The Hon’ble High Court of Madras vide its order dated 06.11.2023 in the matter of M/s Lenovo (India) Pvt. Ltd. Vs. The Joint Commissioner of GST (Appeals – I) & Others in Writ Petition Nos. – 23604, 23605 and 23607 of 2022, held that the denial of refund on the ground that the endorsement obtained was not within 45 days and therefore, the claim is barred by limitation is not sustainable, since the failure of obtaining endorsement in time is only due to the fault of AO and the petitioner cannot be denied the claim on the ground of inordinate delay in obtaining endorsement.  Further, it was held that provisions of Section 16 of IGST Act does not contemplate that use of goods is for authorized operation and submission of such endorsement as proof prior to 01.10.2023 is not required and therefore, rejection of refund claim on this ground is liable to be set aside.  It was also held that the rejection of refund claim without pointing out the deficiencies and allowed the assessee to rectify the same, is in contravention of Rule 90(3) of the CGST Rules.  In terms of Section 54(1) of the CGST Act, the assessee may make application within two years and in appropriate cases, refund application can be made even beyond two years. ‘The time limit fixed under Section 54 (1) is directory in nature and it is not mandatory.’

The Petitioner filed the writ petitions before the Hon’ble High challenging the Order-in-Appeal No. – 222/2022 (GSTA-1) (JC) dated 26.07.2022, Order-in-Appeal No. – 203/2022 (GSTA-1) (JC) dated 29.06.2022 & order-in-Appeal No.202/2022 (GSTA-1) (JC) dated 28.06.2022 passed by the First Respondent.  It is prayed to quash the impugned orders and direct the second respondent to sanction the refund claims of Rs.84,80,988/; Rs.1,63,25,141/-; Rs.2,92,80,806/- along with interest.

Facts of the Case: –

• The petitioner is engaged in manufacture/import of Computers (Desktops/Laptops etc.) and supplying the said goods and related services to units in Special Economic Zones (in short, SEZ Unit).
• The Petitioner filed applications under Section 16 of IGST Act read with Section 54 of CGST Act, 2017 (CGST Act) read with Rule 89 of CGST Rules, 2017, claiming refund of IGST paid by them for the months of December, 2019, January 2020 and February 2020, as exports and the supply of goods or services or both to SEZ units/developers are considered as zero-rated supplies.
• The refund applications of the Petitioner were rejected in part by the second respondent by means of the Order-in-Original and when the petitioner went on appeal before the first respondent/Appellate Authority, the Appellate Authority also confirmed the order passed by the second respondent by way of impugned Orders-in Appeal. Hence, the present petition.

