Applications For Refund Of ITC Cannot Be Rejected On The Basis Of Mere Suspicion: Delhi HC

The Delhi High Court recently held that applications for refunds of Input Tax Credit (ITC) cannot be denied solely on the basis of suspicion and without any supporting evidence.

The division bench of Justice Vibhu Bakhru and Justice Amit Mahajan directed the department to commence a refund of Rs. 72,03,961/- based on the commodities shipped by the petitioner.

In this matter, the petitioner filed a refund application requesting a refund of unabsorbed ITC of Rs. 72.03 lakhs, which was denied by the Commissioner of CGST due to a lack of supporting documents on the GST portal. The petitioner then filed a new application with all essential documentation.

The department did not process the refund application because the petitioner’s supplier reportedly received fraudulent invoices in order to claim false ITC refunds.

The supplier’s ITC refund was also halted due to the issuance of forged invoices, for which the supplier filed a writ action in Calcutta High Court seeking to have its Electronic Credit Ledger unblocked (ECL).

The petition was granted by the Calcutta High Court, and ECL was unblocked. As a result, the petitioner claimed that the goods purchased from the purported source were authentic and accompanied by authentic invoices.

However, the Commissioner of CGST denied the refund request, claiming that the invoices were part of a supply chain including forged ITC.

The petitioner appealed the abovementioned order to the Appellate Authority, which ruled that even though the petitioner obtained invoices from the supplier, it could not be determined whether products had been received or not.

The Appellate Court determined that this was a case of goodless supply of false bills.

According to the Delhi High Court, it is clear from the material provided that the petitioner’s refund petitions were denied entirely because the petitioner’s supplier issued fraudulent invoices.

There is no conclusive finding based on convincing evidence that the invoices submitted by the petitioner’s supplier are forgeries.

The petitioner’s supplier’s invoices are represented in the AIO system, and there is no question about whether the supplier issued an invoice or not.

There is no claim that the petitioner did not pay the invoices (which contain IGST and Cess). Furthermore, there was no indication that the commodities in question were not exported worldwide.

As a result, the petitioner has demonstrated not only that the commodities were exported, but that they were also paid for, including the IGST and Cess.

The division bench stated that the supplier’s use of fraudulent credit could not be used to reject the petitioner’s ITC refund application unless it was proven that the petitioner had not received the products or had not paid for them.

The bench ordered the agency to begin processing the petitioner’s ITC return. If the supplier fails to deliver products to the petitioner, the authorities may take the appropriate legal action.