Refund Rejection Without Post-Reply Hearing Violates Rule 92(3) CGST Rules & Natural Justice: Court - 2025-05-08

Court Quashes GST Refund Rejection, Cites Denial of Fair Hearing Post-Reply

New Delhi: In a significant ruling underscoring the importance of procedural fairness, a Court has quashed refund rejection orders issued by the tax department, holding them to be in breach of Rule 92(3) of the Central Goods and Services Tax (CGST) Rules, 2017, and the principles of natural justice. The Court found that the petitioner was not provided a reasonable opportunity of being heard after submitting their reply to a show-cause notice, a mandatory requirement before rejecting a refund claim.

Background of the Dispute

The case originated from refund applications filed by the Petitioner, with the relevant application dated 28 February 2024. Subsequently, on 3 April 2024, the tax department issued show-cause notices to the Petitioner, requiring them to explain why their refund applications should not be rejected. These notices, issued under Rule 92(3) of the CGST Rules, granted the Petitioner 15 days to furnish a reply.

The Petitioner duly filed its reply on 16 April 2024, which was uploaded to the department’s website on 17 April 2024. However, the department proceeded to issue refund rejection orders, uploaded on 25 April 2024. Critically, these orders did not mention any personal hearing being granted to the Petitioner as stipulated by the rules.

Arguments Before the Court

The Petitioner challenged the rejection orders primarily on the ground that they were denied a reasonable opportunity of being heard, a cornerstone of natural justice and a specific requirement under the CGST Rules.

The counsel for the Respondents (the tax department), Mr. Ochani , contended that a personal hearing was indeed offered to the Petitioner on 8 April 2024. As evidence, a screenshot of FORM-GST-RFD-01 was produced.

However, the Petitioner denied that any such hearing took place. More importantly, the Court noted the timing of this alleged hearing: it was purportedly held before the Petitioner had even filed their reply to the show-cause notice (reply filed on 16/17 April 2024, well within the 15-day limit from the 3 April notice). The show-cause notice itself had stated that the date and time of the hearing would be intimated, but the Court found no clear evidence of such intimation for the 8th April date.

Court's Scrutiny: Hearing Must Follow Reply

The Court meticulously examined Rule 92(3) of the CGST Rules, 2017, which states:

“92. Order sanctioning refund:-

(3) Where the proper officer is satisfied, for reasons to be recorded in writing, that the whole or any part of the amount claimed as refund is not admissible or is not payable to the applicant, he shall issue a notice in Form GST RFD-08 to the applicant, requiring him to furnish a reply in Form GST RFD-09 within a period of fifteen days of the receipt of such notice and after considering the reply, make an order in Form GST RFD- 06...

Provided that no application for refund shall be rejected without giving the applicant a reasonable opportunity of being heard.”

The judgment emphasized this proviso, stating, "Thus, in terms of the proviso to Rule 92(3) of the CGST Rules, 2017, there is no question of rejecting any application for a refund without giving the applicant a reasonable opportunity to be heard."

The Court found the department's claim of a hearing on 8th April 2024 "rather incomprehensible," given that the Petitioner's reply was submitted later, on 17th April 2024. The judgment reasoned:

"In any event, proviso to Rule 92(3) of the CGST Rules, 2017, contemplates reasonable opportunity to be heard, implying that such hearing should be after the Petitioner files the reply within the time prescribed in the show cause notice."

The Court concluded that the procedure adopted by the department was flawed.

Decision: Orders Quashed, Matter Remanded

Finding a clear breach of legal requirements and natural justice, the Court delivered its verdict:

"For all the above reasons, we are satisfied that the impugned refund rejection orders are in breach of the requirements of Rule 92(3) of the CGST Rules, 2017 and the principles of natural justice and fair play."

Consequently, the Court ordered:

1. The refund rejection orders dated 25 April 2024 were quashed and set aside.

2. The matter was remanded to Respondent No.3 (the proper officer) for a fresh consideration of the Petitioner’s refund application dated 28 February 2024.

3. A clear directive was issued that Respondent No.3 must provide the Petitioner with a "reasonable opportunity of being heard" and thereafter pass a reasoned order.

4. This entire exercise must be completed within four weeks from the date of the judgment.

5. All contentions of the parties on the merits of the refund claim were left open for consideration during the fresh proceedings.

The rule was made absolute, and no costs were imposed.

This judgment reaffirms the critical role of procedural safeguards in tax adjudication, particularly the right to a fair hearing, ensuring that assessees are given an adequate chance to present their case before adverse orders are passed.