Submission on behalf of the Petitioner: –

• That the petitioner is a Domestic Tariff Unit (DTA Unit) and for supply of goods/services to SEZ units made during the months of December, 2019 January 2020 and February 2020, the petitioner filed applications for refund through GSTN Portal claiming refund of IGST paid along with required declarations and undertakings, which is inclusive of Statement-4 along with copies of tax invoices with endorsement made by the Specified/Authorized Officer in respective SEZ.
• However, the second respondent rejected the said applications stating that ‘Wrong mention of date of endorsement in Statement-4 so as to cover inordinate delay in getting endorsement from Authorized Officer; Revised Statement-4 filed by the application is not liable to be considered since the same is time barred’ for the month of December 2019.
• For the month of January, 2020, it was stated that ‘DTA procurement certificate copies in respect of 11 invoices were submitted only during the personal hearing, which was beyond the period of two years from the relevant date for filing refund claim; The claimant has made mistakes in the Statement-4 in order to veil the fact of inordinate delay in obtaining endorsements from SEZ Officer; Proof of receipt of consideration in respect of supply of services was not submitted along with the application and As per Rule 30 (4) of the SEZ Rules, 2006, the endorsement should have been made withing 45 days.’
• For the month of February, 2020, it was stated that ‘The claimant has made mistakes in the Statement-4 in order to veil the fact of inordinate delay in obtaining endorsements from SEZ Officer; Rules require endorsement that the goods have been admitted in full for authorized operations. In the absence of such endorsement, refund cannot be allowed; In respect of two invoices amounting to Rs.29,13,768/- as mentioned in Annexure-IV, the consignment mentioned in the said invoices pertains to supply of goods, and that, since there is inappropriate endorsement in respect of two invoices, refund cannot be allowed.’
• It was submitted that nowhere does the provisions of GST Act require the petitioner to obtain endorsement within period of 45 days from the Authorized Officer from the date of invoice. Though, the respondent-Department referred to Rule 30 (4) of SEZ Rules, 2006, which mandates that endorsement has to be obtained within 45 days from the date of invoice, as far as the petitioner’s case is concerned, the said Rule 30 (4) of SEZ Rules, 2006 will not come into picture since the petitioner has adopted the mode of payment of tax under Section 16 (3) (b) of IGST Act and the petitioner has not opted to supply the goods to SEZ units without payment of tax under Section 16 (3) (a) of IGST Act.  Hence, it is not open to the respondent Department to contend that as per Rule 30 (4) of SEZ Rules 2006, the endorsements ought to have been obtained within 45 days from the date of invoice, and hence, the impugned orders rejecting the petitioner’s claim by applying SEZ rules is not sustainable.
• It was submitted that the Petitioner cannot insist the Authorized Officer (AO) to issue endorsement in time. Further, as per SEZ Act or Rules, the AO is not required to make endorsement in any particular manner, since the invoices submitted by the petitioner were endorsed by AO, there is no doubt that the goods were supplied to SEZ units under Section 16 of IGST Act. The petitioner is entitled for zero-rated tax benefit and delay in obtaining the endorsements, or mistake, if any, in such endorsements, are all technical irregularity and so long as the signature is not doubted, the petitioner cannot be penalized for the actions of AO, which is beyond the control of the petitioner.
• It was submitted that during the disputed period, there was difficulty in obtaining endorsement due to Covid-19. Therefore, the learned counsel submitted that the petitioner must not be denied their substantive right of refund on account of circumstances beyond their control.
• That in terms of Section 16 of IGST Act as it stood then, the provisions contained thereunder does not contemplate that use of goods is for authorized operation and submission of such endorsement as proof and the amendment to Section 16 stipulating the rules for use of goods for authorized operations was made prospectively w.e.f. 01.10.2023 onwards only.
• That Section 54 prescribes two years’ time limit for filing the refund application and though no supportive documents are attached, as per Rule 90(2) of CGST Rules, proper officer shall, within a period of fifteen days of filing of the said application, scrutinize the application for its completeness and if the application submitted is found to be complete, an acknowledgment shall be made available to the applicant through the common portal. In case, the Officer is in want of any particular document, as per Rule 90(3) of CGST Rules, the Officer is mandated to issue a deficiency memo calling for the applicant to comply with the deficiencies pointed out in the memo and file a fresh application, such delay will only be excluded while calculating 60 days for the Officer to pass orders in such application under Section 54 (7) of CGST Rules.
• Referring to the provisions, it was submitted that had there been any deficiencies noted in the applications for refund made by the petitioner, the second respondent ought to have pointed out the same within a period of 15 days from the date of receipt of such application by issuing deficiency memo. Rather, the second respondent issued acknowledgment indicating that the application has no deficiency, and thereafter, issued a show cause notice proposing to reject the refund claim, which is not tenable.
• The refund claim cannot be rejected so long as such claim is filed within a period of limitation, viz. 2 years as stipulated under Section 54(1) of the CGST Act., and the delay in filing the supporting document at the time of filing of reply/personal hearing would only extend the time limit to pass an order under Section 54 (7) of the CGST Act.
• Further, it was submitted that in respect of a claim made for the month of December, 2019, the petitioner has furnished supportive documents only at the time of filing of reply/personal hearing on 28.01.2022 and the same had been accepted by the respondent-Department and the Department also processed the application, thereafter, the respondent-Department cannot take a different stand in respect of the claim made for subsequent period.
• Reliance was placed on notification issued by Central Tax, dated 05.07.2022, vide No.13/2022, wherein, it is stated that the period from 01.03.2020 to 28.02.2022 shall be excluded for computation of period of limitation for the purpose of filing refund application under Section 54 of the CGST Act, and on the decision of M/s.Focus Trading Enterprises Vs. Joint Commissioner of GST Appeals I, in W.P.No.6638 of 2022, dated 13.10.2023, wherein, impugned order of rejection of revised returns was quashed as being not barred by limitation in the light of the said notification dated 05.07.2022. Therefore, it was submitted that non-filing of supporting documents at the time of filing application would not be fatal to the petitioner’s claim as the same were filed well within the period of limitation.
• It was submitted that the defect pointed out by the respondent-Department with regard to mis-match is procedural and curable and the same has been rectified, hence, claim cannot be denied on this technical ground as barred by limitation.
• While summing up the arguments, it was submitted on the behalf of the petitioner that when there is no doubt with regard to the supply of goods made by the petitioner to SEZ Units at zero-rated tax and when the applications are filed by the petitioner along with Statement-4, in terms of as per Section 16 (3) (b) of the IGST Act read under Section 54 (1) of the CGST Act, 2017 read with Rule 89 of CGST Rules for the months of December, 2019, January and February 2020, the applications are well within the period of limitation and the claim for refund cannot be negatived in whole or part on any of the aforesaid grounds.

