Facts of the Case

The petitioner, Stanlee (India) Enterprises Pvt. Ltd., applied for refund of IGST paid on exports for the months of August 2024, September 2024, and October 2024 aggregating to ₹39,73,360.73 along with applicable interest. The refund applications were filed on the basis of verified shipping bills uploaded on the ICEGATE portal. The Department issued notices in Form GST RFD-08 proposing rejection of the refund on the ground that upon comparison of GSTR-2A and GSTR-3B for Financial Year 2019-20, excess input tax credit was allegedly availed by the petitioner. The petitioner replied stating that the refund claims pertained to 2024 exports and had no nexus with the alleged excess ITC of a different financial year. It was also contended that no show cause notice under Sections 73 or 74 of the CGST Act had ever been issued for Financial Year 2019-20. Despite this, the refund claims were rejected.

Issues Involved

Whether refund of IGST paid on exports can be denied on the basis of alleged excess availment of input tax credit of a different financial year, whether proceedings under Rule 92 of the CGST Rules can substitute issuance of a show cause notice under Sections 73 or 74 of the CGST Act, and whether withholding of refund without initiation of recovery proceedings is permissible in law.

Petitioner’s Arguments

The petitioner submitted that the refund claims were duly verified through ICEGATE and were unrelated to the period for which excess ITC was alleged. It was argued that in the absence of any show cause notice under Sections 73 or 74 of the CGST Act for Financial Year 2019-20, the Department could not indirectly recover alleged excess ITC by withholding refunds for a subsequent year. It was further submitted that audits conducted for the period 2018-19 to 2023-24 had resulted in certain demands which were already paid, and no discrepancy was found for Financial Year 2019-20.

Respondent’s Arguments

The Department contended that the refund was rightly rejected as excess ITC was reflected upon comparison of GSTR-2A and GSTR-3B and that such excess availment justified withholding of refund even in the absence of separate recovery proceedings.

Court Order / Findings

The Delhi High Court held that the statutory scheme under the CGST Act mandates issuance of a show cause notice under Sections 73 or 74 before any recovery of alleged excess ITC can be initiated. The Court observed that Rule 92(3) of the CGST Rules cannot be invoked to withhold refunds where there is no discrepancy in the refund claim itself. Relying on the Supreme Court decision in Armour Security (India) Ltd. v. Commissioner (CGST), the Court held that initiation of proceedings under the CGST Act begins only with issuance of a show cause notice. In the absence of such notice for Financial Year 2019-20, the Department was not justified in denying the refund claims for exports made in 2024.

Important Clarification

The Court clarified that if the Department is of the view that excess ITC has been availed for any period, it is free to initiate proceedings strictly in accordance with law by issuing a show cause notice under Sections 73 or 74 of the CGST Act. However, refund proceedings cannot be used as a mechanism to recover alleged dues without following the prescribed statutory procedure.

Final Outcome

The writ petition was allowed. The impugned refund rejection orders were set aside, and the respondents were directed to grant IGST refund of ₹39,73,360.73 to the petitioner along with applicable statutory interest within a period of two months. The matter was listed for compliance on 16 March 2026.

Source Link- https://delhihighcourt.nic.in/app/showFileJudgment/PMS03122025CW53702025_103910.pdf

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