Refund Can’t Be Withheld on Alleged Excess ITC Without SCN: Delhi HC

The Delhi High Court held that the department cannot deny or withhold refunds merely on the basis of alleged excess Input Tax Credit (ITC) without issuing a statutory Show Cause Notice (SCN). The bench of Justice Prathiba M. Singh and Justice Renu Bhatnagar have directed the Central Goods and Services Tax (CGST), Delhi North Commissionerate to release Rs. 39,73,360.73 in IGST refund along with applicable interest to an export firm within two months. The dispute arose from refund claims filed by the petitioner, a registered exporter, for the months of August, September, and October 2024. The company had exported goods during this period and accordingly claimed refunds of IGST paid on such exports. The refunds were supported by shipping bills that had already been validated and processed through the ICEGATE portal, indicating that the export documentation had been accepted by the proper officer. Under the GST law, exporters are entitled to such refunds as a part of the zero-rated supply mechanism, and any denial must strictly adhere to statutory procedures. However, the refund process took an unexpected turn when the CGST Department issued an RFD-08 notice proposing to reject the refund applications. The reason cited was an alleged discrepancy in the petitioner’s Input Tax Credit for the financial year 2019–20, identified through a comparison between GSTR-2A and GSTR-3B. The Department claimed that excess ITC of approximately Rs. 6 lakh had been availed during that earlier period, although the refund claim itself related to entirely different months in 2024. The petitioner strongly disputed this position, noting that no Show Cause Notice under Section 73 or 74 of the CGST Act had ever been issued regarding the alleged excess ITC for FY 2019–20. The company submitted that unless such proceedings were formally initiated, the Department could not treat the alleged discrepancy as a concluded finding or use it as a ground to withhold refunds. The petitioner also pointed out that they had responded to the RFD-08 notice and attended the scheduled hearing, which, however, did not proceed effectively because the concerned officer had been deputed for election duty. Another crucial layer of context came from the Department’s own audit report covering the period from April 2018 to March 2024. During this audit, certain demands relating to ITC discrepancies were raised for other financial years—specifically 2020-21, 2022-23, and 2023-24—and the petitioner had already paid those amounts. Importantly, the audit report made no reference whatsoever to any excess ITC for FY 2019–20, contradicting the basis on which the refund claims were rejected. The petitioner argued that if no findings were recorded during a full-fledged audit, the Department could not suddenly invoke an alleged discrepancy from the same period to deny refunds. The matter finally reached the Delhi High Court because the company contended that the refund rejection lacked legal foundation, violated principles of natural justice, and disregarded the statutory requirement of issuing an SCN before initiating any proceedings for excess ITC. The Court examined the legal framework, including Sections 73 and 74 of the CGST Act and the Supreme Court’s authoritative ruling in Armour Security (India) Ltd., which collectively clarify that issuance of a show-cause notice is mandatory before any action relating to recovery of tax or reversal of ITC. This statutory backdrop formed the core of the High Court’s assessment when determining whether the refund rejection was sustainable. The Court examined the statutory scheme and emphasised that Sections 73 and 74 of the CGST Act require issuance of a show-cause notice before the department can recover any alleged wrongly availed ITC. Rule 92(3) cannot be interpreted to withhold refunds on unrelated grounds without initiation of proper proceedings. A valid SCN is the legal starting point for any recovery action and is essential to uphold natural justice. The court reiterated that the issuance of an SCN is the mandatory and foundational step in tax recovery proceedings. Without this, the department cannot proceed against an assessee or rely on alleged discrepancies to block refunds. Case Details Case Title: Stanlee (India) Enterprises Pvt. Ltd. Versus The Commissioner Of CGST Case No.: W.P.(C) 5370/2025 Date: 09/12/2025 Counsel For Petitioner: Virag Tiwari Counsel For Respondent: Atul Tripathi Click Here To Read Order Read More: Interest, Penalty Recovered by Chit Foreman Not Exigible To GST: AP HC

Refund Can’t Be Withheld on Alleged Excess ITC Without SCN: Delhi HC

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