Delhi High Court Orders Refund of ITC on Exported Goods: Refund Application cannot be Rejected Merely on Suspicion

Delhi High Court Orders Refund of ITC on Exported Goods: Refund Application cannot be Rejected Merely on Suspicion

The Delhi High Court while adjudicating a writ petition in the case of M/s. Balaji Exim vs. Commissioner, CGST and others ruled that the petitioner is entitled to refund of the Income Tax Credit (ITC) on goods that have been exported by it. The division bench of Justices Vibhu Bakhru and Amit Mahajan observed that application for refund of ITC cannot be rejected merely based on suspicion without any cogent material.

In the present case, the petitioner- M/s. Balaji Exim had filed a refund application seeking a refund of unabsorbed ITC amounting to Rs. 72.03 lakhs which were blocked by the Commissioner, CGST stating that corroborating documents were not uploaded on the GST portal.

Thereafter, the petitioner filed another application along with all the necessary documents. The department did not process the refund application since the supplier who had supplied goods to the petitioner had allegedly received fake invoices to claim false ITC refunds.

The supplier's ITC refund was also blocked on the issuance of fake invoices, for which the supplier filed a writ petition in Calcutta High Court seeking to unblock its Electronic Credit Ledger (ECL). The petitioner submitted that he was not concerned with any allegation against its supplier M/s Shruti Exports (proprietor Vijander Kumar Goel) as the purchases made by it were genuine and against genuine invoices. The Calcutta High Court allowed the petition and unblocked ECL.

Respondent No. 2 rejected the refund applications by an order and reiterated that an investigation had been initiated against the supplier (M/s Shruti Exports) from where the petitioner had allegedly procured the goods.

Although it was confirmed that the said invoices were reflected on the ‘AIO’ System, the refund applications were rejected for the reason that “it appeared that they are to be part of a supply chain involving fake Input Tax Credit”.

The petitioner appealed the said orders rejecting its refund applications, which was dismissed by the impugned order.

The Appellate Authority held that although the petitioner was in possession of the tax invoices, it could not be said that the petitioner had received the goods. Therefore, one of the conditions as stipulated in Section 16(2) of the Central Goods and Services Tax, 2017 – the taxpayer has received the goods or services or both – was not satisfied. The Appellate Authority concluded that the present case was one of “goodless supply on the strength of fake invoices.”

The bench noted that the petitioner’s refund applications were rejected on a mere apprehension that its supplier had issued fake invoices. There was no conclusive finding based on any cogent material that the invoices issued by M/s Shruti Exports to the petitioner were fake invoices.

The Court importantly noted that there was no allegation that the goods in question were not exported overseas. Thus, the petitioner had established not only the fact that the goods have been exported but that it had paid for the same including the IGST and Cess.

It was apparent before the Court, that the petitioner’s refund applications were rejected merely because of suspicion without any cogent material.

The Court observed, “there is no dispute that goods have been exported; the invoices in respect of which the petitioner claims the ITC were raised by a registered dealer; and, there is no allegation that the petitioner has not paid the invoices, which include taxes. Thus, the applications for refund cannot be denied.”

The bench opined that allegations of any fake credit availed by M/s Shruti Exports cannot be a ground for rejecting the petitioner’s refund applications unless it was established that the petitioner had not received the goods or paid for them.

In this backdrop, the Court held that the petitioner was entitled to the refund of the ITC on goods that have been exported by it and directed the respondents to forthwith the refund application process of the ITC including Cess.