The Karnataka High Court directed the GST department to refund the Input Tax Credit ( ITC ) as it was viewed that  the same cannot be denied on the ground of non-issuance of credit note by other party to contract. The revenue department challenged the order of Single Judge whereby the respondent assessee, Nam Estates  Private Limited 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.

Are You Paying More Tax Than You Should? Master Capital Gains Law Now! The Respondent 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.  Read More: Non-Communication of Acceptance of Audit with Resigning Auditor: ICAI Penalises Two CAs with Rs. 1.25 Lakhs Fine An advance payment of Rs. 14,08,79,262/- was made 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.

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 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/- Are You Paying More Tax Than You Should? Master Capital Gains Law Now! The Assistant Commissioner of Commercial Taxes 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. An appeal against the refund rejection order dated 06-092021 was filed by the Respondent 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. Read More: ICMAI Issues Advisory Against Illegal Agitation by Members on Income Tax Bill Inclusion The AAG submitted that no refund can be granted as a matter of course, unless the requirement of Sec.54 of Karnataka Goods and Service Tax Act, 2017, appears to be very attractive at the first blush.

The respondent argued that the Revenue could not have declined the refund on the ground that Credit Note was not issued by the other party to the contract ie., the vendor, upon whom essentially the duty to pay tax rested inasmuch as the question of issuing such a note would not arise since goods were never delivered and that there was a gross breach of contract because of which it was rescinded and the price paid in advance was retrieved by encashing the bank guarantee.  Are You Paying More Tax Than You Should? Master Capital Gains Law Now!  While rejecting the petition, the division bench of Justice Krishna S Dixit and Justice G Basavaraja directed the appellant to refund the GST amount to the Respondent-Assessee within a period of eight weeks, failing which they run the risk of contempt proceedings and further they are liable to pay the interest at the statutory admissible rate, which may be recovered on such payment, from the erring officials.   To Read the full text of the Order CLICK HER