Rejection of Refund on the ground “Wrong ITC Claim”

Case Title: Varidhi Cotspin (P.) Ltd. v. State of Gujarat

Court: High Court of Gujarat

Petition Number: R/Special Civil Application No. 5172 of 2022

Relevant Section: Sections 54(5) and 56 of the CGST Act, 2017

Category of Dispute: Refund – IGST on Capital Goods under EPCG Scheme

Date of Judgement: 6 July 2022

Relevant Provisions: Section 54 (Refund of Tax), Section 56 (Interest on delayed refunds), Rule 92 (Order sanctioning refund)

Facts of the Case

[Para 2-3]

• The petitioner, Varidhi Cotspin Pvt. Ltd., imported capital goods under the Export Promotion Capital Goods Scheme (EPCG) and filed a refund claim of IGST paid during July and August 2017.
• The refund application in FORM RFD-01 was filed on 28.12.2019 for ₹1.24 crores under Section 54 of CGST Act, 2017.
• The Deputy Commissioner issued a Show Cause Notice (SCN) dated 19.6.2021 citing reasons like delay beyond two years, unclear grounds, lack of proper documents, and ambiguous refund calculations.

[Para 4.2]

• The petitioner did not attend the hearing scheduled immediately after SCN issuance but claimed to have made a representation.

[Para 5]

• The final order dated 13.07.2021 rejected the refund not on the SCN grounds but on a new ground – “Wrong ITC Claim,” which was never proposed earlier.

Questions in Consideration

[Para 2 & 5]

• Whether the rejection of refund on a ground not stated in the show cause notice violated principles of natural justice?
• Whether the refund claim was legally tenable and deserved reconsideration in accordance with due process?

Observation of the Court

[Para 5]

• The Court noted a clear procedural violation: the refund was denied on a new ground (“Wrong ITC Claim”) that was not part of the SCN.
• The petitioner was denied a fair opportunity to respond to the actual reason on which the refund was finally rejected.

Judgement of the Court

[Para 6 & 7]

• The High Court quashed the impugned refund rejection order for violating principles of natural justice.
• It directed the tax authority to re-examine the refund application afresh after giving due opportunity to the petitioner and following the procedure under law.
• The entire exercise must be completed within 12 weeks from the date of order.
• No opinion was expressed on merits of the refund claim.

Between Fine Lines

This case underscores that tax authorities must strictly adhere to grounds stated in the Show Cause Notice while passing orders. New grounds in final orders, without prior notice or opportunity to be heard, violate natural justice. The court set aside the order and directed reconsideration, reinforcing procedural fairness under GST law.

Summary of Referred Cases

Takeaway

“You can’t change the goalpost: New grounds in refund rejection held unjust.”