Refund Rejection Invalid Without Proper Information: Madras High Court

The Hon’ble Madras High Court, in the case of Tvl. Orange Sorting Machines (India) (P.) Ltd. v. Additional Commissioner [W.P. No. 4211 of 2024, dated February 23, 2024], held that refund rejection orders are invalid when the necessary details required to defend the claim are not provided to the applicant.

Facts of the Case

  1. Petitioner: Tvl. Orange Sorting Machines (India) (P.) Ltd., a manufacturer, claimed refunds of accumulated Input Tax Credit (ITC) under the inverted duty structure.
  2. Show-Cause Notice (SCN): Issued on September 22, 2023, demanding ₹7,51,961 as an erroneous refund.
  3. Request for Details:

The Petitioner sought a breakup of the claimed amount to respond appropriately.

However, the Department did not provide the requested details and issued an impugned order dated December 29, 2023, demanding ₹3,84,922.

Issue

Is a refund rejection order valid when the applicant is not provided with sufficient information to defend their claim?

Held

The Hon’ble Madras High Court observed:

  1. Insufficient SCN Details:

Without a breakup of the demanded amount, the Petitioner could not meaningfully reply to the SCN.

The SCN and impugned order were found to be devoid of particulars.

  1. Legal Principle Affirmed:

The Court upheld the principle of “Audi Alteram Partem” (right to a fair hearing), which requires the Respondent to provide relevant information for a meaningful defense.

  1. Decision:

The impugned order was quashed, and the matter was remitted back to the Department for reconsideration with proper details.

Comments

This judgment reinforces that:

A refund rejection order must be based on a clear, well-documented SCN.

Tax authorities are required to share adequate information to enable taxpayers to respond effectively.

Failure to do so violates principles of natural justice, invalidating the refund rejection.

Taxpayers should ensure their rights under natural justice are upheld by seeking appropriate details when faced with vague SCNs or orders.

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