Facts of the Case

The petitioner, M/s G.S. Industries, filed refund applications for the period April 2018 to March 2019 on account of Input Tax Credit (ITC) accumulated due to inverted duty structure. Initially, deficiency memos were issued, which were duly complied with by the petitioner. However, the refund was not processed, leading to multiple representations and subsequent litigation.

The refund claim was initially rejected by the department but later allowed by the appellate authority on 03.01.2022. Despite this, the department failed to grant the refund, compelling the petitioner to approach the Delhi High Court. The Court directed the department to process the refund, which was eventually sanctioned on 09.06.2023.

Subsequently, the department filed a review and appeal, resulting in an order dated 24.05.2024 setting aside the refund on the ground of non-submission of Annexure-B and procedural lapses. The petitioner challenged this order before the High Court.

Issues Involved

  1. Whether the Commissioner can exercise powers under Section 107(2) of the CGST Act to effectively review and overturn an order passed in compliance with an appellate authority’s order.
  2. Whether refund already granted pursuant to an appellate order can be denied on procedural grounds such as non-filing of Annexure-B.
  3. Whether the department can indirectly challenge an appellate order without formally appealing against it.

Petitioner’s Arguments

  • The refund order dated 09.06.2023 was passed strictly in compliance with the appellate order dated 03.01.2022, which had attained finality.
  • The department never challenged the appellate order; hence, it was binding and enforceable.
  • The Commissioner cannot indirectly review or override an appellate order under the guise of Section 107(2).
  • Procedural lapses such as non-submission of Annexure-B cannot defeat substantive entitlement to refund.
  • The departmental action amounts to abuse of process and violation of judicial discipline.

Respondent’s Arguments

  • The refund sanction was erroneous due to non-submission of mandatory documents (Annexure-B).
  • As per relevant GST circulars, submission of invoice details and classification (HSN/SAC) is mandatory.
  • The adjudicating authority failed to examine eligibility of ITC, especially regarding capital goods and input services.
  • The Commissioner was justified in reviewing the refund order under Section 107(2) to correct illegality.

Court’s Findings

  • The High Court held that the appellate order dated 03.01.2022 had attained finality since it was never challenged by the department.
  • The refund order dated 09.06.2023 was merely a consequential order implementing the appellate decision.
  • Section 107(2) empowers the Commissioner to examine orders of adjudicating authorities, but does not permit review of appellate orders indirectly.
  • The Commissioner cannot sit in appeal over or nullify an appellate authority’s order through review powers.
  • The departmental action was contrary to judicial discipline and statutory framework.

Court Order

  • The impugned order dated 24.05.2024 passed by the appellate authority allowing the department’s appeal was quashed and set aside.
  • The writ petition was allowed in favour of the petitioner.
  • The issue of interest on refund was kept open for adjudication in separate proceedings.

Important Clarification

  • Section 107(2) of the CGST Act cannot be used to override or indirectly review an appellate order.
  • Once an appellate order attains finality, the department is bound to implement it.
  • Procedural deficiencies cannot be used as a ground to defeat substantive rights, especially after appellate adjudication.
  • Authorities must maintain judicial hierarchy and discipline in tax proceedings.

Link to download the order -  https://delhihighcourt.nic.in/app/showFileJudgment/YVA16122024CW131492024_162129.pdf

Disclaimer

This content is shared strictly for general information and knowledge purposes only. Readers should independently verify the information from reliable sources. It is not intended to provide legal, professional, or advisory guidance. The author and the organisation disclaim all liability arising from the use of this content. The material has been prepared with the assistance of AI tools.