Background and Context
The petitioner, a company engaged in shipping services, supplied zero-rated services to an SEZ unit in December 2017 and paid IGST, subsequently filing a refund application for the tax paid. The refund application was rejected ex-parte by the department on 13 September 2019, without issuance of a deficiency memo or a show cause notice, and without granting the petitioner an opportunity of hearing as required under Rule 92 of the CGST Rules, 2017. The order was physically served but not uploaded on the GST portal.
Following the rejection, the petitioner attempted to rectify the application and filed a fresh refund application in February 2020. The department issued a deficiency memo on this new application, requesting a copy of an appeal order in the petitioner’s favour. The petitioner then filed an appeal against the original rejection order in March 2023, which was dismissed by the appellate authority as time-barred under Section 107 of the CGST Act, 2017.
Legal Issues and Submissions
The petitioner challenged both the original refund rejection order and the appellate authority’s dismissal, arguing that the initial order was void ab initio for non-compliance with Rule 92(3), which mandates issuance of a deficiency memo and an opportunity for hearing before rejection. The petitioner further contended that the subsequent refund application, on which a deficiency memo was issued but not acted upon, should be considered on merits. The petitioner also sought condonation of delay in filing the appeal, citing the impact of the Covid-19 pandemic and the Supreme Court’s orders extending limitation periods.
The respondents supported the appellate authority’s decision, maintaining that the appeal was rightly dismissed as time-barred and that the original order was appropriate. However, they did not dispute that the subsequent refund application was entertained and a deficiency memo was issued, nor could they justify compliance with Rule 92(3) in the original rejection.
Court’s Reasoning and Findings
The Bombay High Court found merit in the petitioner’s arguments, holding that the ex-parte refund rejection order was invalid for failure to comply with the mandatory requirements of Rule 92(3) of the CGST Rules. The Court noted that no deficiency memo was issued and no hearing was granted prior to the rejection, rendering the order void ab initio and non-est in law. The Court also observed that the petitioner had actively pursued its rights, including filing a fresh refund application and responding to the deficiency memo, and that the period of delay in filing the appeal was affected by the Covid-19 pandemic.
The Court relied on its earlier decision in M/s. Knowledge Capital Services Pvt. Ltd., which emphasized the necessity of issuing a deficiency memo and granting a hearing before rejecting a refund application. The Court further noted that the original rejection order was not uploaded on the GST portal, contrary to legal requirements.
Final Decision and Directions
In light of these findings, the Court directed the designated officer to decide the petitioner’s refund application dated 12 February 2020 (and any subsequent applications) in accordance with law, within six weeks of receipt of the order. The officer was instructed to pass a fresh order as per Rules 90 and 92 of the CGST Rules, without being influenced by the earlier invalid rejection or the appellate authority’s decision. All contentions of the parties were expressly kept open for consideration in the fresh proceedings.
The petitions were accordingly disposed of, with no order as to costs.
Case Reported at:
Case Name: K. Line India Pvt. Ltd. v. Union of India and Ors.
Case Citation: (2026) taxcode.in 963 HC
