BCAJ Article by Jatin Harjai, Advocate

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RNI NO.

:- MAHENG/2009/27250

VO L U M E 5 6 | I S S U E 3 | E N G LI S H - M O NT H LY | M U M BAI J U N E 2024 | PAG E S 112 | P R I C E: r1 0 0


BCAJ VOL. 56 ISSUE 3 | JUNE 2024

EMIGRATING ERRONEOUS
RESIDENTS AND REFUND OF ITC
RETURNING NRIs
SUSTAINABILITY
REPORTING
TRANSFER PRICING
ISSUES FOR CORPORATE END OF NON-DOM
GUARANTEES AND LC ERA IN ThE UK
BCAS @ 75 56 (2024) 266 BCaJ

ErronEouS rEFunD oF InPuT TaX


CrEDIT — WHETHEr aDJuDICaTIon
unDEr SECTIon 73 / 74 PErMISSIBlE?
JATIN HARJAI
Chartered accountant

InTroDuCTIon officer has to examine the refund application along with


For a long time, taking the amount back from the documentary and other evidence, and he has to apply his
government remained a challenging task for industry and mind, whether a refund is payable or not. Moreover, if a
professionals. The reason for the same is also apparent, proper officer finds that a refund is not payable, as per rule
no officer wants to take a chance for the disbursement 92(3), it is necessary for the proper officer to give notice
of any amount from the government treasury, which is of this effect to the taxpayer and provide an opportunity
susceptible to be illegal or erroneous hence except for to be heard before rejecting any such refund application.
automated processing of refunds, the same is being accordingly, any decision to grant or reject any such
sanctioned and disbursed with utmost care and only refund is an adjudication order as per section 2(54)
after due verification of eligibility criteria and relevant read with section 54 and Rule 92. Further, one may
documents. since refunds of Input Tax Credit (ITC) on conclude that section 54 read with chapter X of
account of exports or inverted duty structure are regular CGsT rules, is a complete code in itself for regulating
phenomena, the same are being applied by the taxpayer refunds. one may refer to the judgment of the
on a concurrent basis and sanctioned after due verification Hon’ble madras High Court in the case of Eveready
by departmental officers. However, after the department Industries India Ltd. vs. CESTAT, Chennai 2016 (337)
started the audit under section 65, one of the common E.L.T. 189 (Mad.), whereby in similar circumstances and
observations of the audit was an erroneous refund of legal framework, the Hon’ble High Court observed as
ITC sanctioned and disbursed to the taxpayer. Based on under:
such audit observations, the department has now initiated
proceedings under section 73 / 74 for recovery of the 28. But, a careful look at the scheme of Sections 11A,
allegedly erroneous grant of ITC in several cases. This 11B and 35E would show that an application for a
article attempts to examine the jurisdiction and validity of refund is not to be dealt with merely as a ministerial act
proceedings under section 73 / 74 for recovery of such or an administrative act. Under Section 11B of the Act,
refunds. a person, claiming a refund of any duty of excise and
interest already paid, should make an application in the
aDJuDICaTIon oF rEFunD prescribed form. Such application is to be made within
aPPlICaTIon: the period of limitation prescribed under sub-section (1)
as far as the refund of ITC is concerned, the same is a of Section 11B. The application should be accompanied
statutory right which emanates from section 54(3). As per by such documentary or other evidence, in relation to
statutory provision, a refund of ITC can be claimed in two which, such refund is claimed. Sub-section (2) of
circumstances, firstly in the case of zero-rated supplies Section 11B mandates that upon receipt of any
and secondly in the case of inverted duty structure. The application for refund, the Assistant Commissioner or
procedure for the same is provided in Chapter X of the Deputy Commissioner, if he is satisfied that the duty is
GST Rules. Rules 89 to 91 deal with procedures in relation refundable, should make an order. The refund order is
to the filing of a refund application, its acknowledgement, capable of being given effect in several methods including
and the provisional refund. Whereas rule 92 provides for adjustment or rebate of duty of excise, all of which are
adjudication of refund applications. prescribed in Clauses (a) to (f) under the Proviso to sub-
section (2) of Section 11B.
The bare reading of section 54(5), rule 92(1) & (1a)
signifies that before granting a Refund, the proper 30. Therefore, the detailed procedure prescribed under

