Facts of the Case

The petitioner, M/s Sisla Laboratories, filed two refund applications under Section 54(3) of the CGST Act. The first application dated 17.05.2019 related to the period July 2017 to March 2018 claiming refund of ₹9,59,252. The second application dated 12.06.2019 related to the period June 2018 to March 2019 claiming refund of ₹10,65,043. Despite filing the applications in 2019 and repeated follow-ups, the refunds were not processed. During the pendency of the writ petition, the Department disclosed that the first refund application had been rejected vide order dated 19.09.2019 pursuant to a show cause notice dated 05.07.2019, though neither the SCN nor the rejection order was uploaded on the GST portal or communicated to the petitioner. As regards the second refund application, the Department claimed that a deficiency memo had been issued but admitted that no such record could be traced.

Issues Involved

Whether the petitioner could be denied refund where deficiency memo under Rule 90(3) was not traceable, whether rejection of refund without effective communication could defeat statutory remedies, whether refund applications could be kept pending indefinitely, and whether statutory interest was payable on delayed refunds.

Petitioner’s Arguments

The petitioner contended that both refund applications were never processed despite being filed in 2019 and that no deficiency memo or rejection order was ever communicated through the GST portal. It was argued that rejection of the first refund without uploading the order deprived the petitioner of the statutory right to appeal. For the second refund, it was submitted that the Department’s inability to trace any deficiency memo meant that the refund could not be lawfully withheld.

Respondent’s Arguments

The Department submitted that the first refund was rejected after issuance of a show cause notice and fixing of personal hearings, and that the petitioner failed to furnish supporting documents in time. With respect to the second refund, the Department admitted that although it claimed a deficiency memo was issued, the same could not be traced, and the refund could not be processed since the matter was pending before the High Court.

Court Order / Findings

The Delhi High Court held that since the rejection order dated 19.09.2019 relating to the first refund application came to the petitioner’s knowledge only in February 2025, the petitioner’s statutory remedy could not be foreclosed. The Court permitted the petitioner to file an appeal under Section 107 of the CGST Act within one month, directing that such appeal shall be decided on merits without being rejected on limitation. In respect of the second refund application dated 12.06.2019, the Court observed that the Department itself admitted that the deficiency memo under Form GST RFD-03 was not traceable. In absence of a valid deficiency memo, there was no justification to withhold the refund. Accordingly, the Court directed the Department to process the second refund application and grant refund along with statutory interest from the date of application.

Important Clarification

The Court clarified that refund applications under Section 54 cannot be kept pending indefinitely and that failure of the Department to issue or trace a deficiency memo disentitles it from withholding refund. Further, rejection orders not communicated to the assessee cannot defeat statutory appellate rights.

Final Outcome

The writ petition was disposed of. The petitioner was permitted to file a statutory appeal under Section 107 against rejection of the first refund within one month without being barred by limitation. The Department was directed to process the second refund application dated 12.06.2019 and grant refund along with statutory interest within two months.

Link to Download Order https://www.mytaxexpert.co.in/uploads/1769497515_MSSISLALABORATORIESVsTHEDEPUTYCOMMISSIONEROFCGST.pdf

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