To,

The Office of the Deputy Commissioner

Ward No. …, Delhi State GST

Room No. ….., … Floor                                      

Vyapar Bhawan, I.P. Estate

New Delhi – 110 002

SUBJECT: – For denial of ITC on the ground of mismatch of ITC

Respected Sir/Madam,

Greetings!!

1. With reference to the above-captioned subject, we, M/s __________(hereinafter referred as ‘the company’) located at _______________ hereby brings to your kind attention that notice was issued on __________ .

2. Facts of the Case:

• This is in reference to denial of ITC on the ground that there is mismatch of invoices due to non-existence of the supplier.

3. Provision Related to this Case

• SECTION 54: REFUND OF TAX

(1) Any person claiming refund of any tax and interest, if any, paid on such tax or any other amount paid by him, may make an application before the expiry of two years from the relevant date in such form and manner as may be prescribed:

Provided that a registered person, claiming refund of any balance in the electronic cash ledger in accordance with the provisions of sub-section (6) of section 49, may claim such refund in such form and manner as may be prescribed.

(2) A specialised agency of the United Nations Organisation or any Multilateral Financial Institution and Organisation notified under the United Nations (Privileges and Immunities) Act, 1947 (46 of 1947), Consulate or Embassy of foreign countries or any other person or class of persons, as notified under section 55, entitled to a refund of tax paid by it on inward supplies of goods or services or both, may make an application for such refund, in such form and manner as may be prescribed, before the expiry of two years from the last day of the quarter in which such supply was received.

(3) Subject to the provisions of sub-section (10), a registered person may claim refund of any unutilised input tax credit at the end of any tax period:

Provided that no refund of unutilised input tax credit shall be allowed in cases other than-

(i) zero rated supplies made without payment of tax;

(ii) where the credit has accumulated on account of rate of tax on inputs being higher than the rate of tax on output supplies (other than nil rated or fully exempt supplies), except supplies of goods or services or both as may be notified by the Government on the recommendations of the Council:

Provided further that no refund of unutilised input tax credit shall be allowed in cases where the goods exported out of India are subjected to export duty:

Provided also that no refund of input tax credit shall be allowed, if the supplier of goods or services or both avails of drawback in respect of central tax or claims refund of the integrated tax paid on such supplies.

(4) The application shall be accompanied by-

(a) such documentary evidence as may be prescribed to establish that a refund is due to the applicant; and

(b) such documentary or other evidence (including the documents referred to in section 33) as the applicant may furnish to establish that the amount of tax and interest, if any, paid on such tax or any other amount paid in relation to which such refund is claimed was collected from, or paid by, him and the incidence of such tax and interest had not been passed on to any other person:

Provided that where the amount claimed as refund is less than two lakh rupees, it shall not be necessary for the applicant to furnish any documentary and other evidences but he may file a declaration, based on the documentary or other evidences available with him, certifying that the incidence of such tax and interest had not been passed on to any other person.

(5) If, on receipt of any such application, the proper officer is satisfied that the whole or part of the amount claimed as refund is refundable, he may make an order accordingly and the amount so determined shall be credited to the Fund referred to in section 57.

(6) Notwithstanding anything contained in sub-section (5), the proper officer may, in the case of any claim for refund on account of zero-rated supply of goods or services or both made by registered persons, other than such category of registered persons as may be notified by the Government on the recommendations of the Council, refund on a provisional basis, ninety per cent. of the total amount so claimed, in such manner and subject to such conditions, limitations and safeguards as may be prescribed and thereafter make an order under sub-section (5) for final settlement of the refund claim after due verification of documents furnished by the applicant.

(7) The proper officer shall issue the order under sub-section (5) within sixty days from the date of receipt of application complete in all respects.

(8) Notwithstanding anything contained in sub-section (5), the refundable amount shall, instead of being credited to the Fund, be paid to the applicant, if such amount is relatable to-

(a) refund of tax paid on export of goods or services or both or on inputs or input services used in making such exports;

(b) refund of unutilised input tax credit under sub-section (3);

(c) refund of tax paid on a supply which is not provided, either wholly or partially, and for which invoice has not been issued, or where a refund voucher has been issued;

(d) refund of tax in pursuance of section 77;

(e) the tax and interest, if any, or any other amount paid by the applicant, if he had not passed on the incidence of such tax and interest to any other person; or

(f) the tax or interest borne by such other class of applicants as the Government may, on the recommendations of the Council, by notification, specify.

 (8A) The Government may disburse the refund of the State tax in such manner as may be prescribed.

(9) Notwithstanding anything to the contrary contained in any judgment, decree, order or direction of the Appellate Tribunal or any court or in any other provisions of this Act or the rules made thereunder or in any other law for the time being in force, no refund shall be made except in accordance with the provisions of sub-section (8).

(10) Where any refund is due to a registered person who has defaulted in furnishing any return or who is required to pay any tax, interest or penalty, which has not been stayed by any court, Tribunal or Appellate Authority by the specified date, the proper officer may-

(a) withhold payment of refund due until the said person has furnished the return or paid the tax, interest or penalty, as the case may be;

(b) deduct from the refund due, any tax, interest, penalty, fee or any other amount which the taxable person is liable to pay but which remains unpaid under this Act or under the existing law .