26 THE BomBay CHarTErEd aCCounTanT Journal IssuE 3 | EnGLIsH - monTHLy | mumBaI JunE 2024
56 (2024) 267 BCaJ BCAS @ 75

section 11B not only regulates the manner and form, been short paid, not paid, erroneously refunded, or
in which, an application for refund is to be made but when ITC has been wrongly availed or utilised. The
also prescribes a period of limitation, and method of same can be summarised in the following table for easy
adjudication as well as the manner, in which, such refund understanding:
is to be made. In simple terms, section 11B is a complete
code in itself. In respect of Tax In respect of ITC
1) Tax has not been paid; 4) ITC has been wrongly availed;
31. Therefore, it is clear that what is required of an 2) Tax has paid short-paid; 5) ITC has been wrongly utilised.
assistant Commissioner or deputy Commissioner under 3) Tax has been erroneously
refunded;
sub-section (2) of section 11B is to adjudicate upon the
claim for refund. The expression ‘adjudicating authority’
is also defined in Section 2(a) to mean any authority a bare perusal of statutory Provision reveals that section
competent to pass any order or decision under this act, 74, with respect to tax demand, can be invoked if tax has
but does not include the Central Board, Commissioner not been paid, short paid, or erroneously refunded. on
of Excise (appeals) or the appellate Tribunal. Hence, the other hand, the invocation of section 74 with respect
the power exercised under Section 11B is that of an to Input Tax Credit can be there for wrongful availment or
adjudicating authority and the order passed is certainly utilisation.
one of adjudication.
statutory Provisions does not authorise invocation of
By the above discussion, one may conclude that granting section 73 / 74 whereby the allegation is of erroneous
a refund under the GST law, more specifically ‘Refund refund of Input Tax Credit. accordingly, in the humble
of ITC’, is not mechanical computation only; rather it opinion of the author, section 73 / 74 doesn’t confer
involves the application of mind by the proper officer, and jurisdiction to any officer to initiate proceedings under
is granted or rejected by the proper adjudication of refund section 73 / 74 for recovery of the alleged erroneous
application. refund of input tax credit.

JurISDICTIon unDEr SECTIonS 73 rEMEDy agaInST ErronEouS


/ 74: rEFunD oF ITC:
Proceedings under sections 73 and 74 are identical, once it is discussed that there is no jurisdiction under
barring that section 73 applies to bonafide cases and section 73 / 74 for such recovery, the obvious question
section 74 applies to evasion cases. Hence, for brevity, comes to mind: what remedy does the department have
relevant extracts of section 74 alone are reproduced in case of grant of any erroneous refund of the input tax
hereunder for ready reference: credit?

(1) Where it appears to the proper officer that any tax has once any adjudication order is passed, the statute
not been paid or short paid or erroneously refunded provides the following remedial measures against an
or where input tax credit has been wrongly availed or order, depending upon the facts and circumstances of the
utilised by reason of fraud, or any wilful-misstatement or case:
suppression of facts to evade tax, he shall serve notice
on the person chargeable with tax which has not been i. Section 107: Appeal to First Appellate Authority:
so paid or which has been so short paid or to whom the When the department is of the opinion that the order or
refund has erroneously been made, or who has wrongly decision of refund is legibly not correct or inappropriate,
availed or utilised input tax credit, requiring him to show an appeal under section 107(2) may be filed against such
cause as to why he should not pay the amount specified decision.
in the notice along with interest payable thereon under
section 50 and a penalty equivalent to the tax specified ii. Section 108: Revision:
in the notice.” When revisional authority is of the opinion that the order or
decision of refund is erroneous in so far as it is prejudicial
From the perusal of section 74(1), one can identify to the interest of revenue and is illegal or improper or has
that section 74 can be issued to recover demand in not taken into account certain material facts, the revision
respect of five subject matters, i.e., when tax has under section 108 can be initiated.

