Gujarat High Court Rules Substantive Right to GST Refund Cannot Be Denied on Technical Grounds or Circular Limitations

In a significant judgment, the Gujarat High Court clarified the interplay between statutory rights and procedural limitations under the GST regime, holding that a taxpayer’s substantive right to a refund cannot be denied solely on technical or procedural grounds, including those arising from Board Circulars or portal restrictions.

The petitioner, a partnership firm engaged in chemical trading, supplied goods to Special Economic Zone (SEZ) units without payment of tax in May 2022 and subsequently filed a refund application for unutilized Input Tax Credit (ITC). While the initial refund was granted, the petitioner inadvertently omitted five purchase bills, resulting in an under-claimed refund. Upon realizing the error, the petitioner attempted to file a supplementary refund application under the category “Any Other (Specify)” because the GST portal did not permit a second claim under the original category due to restrictions imposed by Board Circular No. 125/44/2019-GST dated 18.11.2019.

The department rejected the supplementary refund application, citing the circular and the absence of a specific provision for such claims. The petitioner’s appeal was also dismissed on similar grounds. The petitioner argued that statutory provisions for refund under the CGST Act override any contrary circular, and that technical limitations of the portal should not deprive a taxpayer of a legitimate refund. The department, in response, maintained that the petitioner was at fault for not including all claims in the initial application and that the circular was correctly applied.

The Court, after reviewing the facts and submissions, noted that the department did not dispute the petitioner’s entitlement to the quantum of refund, but only objected on procedural grounds. The Court relied on its earlier decisions, including Shree Renuka Sugars Ltd. v. State of Gujarat and Pee Gee Fabrics Private Limited v. Union of India, which established that substantive benefits cannot be denied due to technical errors or portal limitations when statutory conditions are otherwise satisfied.

The Court emphasized that while procedural compliance is generally required, insistence on procedure should not defeat substantive rights, especially in cases where circumstances beyond the taxpayer’s control make strict compliance impossible. The Court observed:

“In our view, this is the point of inflection where insistence on the procedure or the rigorous implementation of a certain Circular would defeat the substantive rights of the Assessee, thereby causing miscarriage of justice.”

The Court further held that Board Circulars, while important, cannot override statutory entitlements. Where the taxpayer’s substantive right to a refund is established, the Court has jurisdiction under Articles 226 and 227 of the Constitution to ensure that procedural requirements do not extinguish such rights.

Accordingly, the High Court quashed the orders rejecting the petitioner’s refund claim and directed the authorities to process the refund application afresh in light of the judgment, within twelve weeks. The Court reiterated that denying a legitimate refund on hyper-technical grounds would amount to unjust enrichment by the department, contrary to Article 265 of the Constitution.

This decision reinforces the principle that procedural or technical limitations, including those imposed by administrative circulars or electronic portals, cannot be allowed to override the substantive statutory rights of taxpayers under the GST law.