The Hon’ble High Court of Delhi vide its order dated 10.03.2023 in the matter of M/s Balaji Exim Vs. Commissioner, CGST and Ors. in W.P. (C) – 10407/2022 and W.P. (C) – 10423/2022, held that the refund of unutilized credit cannot be denied merely because the allegations of any fake credit have been levelled against its supplier of goods unless it is established that the petitioner has not received the goods or paid for them.  The Petitioner is not required to examine the affairs of its supplying dealers.

The Petitioner filed the writ petition before the Hon’ble High Court challenging the common Order-In-Appeal dated 31.03.2022, whereby two separate appeals preferred by the petitioner against the Order-In-Original Nos. ZU0707210034420 dated 03.07.2021 and ZT0707210034442 dated 02.07.2021, respectively were dismissed.

Facts of the Case: –

• That the petitioner with respect to goods exported by it, filed a refund application dated 11.09.2020 (in Form – GST-RFD – 01) seeking refund of the unutilized Input Tax Credit amounting to Rs.72,03,961/-, which comprised of Integrated Goods and Service Tax amounting to ₹19,53,062/- and Cess of Rs. 52,50,899/-. Another refund application dated 12.09.2020 claiming refund of ITC of Rs. 12,40,270/- comprising of IGST of Rs. 3,37,174/- and Cess amounting to Rs. 9,03,096/-.
• With respect to the Petitioner’s second refund application claiming refund of Rs. 12,40,279/-, an acknowledgment was issued by Respondent No. 2. Though, with respect to first refund application, a deficiency memo dated 21.09.2020 requiring supporting documents to be uploaded on the GST Portal, was issued.
• Accordingly, the Petitioner filed another application dated 23.09.2020 along with all documents in support of its refund application. The same was acknowledged by the respondent on 01.10.2020.
• However, the refund applications filed by the petitioner were not processed as the supplier from whom the petitioner had purchased the goods had allegedly received fake invoices from its suppliers.
• Thereafter, a search was conducted in the premises of the Petitioner on 21.10.2020 by the officers of Central GST, Anti Evasion Branch, Delhi West Commissionerate. Summons dated 21.10.2020 & 23.10.2020 were issued to the petitioner to appear and submit the required documents.  The Petitioner in response to both the summons, duly appeared before the authorities and furnished the documents as sought for. Notwithstanding the same, the petitioner was issued another summon dated 28.12.2020 for furnishing the documents, which the petitioner had already submitted.
• Requesting for early disposal of its refund applications, the petitioner wrote several letters to respondent No. 2, however, its request was not acceded to.
• In the meantime, the petitioner became aware of the allegations that its supplier, M/s Shruti Exports, had issued fake invoices and its ITC was blocked. The said supplier had moved the High Court of Calcutta by filing a writ petition seeking unblocking of its Electronic Credit Ledger
• Subsequent to which, a show cause notice dated 04.06.2021 was issued to the petitioner by respondent no. 2 proposing to reject the refund claim. It was indicated in the show cause notice that respondent no.2 had sought a report regarding legitimacy and genuineness of the export of goods from the Customs Station, Kolkata, which were purchased by the petitioner from M/s Shruti Exports (proprietor Sh. Vijander Kumar Goel).  In response, respondent no. 2 has received the information that the said supplier – M/s Shruti Exports was being investigated by DGGI in connection with fake invoices allegedly issued by it and also it has availed CGST and SGST amounting to ₹1,35,21,489/- and Cess of ₹21,76,132/- on the strength of fake invoices issued by certain persons
• The Petitioner duly responded to the said show cause notice on 12.06.2021 and submitted additional documents in support of its refund claim. It was submitted by the Petitioner that he was not concerned with any allegation against its supplier M/s Shruti Exports as the purchases made by it were genuine and against genuine invoices.  It was also pointed out that in WPA No.4006/2020 captioned Vijander Kumar Goel v. Assistant Commissioner, CGST Central Tax & Anr., the Calcutta High Court had passed an order directing unblocking of the ITC of the petitioner therein (Vijander Kumar Goel) and the same was subsequently unblocked.
• Considering the reply and submissions of the petitioner, the respondent no. 2 rejected the refund applications by an order dated 02.07.2021, essentially, on the same grounds as stated in the show cause notice. That an investigation had been initiated against the supplier (M/s Shruti Exports) from where the petitioner had allegedly procured the goods.  It was also indicated in the order that M/s Shruti Exports issued two invoices to the petitioner in the month of August, 2020.
• 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 Appeal filed against the said orders by the petitioner was also dismissed by the Appellate Authority, finding that 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 & Services Tax, 2017 was not satisfied.  The Appellate Authority concluded that the present case was one of “goodless supply on the strength of fake invoices”.