Explanation.-For the purposes of this sub-section, the expression “specified date” shall mean the last date for filing an appeal under this Act.

(11) Where an order giving rise to a refund is the subject matter of an appeal or further proceedings or where any other proceedings under this Act is pending and the Commissioner is of the opinion that grant of such refund is likely to adversely affect the revenue in the said appeal or other proceedings on account of malfeasance or fraud committed, he may, after giving the taxable person an opportunity of being heard, withhold the refund till such time as he may determine.

(12) Where a refund is withheld under sub-section (11), the taxable person shall, notwithstanding anything contained in section 56, be entitled to interest at such rate not exceeding six per cent. as may be notified on the recommendations of the Council, if as a result of the appeal or further proceedings he becomes entitled to refund.

(13) Notwithstanding anything to the contrary contained in this section, the amount of advance tax deposited by a casual taxable person or a non-resident taxable person under sub-section (2) of section 27, shall not be refunded unless such person has, in respect of the entire period for which the certificate of registration granted to him had remained in force, furnished all the returns required under section 39.

(14) Notwithstanding anything contained in this section, no refund under subsection (5) or sub-section (6) shall be paid to an applicant, if the amount is less than one thousand rupees.

4. Our submission and case laws

• It is respectfully submitted that Section 54 of the CGST Act, 2017, addresses scenarios where ITC needs to be refunded.
• We would like to make reference to the decision of Hon’ble Delhi High Court in the case of SOLIDUM AND STARS GUILD LLP Vs COMMISSIONER OF CENTRAL TAX (APPEALS-II) [W.P. (C) No. 8182 of 2023 and C.M. Appl. No. 43743 of 2023, decided on 24-8-2023] cited in 2023 Taxo.online 838 where Hon’ble court held that as there were no allegations regarding any irregularities and no dispute regarding quantum of ITC, therefore, no reason was found for denial of refund except for supplies who don’t exist. Revenue was directed to pay refund, in respect of Input Tax Credit with interests.

This case pertains to the refund of Input Tax Credit (ITC) for the period from November 2020 to March 2021. The assessee claimed an ITC refund, but a show cause notice was issued alleging that one of the suppliers, Siddhi Impex, was non-existent and there were mismatches in the invoice and FOB values.

The assessee argued that the purchases were genuine as they were made from registered dealers. However, the refund application was rejected on the ground that Siddhi Impex was non-existent. The appellate authority also rejected the appeal, concluding that the assessee had not received any input services from Siddhi Impex and had claimed the refund of ITC fraudulently.

Following a physical verification of Siddhi Impex, its registration was cancelled. The assessee then voluntarily deposited the amount of the refund claimed in respect of the invoices issued by Siddhi Impex in its electronic credit ledger.

The court held that no allegation was made regarding any irregularity in respect of supplies made by suppliers other than Siddhi Impex, and no dispute was raised as to the quantum of ITC in respect of those supplies. Therefore, the assessee was entitled to a refund of ITC with interest in respect of supplies made by suppliers other than the non-existent supplier, Siddhi Impex, under Section 54 of the Central Goods and Services Tax Act, 2017/Delhi Goods and Services Tax Act, 2017.

This case highlights the importance of due diligence in verifying the existence and registration status of suppliers in the context of claiming ITC refunds. It also underscores the legal provisions for ITC refunds under the GST law.

5. ACCEPTANCE AND WORKING

• In conclusion, the matter of the Input Tax Credit (ITC) refund has been thoroughly presented with substantial legal backing and factual clarity. The denial based on the allegation that certain invoices are mismatched due to a non-existent supplier does not encompass the entirety of the claim. It is evident from legal precedents, such as the decision by the Hon'ble Delhi High Court in SOLIDUM AND STARS GUILD LLP vs COMMISSIONER OF CENTRAL TAX, that the right to a refund of ITC for genuine transactions should be upheld absent any proven discrepancies or fraudulent activities regarding other transactions.

• This case underlines the necessity for a judicious and fair review of the claim, ensuring that legitimate business transactions are not unduly penalized. Therefore, it is respectfully requested that the refund of the Input Tax Credit pertaining to valid and verified transactions be granted as per the provisions of Section 54 of the CGST Act, 2017.

• Prayer

We humbly pray before the Assistant Commissioner to consider the submissions and the legal precedents supporting our claim. We request the office to:

1. Reassess the denial of the ITC refund with a focus on the proven legitimacy of the other transactions involved.

2. Grant the Input Tax Credit refunds for the periods and transactions that are not under dispute.

3. Uphold the principles of fairness and justice in the application of the GST laws, thereby supporting the operational efficiencies and financial health of compliant businesses.

We place our trust in the esteemed office to deliver a decision that is both fair and in alignment with the legal framework established under the GST legislation.

Thank you for considering our request. We are hopeful for a positive resolution that supports the principles of fairness and the rule of law.

Thanks & Regards

For ……….

Director/Authorized Signatory

Date: 30-Apr-2024

Place: New Delhi