J&K High Court rebukes GST Authorities for Wrongfully Withholding Refund of Tax paid in excess by Entrepreneur

While imposing a Rs.30,000 fine on the Union Territory’s Goods and Services Tax (GST) Department for wrongfully withholding an entrepreneur’s excess tax payment, the J&K High Court ruled that the time limit for GST refund is determined from the date of the original application rather than the date of the follow-up application.

M/s Hallmark, a Jammu-based garments manufacturer, filed the case after the GST officials issued a deficiency memo. The follow-up claim for a GST refund, which it had filed on the department’s guidance, was rejected due to time constraints.

A division bench comprising Justices Tashi Rabstan and Puneet Gupta granted the entrepreneur’s writ petition and annulled the deficiency memo dated 15.10.2020 issued by the Assistant Commissioner, GST (respondent No. 2).

The judge’s judgment stated, “The respondents, particularly respondent No.2, is directed to process and issue the GST refund of petitioner along with interest at the rate of 7% from the date the same fell due to the petitioner’s concern till the date of its final realization”.

The bench ruled that because the respondents had wrongfully withheld the amount of tax paid in excess by the petitioner, they must “bear and pay the costs to the petitioner concerned through its authorized partner Vimal Sachdeva within two months after proper verification and identification.”

The charges were calculated at Rs.30,000. The justices clarified that “in case the respondents fail to deposit the costs in the Registry within the aforesaid period, Registrar (Judicial) is directed to frame a separate robkar against them, after notice and list it before the court”.

The petitioner sought to invalidate a deficiency memo issued by the Assistant Commissioner under Section 54 of the Central Goods and Services Tax Act, 2017, which stated that the petitioner’s application for a refund of GST paid had been denied due to a limitation.

The petitioner claimed that in the case of a return of the goods, the tax in the form of GST already deposited is adjusted in the Tax Liability for the following months.

Furthermore, if there is an excess deposit of tax on the day of filing the final return, a reimbursement of the excess tax paid is sought.

The petitioner’s contention was that throughout the months of January, February, March, and July 2018, the goods returned by customers exceeded the outward supply, despite the fact that the J&K Goods and Services Tax Department had previously charged output tax on these returned goods.

However, it was not done in relation to the returned goods. Because the petitioner had deposited an excess amount of tax, a refund of the excess tax was to be requested on the date of submitting the final return. The refund amount was computed at Rs.2,91,650.

The court agreed with the petitioner that it had filed its final GST return on September 20, 2018. The follow-up application, submitted by the petitioner solely on the advice of respondent No.2, was a continuation of the proceedings linked to the original application.

It stated that “as such, the time period for claiming the GST refund was required to be determined based on the original application rather than the follow-up application. As a result, the follow-up application could not be considered a fresh application; rather, it was a continuation of the original application because the proceedings in the initial application had not concluded.”

The bench made it clear that if the proceedings under the first application were ended, the second application could not be considered a continuation of the first application. Furthermore, the character or substance of the second application is in no way different from that of the original application; rather, it was part of the proceedings that followed the initial application. As a result, the petitioner’s claim cannot be deemed to be barred by limitation.

Regarding the petitioner’s argument that it was not given an opportunity to be heard by the respondents before its claim was rejected, the court stated that “Rule 92(3) specifically provides that no application for refund shall be rejected without giving the applicant an opportunity of being heard.”

“On this score alone, the impugned deficiency memo requires to be quashed,” said the court.