Provisional Refund To Be Granted On Reversal Of ITC Pertaining To Transaction Where Supplier’s Supplier Is Found In The List Of Risky Suppliers

Facts of the Case: –

• That the Petitioner is a partnership firm having its registered office in the State of Gujarat, which is engaged in the business of manufacturing and exporting of Organic pigments and is registered under the GST law.
• Further, the petitioner has been marked as ‘risky exporters.’ That the Respondent No. 9 visited the premises of the petitioner for physical verification.  The petitioner has submitted all information as prescribed under Circular No.131/1/2020-GST dated 23.01.2020, vide email dated 17.01.2022. 
• That other compliances were also made by the petitioner and eventually the grievance of the petitioner was moved by way of a Grievance Application dated 15.06.2022.
• That an inquiry was initiated after the exporter had been suspended on 25.10.2021 as per the RMCC instruction. The refund of IGST had been kept in abeyance on the petitioner being identified as ‘risky exporter.’  The Level -1 inquiry had been conducted and that had also been cleared and the report has also been given to Respondent No. 8 and 9.
• The refund in question, will be issued by Respondent No. 6, Assistant Commissioner of Customs, though, the matter is pending with Respondent No.7, Director General, DGARM for issuance of no objection certificate. Thus, the present petition has been moved.

Petitioner’s Submissions: –

• It was submitted on the behalf of the petitioner that in spite of various letters and reverting ITC along with interest and penalty, neither the respondent no.7 has replied back to the petitioner nor the name of the petitioner was removed from the list of ‘risky exporters.’
• That earlier the firm has exported various goods and had duly received the refund of IGST on those exports. However, since the firm has been marked as Risky Exporter by respondent no.7, the firm is not in receipt of the refund of IGST.
• It was submitted that working capital of the business in blocked and therefore, the business is on the verge of shutting down its operations due to inaction on the part of respondents. That the firm is suffering is financial loss of more than Rs.11 lacs per month as the petitioner has to pay interest for the working capital borrowings from the bank due to blockage of working capital on account of delay in receiving the IGST refunds.
• Referring to Section 54 (6) of the CGST Act, read with rule 91(1) of the CGST rules, it was submitted that withholding IGST refund amounting to Rs.14,80,27,927.67, is in the violation of the referred provisions. Further, the respondents are bound to issue the refund of 90% of the amount claimed by the registered person within 7 days from the date of acknowledgment of refund application subject to condition that the person claiming refund has, during any period of five years immediately preceding the tax period to which the claim for refund relates, not been prosecuted for any offence under the Act or under an existing law where the amount of tax evaded exceeds two hundred and fifty lakh rupees.
• That the petitioner has filed shipping bills for all the exports and the petitioner is not prosecuted for any offence under the Act under any existing law and therefore, the concerned officer has to issue 90% of refund within seven days from the date of shipping bill, which has not been done and more than one year has elapsed in some exports.
• Referring to Circular No.131/1/2020-GST dated 23.01.2020 issued by the respondent no.2 which prescribes the procedure to be followed by the exporters as Risky exporters and as a part of that, the petitioner already submitted few details and documents on 17.1.2022 and the report should have been furnished to the Chief Commissioner of Central Tax within 30 days who will forward the same to RMCC within five days. However, in the present case, the reply of CPGARM, report has been forwarded on 12.04.2022.  So, the Respondent No. 7 should have refunded the IGST withheld on receipt of the report.  However, the respondent no.7 has not refunded the same and violated the norms of the circular as well.
• Lastly, relying on the decision of the Telangana High Court in the case of Bhagyanagar Copper Private Limited V/s The Central Board of Indirect Tax & Customs & Ors. – W.P.No.15804 of 2021, it was submitted that in similar facts, the Telangana High Court has passed the order of refunding the IGST withheld of the petitioner therein. Therefore, prayer was made to allow the petition and direct the respondents to refund the IGST withheld by them.

