appeal before the Appellate Authority for a reassessment based on the merits of the case.

Additionally, it was specified that the Appellate Authority must thoroughly review the evidence presented by the petitioner. If the Appellate Authority finds that this evidence cannot be linked to the petitioner’s claim of exporting sugar, they must provide clear reasons for this determination.