Submissions on the behalf of the Respondents: –

• On the other hand, it was submitted on the behalf of the respondents that the claim made by the petitioner in respect of three months, viz, December, 2019 and January and February 2020 were partially disallowed on the ground that there was inordinate delay of more than 45 days from the date of supply of goods in obtaining the endorsement, for which, no sufficient reason was shown by the petitioner in their reply to the show cause notice.
• That as per Rule 30 (4) of SEZ Rules, endorsement has to be obtained within 45 days from the date of invoice; that in respect of the claim made for February, 2020, there was no specific endorsement made by AO/SO stating the goods admitted were for authorized operations and the endorsement only states that the goods were admitted in full.
• That in respect of the claim for the month of December, 2019 there was a difference between the dates of endorsement made by AO in the invoices to the date that was mentioned in the Statement -4 and though the petitioner filed revised Statement-4, the same is barred by limitation.
• That in respect of the claim made for the month January, 2020 petitioner has not submitted DTA procurement certificate at the time of filing refund applications and submitted the same only at the time of filing reply/personal hearing, which was beyond the period of two years from the relevant date for filing refund claim, and hence, the claim for refund cannot be considered.
• It was submitted that Rule 30(4) of SEZ Rules, 2006 and Rule 80 of CGST Rules have to be read conjointly, as the conjoint reading of above legal provisions makes it clear that supply made to SEZ developer or Unit shall be zero-rated tax and the supplier shall be eligible for refund of unutilized ITC or integrated tax paid, as the case may be, only if such supplies have been received by the SEZ Developer or SEZ unit for authorized operations and an endorsement to this effect have to be issued by the SO of SEZ within a period of 45 days and in the absence of such an endorsement, the application for refund cannot be allowed.
• That the petitioner ought to have filed all the supportive documents at the time of filing the applications for refund, and the petitioner, in order to veil the inordinate delay in obtaining the endorsements not filed the documents at the time of filing applications and filed the same only at time of filing reply/personal hearing, and hence, the same were rejected on the ground of limitation.
• It was further submitted that the question of issuing deficiency memo would arise only when the application submitted by the petitioner is complete in terms of all documents and as per Rule 92 (3) when the refund is inadmissible, then, show cause notice needs to be issued and accordingly, show cause notice has been issued calling forth petitioner’s reply. And mere acknowledgment given by the respondent-Department stating that the applications are complete that per se would not lead to an inference that refund applications are correct in all aspects and refund has to be sanctioned.
• With regard to the rejection of the claim for refund made for the month of December 2019, since there had been mismatch of details contained in the Statement-4 as the date of endorsement made in the invoices is different from the date of endorsement mentioned in Statement-4, and though the petitioner filed revised Statement-4, since the same had been filed with a delay, the claim has been rejected on the ground of limitation. Though, it was fairly admitted that since the said defect pointed out by the respondent-Department with regard to mis-match is procedural and curable and the same has been rectified by the petitioner at the time of filing of reply on 28.01.2022 by filing revised Statement-4, the same was accepted.