Respondents’ Submissions: –

• On the other hand, it was submitted on the behalf of the respondents that an inquiry was initiated against the exporter had been suspended on 25.10.2021 as per RMCC instruction. Further, the petitioner being identified as ‘risky exporter’, the IGST refund claimed has been kept in abeyance.
• That Level -1 inquiry was conducted and cleared and the report is already given to respondents nos. 8 & 9. It was submitted that on the basis of the verification report of the jurisdictional CGST officer, the DGARM issued NOC and the office of respondent nos.5 and 6 can revoke the suspension only after the receipt of NOC from DGARM, New Delhi-respondent no.7 herein and after the suspension is revoked, the Customs Automated Systems will automatically disburse all the pending IGST refund of the exporter.
• It was submitted on the behalf of Respondent No. 8 and 9 that the name of the petitioner was forwarded by respondent no.7 for verification of credentials. After following the procedure of verification in terms of the relevant circular, initially negative verification report was sent to respondent no.7 on 15.2.2022. Though, thereafter as the petitioner paid the Input Tax Credit along with interest and penalty and the investigation was concluded, a positive verification report was sent to respondent no.7 on 12.04.2022.  Pursuant to which, again the name of the petitioner appeared as `risky exporter’ and a positive verification report was sent to respondent no.7 on 07.07.2022.
• On e-mail sent by respondent no.7 along with the representation made by the petitioner indicating that the petitioner has voluntarily reversed Input Tax Credit of Rs.11,55,726/- along with interest and penalty, the same was verified and a positive report was sent on 12.10.2022 to the respondent no.7. Thus, the petitioner has availed wrong Input Tax Credit, due to which its refund is withheld and therefore, the petition is liable to be dismissed.

Held: –

• The Hon’ble Court after considering the submissions made, facts of the case & the documents on record, found that the petitioner purchased the goods from Sayan Greemochem Private Limited who had purchased goods from Prince Chemicals, who is placed in the list of L2 risky supplier and therefore, the IGST refund of the petitioner was withheld on the ground of availing of wrong ITC by the petitioner. It was, however, found by the Hon’ble Court that the petitioner has reversed the Input Tax Credit of Rs.11,55,726/- along with penalty and interest towards the said goods purchased.
• It was found by the Hon’ble Court that none of the provisions of the CGST Act and the IGST Act mandate the petitioner to verify the genuineness of the suppliers of the supplier, even though safeguards is provided to recover the taxes, if not paid or wrongly availed by the petitioner’s supplier or supplier’s supplier. Further, in the present case, the he supplier’s supplier is placed in the list of L2 risky supplier, and the petitioner with a hope to get the IGST refund, the petitioner has paid the ITC, however, the refund has not been processed and given to the petitioner.
• It was found by the Hon’ble Court that the respondents ought to have granted the provisional refund to the extent of 90% as provided under Section 54(6) of the CGST Act read with Rule 91 of the CGST Rules, which the respondents failed to do so, even after submission of the positive verification report to the respondent no.7, the respondent no.7 herein has not issued the NOC for issuing the refund.
• That in the present case, the petitioner has filed shipping bills for all the exports and the petitioner is not prosecuted for any offence under the Act or under the existing law and has also reversed the ITC, therefore, there is no point for the respondents herein to withheld the refund.
• Lastly, the Hon’ble Court referring to the case relied upon by the petitioner in Bhagyanagar Copper Private Limited (supra), Telangana High Court, where in it was held that ‘Even if the claim of the respondents as to noncompletion of verification of suppliers of the petitioner up to two levels is to be accepted, since, the proportion of such suspicious suppliers, the respondents ought to have granted provisional refund to the extent of 90% as provided under Section 54(6) read with Rule 91 of the CGST Rules, which the respondents failed to do’, allowed the petition partly.

The Hon’ble Court with the above findings, partly allowed the petition with the directions to the respondent-authorities to grant the amount of IGST refund to the petitioner, as claimed by the petitioner as provided under Section 54(6) of the CGST Act r/w Rule 91 of the CGST Rules and credit such amount to the petitioner’s account within a period of three weeks from the date of receipt of copy of this order.

To read the complete judgment 2023 Taxo.online 142