Krishna Sai Exports Private Limited vs. The Assistant Commissioner (St)(Fac)

Facts

The petitioner, Krishna Sai Exports Private Limited, a registered dealer under the GST Act, engaged in granite export, filed refund applications for accumulated input tax credit. Two applications were filed: one for Rs. 73,90,184/- for May 2024 to January 2025, and another for Rs. 7,70,090/- for April 2025 to June 2025. The respondent, the Assistant Commissioner, acknowledged the completeness of these applications. Subsequently, show cause notices were issued proposing to adjust/withhold the refund claims against outstanding arrears of Rs. 52,99,243/-, based on a demand order dated 09.12.2025. The petitioner had previously filed a writ petition concerning this demand order, where the court directed parties to maintain status quo. The respondent then issued impugned orders rejecting the refund claims, citing inadequate and illegible documentary evidence and the petitioner's failure to establish statutory entitlement to the refund.

Held

The Court held that the impugned orders dated 27.07.2026 were liable to be set aside. The Court found that the respondent had not provided the petitioner with an adequate opportunity to be heard or to furnish relevant documents to the satisfaction of the respondent. The show cause notice dated 21.05.2026 stipulated a reply date of 05.06.2026 and a personal hearing on the same day, but no separate date was fixed for the hearing. The respondent rejected the refund claim on grounds not mentioned in the show cause notice, which is impermissible as the petitioner must be aware of the specific grounds to offer a proper explanation. The Court observed that the rejection orders appeared to be passed mechanically without application of mind. Therefore, the Court allowed the writ petitions and directed the respondent to pass fresh orders on the refund applications after affording an opportunity of being heard to the petitioner. The ratio decidendi is that rejection of refund claims must adhere to principles of natural justice, including adequate opportunity to be heard and present evidence, and must be based on grounds clearly communicated in the show cause notice.

Key Issues

1. Whether the impugned rejection orders, passed by the respondent (3rd respondent in the judgment), are liable to be set aside for non-compliance with principles of natural justice, specifically regarding the opportunity to be heard and furnish adequate documentation, as per Section 54 of the CGST Act, 2017, read with Rule 90 and Rule 92 of the CGST Rules, 2017? 2. Whether the respondent erred in rejecting the refund claims on grounds not mentioned in the show cause notice, thereby violating the petitioner's right to know the specific allegations against them? Petitioner's arguments: The petitioner contended that the respondent failed to provide an adequate opportunity for personal hearing and to furnish relevant documents to their satisfaction. They argued that the rejection orders were passed mechanically and on flimsy grounds. Furthermore, the petitioner asserted that the respondent passed orders on grounds different from those stated in the show cause notice, which is impermissible under law. Respondent's arguments: The respondent argued that the documentary evidence provided by the petitioner was inadequate for verification, and several uploaded documents were illegible, making proper scrutiny impossible. They also stated that the petitioner had not established an enforceable statutory entitlement to the refund.