Held: –

• The Hon’ble Court after considering the submissions made, facts of the case and provisions of law applicable, found that in the present case, the applications of the petitioner were rejected mainly on the following grounds: – Inordinate delay in obtaining Endorsement; Inappropriate Endorsement; ii. POD was made not at the time of filing applications but at the time of filing reply/personal hearing, and the same is barred by limitation; iii. Mismatch of details, as the endorsement date mentioned in the invoices differs from the endorsement date mentioned in Statement-4.
• With respect to Inordinate delay in obtaining Endorsement, it was found by the Hon’ble Court that a conjoint reading of Section 16 (3) of IGST Act, 2017 and Rule 30 (4) of SEZ Rules, 2006 would make it clear that the goods can be supplied to SEZ under two situations. One in terms of Section 16 (3) (a) goods can be supplied without payment of tax, upon execution of bond or letter of undertaking.  In terms of Section 16 (3)(b), goods can be supplied on payment of tax.  Rule 30 (4) of SEZ Rules deals with issue of endorsement by the AO to ensure that the goods have been admitted in full into the SEZ and to treat the same as proof of export. Once the endorsement is made, it would be considered that the goods have been exported.  In any event, any duty has been paid in terms of Section 16 (3) (b) of the Act, the assessee would be entitled for refund.
• However, in case of without payment of duty, if the goods had entered into SEZ, endorsement shall be made in terms of Rule 30 (4) within 45 days and the same has to be forwarded by the Unit or Developer to the Goods and Services Tax or Central Excise Officer having jurisdiction over the DTA Supplier within 45 days, failing which, the Goods and Services Tax or Central Excise Officer, as the case may be, shall raise demand of tax or duty against the DTA Supplier.
• It was found that in the present case, the question of payment of tax does not arise since the petitioner has paid IGST but there was delay in obtaining the endorsement. Thus, once the assessee had paid the tax and the goods have entered SEZ and obtained endorsement to that effect and furnished the same for the purpose of refund, at any cost, refund cannot be denied for any reason whatsoever. The Officer, who is processing the refund should be concerned only about the aspect as to whether the goods have reached SEZ zone and whether tax for such entry has been remitted or not.
• Therefore, it was found by the Hon’ble Court that the refund cannot be denied on any other reason whatsoever, since, it is the petitioner’s legal entitlement to get back the refund of tax paid by him. If at all, there is any lapse, the same has to be sought to be rectified by the petitioner and the application can be processed by the Department to grant refund. Thus, the significance of the endorsement is only to ensure that the goods have entered into SEZ and also for the purpose of payment of tax or demand against the DTA Supplier.
• Further, in the present case, it is an admitted fact that the goods have entered into SEZ and duty has also been paid by the petitioner. Therefore, the failure to obtain endorsement within 45 days is not due to fault on the part of the petitioner and it is for the AO to make endorsement in time, for which, the petitioner cannot be found fault with. And, said findings to such effect that the claim is barred by limitation are liable to be set aside.
• With respect to inappropriate Endorsement, it was found by the Hon’ble Court that as rightly pointed out by the learned counsel for the petitioner, as per SEZ Act or Rules, the AO is not required to make endorsement in any particular manner, since the invoices submitted by the petitioner were endorsed by AO, there is no doubt that the goods were supplied to SEZ units under Section 16 of IGST Act. And, so long as the signature is not doubted, the petitioner cannot be penalized for the actions of AO, which is beyond the control of the petitioner and by such means, deprive the petitioner’s right to claim benefit under 16 (3) (b) of IGST, instead, the respondent-Department should have assisted the assesseee in rectifying the defects, rather than rejecting the petitioner’s applications by citing technical reasons.
• With respect to the issue that ‘Endorsement does not state that goods supplied were for authorized operations’, it was found by the Hon’ble Court that it is seen that provisions of Section 16 of IGST Act does not contemplate that use of goods is for authorized operation and submission of such endorsement as proof and the amendment to Section 16 stipulating the rules for use of goods for authorized operations was made prospectively w.e.f. 01.10.2023 onwards only and since the petitioner claim is prior to 01.10.2023, the respondent-Department cannot insist that that endorsement must state that goods supplied, were for authorized operations, and such other endorsement. Therefore, the rejection of claim on this ground is not tenable.  Hence, the findings rendered by the respondent-Department with regard to the denial of claim by citing the delay in obtaining endorsement, endorsement is inappropriate, etc., are set aside.
• With respect to the issue that the applications are barred by limitation, it was found by the Hon’ble Court that Section 54 (1) of CGST Act prescribes time limit of two years only for filing the refund application and accordingly, the petitioner filed claim for the months of December, 2019, January 2020 and February 2020 on the following dates i) 14.12.2021 ii) 27.01.2022 iii) 26.02.2022, which were well within the period of limitation and the same is not disputed by the respondent-Department, however, the respondent-Department objection is only with regard to the non-furnishing of supportive documents at the time of filing application but producing the same at the time of personal hearing and therefore, only from the date on which all relevant documents are received along with application in full, period of limitation would start reckoned and hence, the claim is barred by limitation. This Court is unable to accept the contention of the learned Senior Standing Counsel for the respondent-Department.
