Facts of the Case:

In this case, the petitioner an exporter, filed three refund applications for IGST paid on exports for August, 24 to October, 24 along with statutory interest. The refund claims were processed on the basis of shipping bills uploaded on ICEGATE, but the respondent department issued notices in FORM GST RFD-08, proposing rejection of the claims on the ground that the petitioner had allegedly availed excess ITC during FY 2019-20 based on a mismatch in GSTR-2A and GSTR-3B.

The petitioner contending that (i) the alleged excess ITC pertains to a different financial year and is unrelated to the IGST refund for 2024; (ii) no show cause notice (SCN) under Sections 73 or 74 of the CGST Act was ever issued regarding the alleged excess ITC; and (iii) refunds cannot be withheld without initiating proper adjudication proceedings. The petitioner also stated that at the time of the personal hearing, the officer was deployed on election duty and no effective hearing took place.

Further, relied on the fact that the department had conducted a comprehensive audit for FY 2018-19 to FY 2023-24, in which certain ITC-related demands for FYs 2020-21, 2022-23 and 2023-24 were raised and already paid. In that entire audit report, no discrepancy relating to FY 2019-20 was recorded.

Despite this, the refund was rejected. The department argued that the rejection was justified because reasons had been recorded in the impugned order regarding excess ITC.

Issue:

Whether the department can reject IGST refund claims by relying on alleged excess ITC for a previous financial year without issuing a show cause notice under Sections 73 or 74 of the CGST Act, and whether a notice under Rule 92(3) can substitute the statutory requirement of issuing an SCN?

Held that:

The Court emphasized that any allegation of excess ITC must be pursued strictly through the statutory mechanism, beginning with the issuance of a show-cause notice, as clearly reaffirmed by the Supreme Court in Armour Security (India) Ltd. v. CGST (2025). A notice in Form RFD-08 under Rule 92(3) cannot be used as a substitute for these mandatory proceedings, nor can refund claims for a subsequent year be withheld on the basis of unproven discrepancies from a completely different financial year.

The Court also noted that the petitioner had undergone a comprehensive audit for the period 2018–2024, and no adverse finding regarding ITC for FY 2019–20 was recorded. Consequently, the refusal to grant refund lacked legal foundation. The impugned order was therefore set aside, and the Department was directed to release the entire refund amount of ₹39,73,360.73 along with statutory interest within two months.

The Court held that the Department was not justified in rejecting the petitioner’s IGST refund applications for August, September, and October 2024 on the ground of alleged excess Input Tax Credit for the Financial Year 2019–20, particularly when no proceedings had been initiated under Sections 73 or 74 of the CGST Act.

Case Name: Stanlee (India) Enterprises Pvt. Ltd. Versus The Commissioner of CGST, Delhi North. dated 03.12.2025

To read the complete judgement 2025 Taxo.online 3266