Ba Continuum India Pvt.Ltd vs The Union Of India And 3 Ors on 8 March, 2021

1. Outcome

The Bombay High Court set aside the five identical orders dated 26.06.2020 that rejected the petitioner's refund claims for unutilized Input Tax Credit (ITC). The Court remanded the matter back to the original authority for a fresh decision. It directed that a different, competent officer (other than Respondent No. 4) be assigned to adjudicate the refund applications de novo within three months, after providing the petitioner with a proper opportunity of being heard. All contentions of the parties on the merits of the refund claim were kept open.

2. Core Issue

The core issue before the High Court was whether the rejection of the petitioner's refund claims for unutilized Input Tax Credit (ITC) without granting a proper personal hearing, as mandated by Rule 92(3) of the CGST Rules, 2017 and principles of natural justice, rendered the rejection orders illegal and amenable to judicial review, notwithstanding the availability of an alternative remedy of appeal.

3. Key Facts

• Petitioner's Business: BA Continuum India Pvt. Ltd. provides IT and IT-enabled services to Bank of America National Association (BANA), a foreign entity located outside India.
• Claimed Status: The petitioner asserted that its services qualified as "export of service" and "zero-rated supply" under the IGST Act, 2017, making it eligible for a refund of unutilized ITC.
• Refund Applications: The petitioner filed five refund applications totaling Rs. 9,58,13,338 for the periods from April 2018 to June 2019.
• Show Cause Notices (SCNs): Respondent No. 4 issued SCNs proposing to reject the refund claims, alleging that the petitioner's services were "intermediary services" under Section 2(13) of the IGST Act. Consequently, the place of supply would be India, meaning the services would not qualify as "export of services" under Section 2(6) of the IGST Act.
• Petitioner's Response & Hearing Request: The petitioner submitted replies via email and on the GSTN portal. Due to the COVID-19 pandemic and lockdown, the petitioner repeatedly requested additional time for document submission and a personal hearing.
• Respondent's Stance on Hearing: Respondent No. 4 informed the petitioner that due to lockdown, personal hearing was not possible and that email submissions would be treated as an opportunity of hearing, citing Trade Circular No. 3T of 2020 dated 17.03.2020.
• Rejection Orders: Five identical orders were passed on 26.06.2020, rejecting the refund claims on the grounds that the services were "intermediary services" and thus not "export of services". No personal hearing was conducted.
• Reply Affidavit: The respondents filed a common reply affidavit, sworn by a Joint Commissioner of State Tax (an officer of appellate rank), contending that effective hearing was granted through written submissions, telephonic calls, and office visits for document submission.

4. Arguments (Taxpayer vs Revenue)

• Taxpayer (BA Continuum India Pvt. Ltd.):

  • Violation of Natural Justice: The rejection of refund claims without granting a personal hearing was a clear violation of the mandatory proviso to Rule 92(3) of the CGST Rules, 2017, and the fundamental principles of audi alteram partem.
  • Irrelevant Circular: The Trade Circular No. 3T of 2020 relied upon by Respondent No. 4 was entirely inapplicable, as it pertained to time-barring assessments under the Maharashtra Value Added Tax Act, 2002, not GST refund claims.
  • Insufficient Hearing: Brief telephonic conversations with subordinate officials (unrecorded) and email exchanges primarily for document submission cannot be considered a genuine "opportunity of being heard".
  • Futile Alternative Remedy: The availability of a statutory appeal should not be a bar when there's a gross violation of natural justice, rendering the orders non est. Moreover, since the appellate authority had already filed an affidavit defending the impugned orders on merit, appealing to them would be futile.
  • Merit (Underlying Claim): The services provided were legitimate exports and zero-rated supplies, entitling the petitioner to the refund.

• Revenue (Union of India and others):

  • Alternative Remedy: The impugned orders are appealable under Section 107 of the Maharashtra Goods and Services Tax Act, 2017, providing an adequate and efficacious remedy, thus making the writ petition not maintainable.
  • Compliance with Natural Justice: Proper opportunity of being heard was granted through show cause notices, written replies via email, discussions during office visits (for document submission), and telephonic conversations. These were sufficient to constitute an "effective hearing".
  • Reasoned Orders: The rejection orders were well-reasoned, detailing why the services were considered "intermediary services" and not "export of services".
  • Merit: The services provided fall within the definition of "intermediary services" under Section 2(13) of the IGST Act, making the place of supply in India, and thus not eligible for classification as "export of services" or "zero-rated supply".

5. Court’s Reasoning

• Focus on Process, Not Merit: The Court emphasized that its role under Article 226/227 was to scrutinize the decision-making process, not the merits of the refund claim itself.
• Mandatory Hearing under Rule 92(3): The proviso to Rule 92(3) of the CGST Rules explicitly states that "no application for refund shall be rejected without giving the applicant an opportunity of being heard." The Court held this to be a clear legal mandate and not an empty formality, being a fundamental aspect of natural justice (audi alteram partem).
• Inadequacy of Telephonic Calls and Emails: The Court found that brief, unrecorded telephonic conversations with subordinate officials and email exchanges primarily for document submission could not be construed as a substitute for a proper "opportunity of being heard" on the merits of the refund claim.
• Irrelevance of Trade Circular: The Court meticulously examined Trade Circular No. 3T of 2020 and concluded that it was specifically issued for time-barring assessments under the MVAT Act, 2002, and had no applicability to GST refund claims or to dispensing with personal hearings in the present case.
• Violation of Natural Justice: Given the mandatory nature of the hearing and the lack of a proper hearing, the Court found a clear violation of the proviso to Rule 92(3) and the principles of natural justice.
• Writ Jurisdiction Despite Alternative Remedy: Citing precedents, the Court reaffirmed that an order passed in violation of natural justice is non est (void) and does not necessitate an appeal. In such circumstances, the availability of an alternative remedy does not bar the High Court from exercising its writ jurisdiction. The Court also noted the legitimate concern that an appeal would be futile when an officer of appellate rank had already filed an affidavit contesting the merits of the refund claim.
• Remand and New Officer: To ensure fairness and a proper adjudication, the Court decided to remand the matter. It directed that a different competent officer should decide the refund applications afresh, as Respondent No. 4 had already expressed a definitive adverse view on the merits.

6. Statutory References

• Articles 226 / 227 of the Constitution of India
• Central Goods and Services Tax Act, 2017 (CGST Act): Sections 54, 139(1)
• Integrated Goods and Services Tax Act, 2017 (IGST Act): Sections 2(6), 2(13), 7(5)(c), 16
• Central Goods and Services Tax Rules, 2017 (CGST Rules): Rule 89, Rule 92(3)
• Maharashtra Goods and Services Tax Act, 2017 (MGST Act): Section 107
• Maharashtra Value Added Tax Act, 2002: Sections 23(2), 23(5)
• Companies Act, 1956
• Central Excise Act, 1944
• Chapter V of the Finance Act, 1994

7. Precedents Cited

• Yashwant Gajanan Joshi vs. Hindustan Petroleum Corporation, AIR 1988 Bombay 408: Cited for the principle that an order in violation of natural justice is non est and the right of appeal is not an efficacious remedy in such cases.
• Leary Vs. National Union of Vehicle Builders, (1911) 1 Ch.34: Observations of Megarry, J. quoted from Yashwant Gajanan Joshi case, emphasizing that one should not be satisfied with an unjust trial even if a fair appeal is available.
• DBOI Global Service Private Limited Vs. Union of India, 2013 (29) STR 117: Cited for setting aside an order where the original authority had passed it without considering relevant materials and reasons, and remanding the matter for fresh decision by another competent officer.