• In this regard, on perusal of Rule 90 (2) & 90 (3), it was found by the Hon’ble Court that admittedly, the second respondent in respect of the claim made for the month of January 2020 has issued an acknowledgment indicating that the application has no deficiencies but thereafter, issued a show cause notice in Form RFD-08 proposing to reject the claim for refund to an extent of Rs.84,80,988, which is incorrect. If it is the case of the respondent-Department that the petitioner has filed the applications with deficiencies, the respondent-Department ought to have issued any memo pointing out such deficiency under Rule 90(3), instead the second respondent has accepted the petitioner’s applications and issued acknowledgment, and therefore, it is not open to the respondent to contend that the supporting documents were filed with a delay.
• It was noticed by the Hon’ble Court that in respect of the claim made for the month of December, 2019, the petitioner has furnished supportive documents only at the time of filing of reply/personal hearing on 28.01.2022 and the same had been accepted by the respondent-Department and the Department also processed the application, while that being so, the respondent-Department cannot take a different stand in respect of the claim made for subsequent period.
• Thereafter, the Hon’ble Court referring to a Circular issued by the Central Board of Direct Taxation, bearing CBDT No.14 of 1955 dated 11.04.1955, wherein, certain administrative instructions were given for guidance of Income Tax Officers on matters pertaining to assessment, which remains in force as on date, it was found by the Hon’ble Court that reading of the above Circular would make it clear that when the taxpayer made a claim for refund and if there is any discrepancies or defects in the application made for such claim, the Officer concerned should come forward to assist the assessee bearing in mind the above principles laid down by the CBDT. This Court also expects the Officer concerned to assist the assessee, whenever, the assessee intends to make a claim for refund or any other issue in line with the Circular issued by CBDT.
• However, in the present case, it is seen that the respondent-Department has acted in a way, which is totally contrary to the Circulars issued by the CBDT. Had the respondent-Department intimated about the deficiencies at the point of time, when the applications were entertained by issuing any deficiency memo, obviously, the petitioner would have rectified those defects pointed out by the respondent-Department and would have made fresh application. Therefore, both the respondents have passed the impugned orders, which are contrary to the provisions of Rule 90 (3) of CGST Rules, 2017 and Circular issued CBDT, dated 11.04.1955.
• Further, on reading of Section 54 (1) of the CGST Act, it was found by the Hon’ble Court that Section 54 (1) of CGST Act would make it clear that the assessee can make the application within two years. The terms used in said Section ”may make application before two years from the relevant date in such form and manner as may be prescribed”, which means that the assessee may make application within two years and it is not mandatory that the application has to be made within two years and in appropriate cases, refund application can be made even beyond two years. The time limit fixed under Section 54 (1) is directory in nature and it is not mandatory. Therefore, even if the application is filed beyond the period of two years, the legitimate claim of refund by the assessee cannot be denied in appropriate cases.
• It was found by the Hon’ble Court that in the present case, the application was filed within two years and therefore, the question of making claim after two years does not arise even assuming AO made endorsement after two years, the same would in no way debar the claim as barred by limitation. Further, even Rule 90 (3) of CGST Act permits to make fresh application, which means that in appropriate cases, the Officer concerned can permit the refund application even beyond the period of limitation. Therefore, I do not find any substance in the submission made by the learned Senior Standing Counsel for the respondent and both respondents have miserably failed to consider the said aspect while passing the impugned orders and hence, the same are liable to be set aside.
• Therefore, it was held by the Hon’ble Court that the delay in filing the supporting document at the time of filing of reply/personal herein would only extend the time limit to pass an order under Section 54 (7) of the CGST Act and non-submission of documents at the time of filing application for refund cannot be deemed to have filed with a delay, since there had been a delay in obtaining the endorsement owing to Covid-19. Further, when the respondent-Department has accepted the supportive documents produced by the petitioner at the time of filing of personal hearing, in respect of the claim made for the month of December, 2019 and processed the application, the respondent-Department cannot take a different stand in respect of the claim made for subsequent period.
• That apart, in terms of notification issued by Central Tax dated 05.07.2022, vide No.13/2022, which excludes the period from 01.03.2020 to 28.02.2022 for computation of period of limitation for the purpose of filing refund application under Section 54 of the CGST Act. Thus, the petitioner’s claim cannot be rejected on the ground of limitation. Hence, the findings of the respondents on the aforesaid aspect are liable to be set aside.
• Further, it was found by the Hon’ble Court that so far as the rejection of the claim on the ground of mismatch of details is concerned, since said defect was rectified by the petitioner at the time of filing of reply on 28.01.2022 and the petitioner also furnished revised Statement-4, and the same is also accepted by the learned Senior Standing Counsel for the respondent-Department, findings rendered by the respondent-Department on the ground of mismatch are also liable to be eschewed.

The Hon’ble Court with the above observations, allowed the writ petitions finding that both the first and second respondent have committed a serious flaw in the decision-making process and therefore, the impugned orders are not sustainable and are set aside.  the second respondent is directed to process the petitioner’s applications for refund and issue the refund within a period of 30 days from the date of receipt of a copy of this order.