THE BomBay CHarTErEd aCCounTanT Journal IssuE 3 | EnGLIsH - monTHLy | mumBaI JunE 2024 27
BCAS @ 75 56 (2024) 268 BCaJ

iii. Section 161: Rectification the proper officer, after application of mind, reaches a
When the proper officer (one who sanctioned the refund) conclusion of granting of refund. Either of the aggrieved
finds that there is any error which is apparent on the face parties (i.e., taxpayer or the department) have remedies
of records, the officer may take recourse to section 161 provided within law. In the humble opinion of the
and rectify the order on its own. author, just because departmental authorities could not
take appropriate statutory recourse timely, the fresh
Hon’ble allahabad High Court examined the identical proceeding under section 73 / 74 cannot be initiated
issue in the case of Honda Siel Power Products vs. to recover the grant of alleged wrongful or erroneous
Union of India [2020 (372) ELT 30 (All)], whereby the refund of Input Tax Credit.
Hon’ble High Court held that once the adjudication has
taken place under section 11B, the department cannot
proceed to recover on the basis of “erroneous refund”
under section 11a so as to enable the refund order to
be revoked, as the remedy lied under section 35E for
applying to the appellate Tribunal for determination and
"Success is no accident. It is hard
not invoking section 11a. work, perseverance, learning,
studying, sacrifice and most of
Recently, this issue under GST law has been
raised before the Hon’ble rajasthan High Court in the
all, love of what you are doing or
case of Saars Construction vs. Chief Commissioner learning to do."
of State Tax, Jaipur & Others [dB CWP no. — Pel
4398/2024, dt. 18th April, 2024], whereby Hon’ble
High Court appreciated and was pleased to stay
proceedings initiated through a show cause notice under
section 73 for recovery of refund of ITC and observed
as under:

Requirement for Chartered Accountants in CA


Taking into consideration the submission of learned
Firm for their office at Vapi, Gujarat
counsel for the petitioner that proceedings by way of
impugned show cause notice could not be drawn unless We have a vacancy for CA’s at Vapi location.
an order of refund granted under Section 54, sub-section Senior CA with an experience of 4-5 years in a
(3) of the Rajasthan Goods and Services Tax Act, 2017 Practicing CA Firm in Audit & DirectTaxation.
(for short ‘the Act’) is reversed either in an appeal under
CA with an experience for 1 – 3 years in a
Section 107 of the Act or in revision under Section 108 of
practicing CA Firm handling audit and tax
the Act by the competent authority under the law, further
relatedworks.
proceedings pursuant to impugned show cause notice
shall remain in abeyance. Candidates should have good communication
skills and exposure to computerised accounting
Even otherwise, initiation of adjudication under section 73 systems.
/ 74 for an already granted refund of input tax credit shall Candidate should also be ready to shift to Vapi.
amount to a review of adjudication already happened
For those who determined in pursuing Practice as
under section 54, for which GST law doesn’t have any
their career has the opportunity of getting elevated
enabling provision. It is a settled principle of law that
to Senior Position.
power of review is not an inherent power and must be
expressly provided under the law [Refer Commissioner Compensation shall commensurate with
of Central Excise, Vadodara vs. Steelco Gujrat Ltd. qualificationand experience.
2004 (163) ELT 403 (sC)] Interested candidates may e-mail their CV’s to
info@gkaiyer.com
ConCluSIon
sanction and grant of refund of input tax credit happen Mob No 9687905359
through a complete adjudication process, whereby

28 THE BomBay CHarTErEd aCCounTanT Journal


Quarter page.indd 1 IssuE 3 | EnGLIsH - monTHLy | mumBaI JunE 2024
21-05-2024 10:30:32 AM

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