Tax paid in anticipation of a contract that fails must be refunded, as retaining it constitutes unjust enrichment.

ORAL JUDGMENT

(PER: HON'BLE MR JUSTICE KRISHNA S DIXIT)

Revenue has preferred this Intra-Court Appeal under Section 4 of the Karnataka High Court Act , 1961 for laying a challenge to the learned Single Judge’s order dated 18.04.2024 whereby Respondent – Assessee’s W.P.No.9075/2024 (T-RES) having been favoured the Refund Decline Orders dated 06.09.2021 & its confirmation in Appeal order 30.09.2023 have been quashed. Further, Assessee’s Refund Application dated 05.07.2021 having been allowed, Petitioners are directed to refund the entire GST amount of Rs.2,53,58,268/- within eight weeks.

2. BRIEF FACT MATRIX OF THE CASE:

2.1 The Respondent herein, namely, M/S NAM ESTATES PRIVATE LIMITED, entered into a contract with M/s Mavin Switch Gears and Control Private Limited for the supply, installation, and commissioning of Gas insulated Sub-stations (GIS)/Conventional Sub-stations and extra-high voltage transmission lines.

2.2 An advance payment of Rs. 14,08,79,262/- was made by NAM ESTATES PRIVATE LIMITED against a bank guarantee provided by the supplier. Upon receipt of this payment, M/s Mavin Switch Gears and Control Private Limited issued a tax invoice on 01-08-2017, including GST of Rs. 2,53,58,268/- and declared this transaction in their GSTR-1 and GSTR-3B returns.

2.3 However, the supplier failed to deliver the goods and services, leading to the cancellation of the contract in March 2021. Consequently, the advance payment was recovered by encashing the bank guarantee. While matters stood thus, the Respondent herein, M/S NAM ESTATES PRIVATE LIMITED filed a refund application in FORM RFD-01 on 05-07-2021, seeking refund of the GST amount paid, to the tune of Rs.2,53,58,268/-

2.4 The Assistant Commissioner of Commercial Taxes, LGSTO-20, (Appellant No. 2 herein) reviewed the application and issued a notice (RFD-08) on 27.08.2021, indicating that the refund eligibility under section 54 of the CGST/SGST Act, 2017 was not established based on the taxpayer's submissions. As there was no response from the taxpayer, a refund rejection order was passed and issued on 06-09-2021.

2.5 An appeal against the refund rejection order dated 06-09- 2021 was filed by the Respondent herein, before the JCCT(Appeals)-1. The Appellate authority highlighted that the supplier, who was the tax-payer, was obligated to issue credit notes for the cancelled contract and declare these in their tax return, adjusting the tax liability accordingly. It was concluded by the Appellate Authority that the taxpayer could not seek a refund of SGST & CGST as the tax paid on the advance was the supplier's responsibility.

3. Learned Addl. Advocate General appearing for the Revenue argues that factual matrix that would give raise to a claim for refund needed to be ascertained at the hands of authorities and therefore, learned Single Judge could not have undertaken that exercise; the Refund Decline Order made by the original authority having been examined is confirmed by the statutory appellate authority; even otherwise, the procedure for refund cannot be dispensed with. So arguing, he seeks invalidation of impugned order of the learned Single Judge.

4. Learned Sr. Advocate Mr. Vikram Huilgol appearing for the Assessee per contra makes submission in justification of the impugned judgement and the reasons on which it has been constructed. He tells us that where GST is paid in contemplation of accomplishment of a contract, which later comes to be rescinded because of breach by the other party thereto, the tax amount has to be refunded; the authorities in the fact matrix demonstrable from record would not have declined refund inasmuch as, that would amount to acquisition of private property of the Assessee without authority of law. So contending he seeks dismissal of the appeal.

5. Having heard the learned counsel for the parties and having perused the Appeal papers, we decline