On the behalf of the respondents, reference was made to letter dated 16.04.2021 issued by the CGST Authorities, Kolkata, which indicates that M/s Shruti Exports was found to be an existing dealer and its sole proprietor was also a Director of M/s BVN Alloys Pvt. Ltd. Both the dealers were found existing at Room No.464, 4th Floor, 138 Biplabi Rashbehari Basu Road, Kolkata-700001.  It was found that M/s Shruti Exports had availed of CGST and SGST totaling ₹1,35,21,489/- and Cess amounting to ₹21,76,132/- from the taxpayers against whom cases were booked for issuing fake invoices.

On the behalf of the Petitioner, it was submitted that none of the said suppliers, except one, PSSM Commercial Pvt. Ltd., had made any supplies chargeable to Cess.  Thus, the only invoice in respect of which supplies received by M/s Shruti Exports, which could be assumed to be further supplied to the petitioner, was from PSSM Commercial Pvt. Ltd.  However, CGST and SGST paid by PSSM Commercial Pvt. Ltd. was only Rs. 9,52,220/-.

Held: –

• The Hon’ble Court after considering the submissions made and facts of the case, found that the petitioner has a statutory right to appeal the impugned order. However, it is not possible for the petitioner to avail the said remedy as the Tribunal has not been constituted.
• It was found by the Hon’ble Court that from the perusal of the impugned order, it is clear that the petitioner’s refund applications were rejected on a mere apprehension that its supplier had issued fake invoices. There is no conclusive finding on the basis of any cogent material that the invoices issued by M/s Shruti Exports to the petitioner are fake invoices.
• Further, there is no dispute that the invoices issued by M/s Shruti Exports are reflected in the AIO System and there is no dispute that M/s Shruti Exports had issued the said invoices. It is also clear that M/s Shruti Exports is a dealer registered with the Goods & Services Tax Department. Moreover, there is no allegation that the invoices were not paid by the petitioner.
• It is also important to note that there is no allegation that the goods in question were not exported overseas. Thus, the petitioner has 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 is also to be noted that the supplies, as mentioned in the said letter, were for a period prior to August, 2020, which is quite evident from the copy of show cause-cum-demand notice 30.11.2022 issued to M/s Shruti Exports, handed over on the behalf of the Petitioner. The said show cause notice indicates that it relates to the period from July, 2017 to Financial Year 2019-20. Thus, it could not possibly cover the supplies made to the petitioner.
• It was found by the Hon’ble Court that it is apparent that the petitioner’s refund applications have been rejected merely because of suspicion without any cogent material. 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.
• It was further found by the Hon’ble High Court that there is merit in the petitioner’s contention that it is not required to examine the affairs of its supplying dealers. The allegations of any fake credit availed by M/s Shruti Exports cannot be a ground for rejecting the petitioner’s refund applications unless it is established that the petitioner has not received the goods or paid for them.
• The Hon’ble Court taking reference of decision of Quest Merchandising India Pvt. Ltd. v. Government of NCT of Delhi & Ors.: 2017 SCC OnLine Del 11286 of the Coordinate Bench of the Court, wherein it was held that ‘Therefore, there was need to restrict the denial of ITC only to the selling dealers who had failed to deposit the tax collected by them and not punish bona fide purchasing dealers. The latter cannot be expected to do the impossible. It is trite that a law that is not capable of honest compliance will fail in achieving its objective. If it seeks to visit disobedience with disproportionate consequences to a bona fide purchasing dealer, it will become vulnerable to invalidation on the touchstone of Article 14 of the Constitution’, found that the petitioner would be entitled to the refund of the ITC on goods that have been exported by it.

The Hon’ble Court with the above findings, allowed the writ petitions with the directions to the Respondents to immediately process the Petitioner’s applications for refund of ITC including Cess. It is clarified that in the event the respondents are able to find material to establish the allegations regarding non-supply of any goods by M/s Shruti Exports to the petitioner, it would be open for the respondents to initiate such action as may be warranted in accordance with law.

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