The Goods and Services Tax Appellate Tribunal (GSTAT), Thane State Bench, has held that a GST refund claim cannot be rejected, wholly or partly, without issuing a show cause notice in Form GST RFD-08 and granting the taxpayer an opportunity of being heard.
The bench of Ramesh Nair (Judicial Member) and Prallhad S. Paranjape (Technical Member) has observed that a hearing provided during appellate proceedings cannot substitute the mandatory notice and hearing required before the original rejection.
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The bench set aside the disputed refund rejection orders and the corresponding appellate orders in a batch of 39 appeals. It remanded the refund applications for fresh consideration, keeping all issues on merits open. The common order was pronounced on October 22, 2026.
The appeals were filed by the assessee against orders confirming the partial rejection of refund claims for tax periods between June 2019 and September 2022.
The company is a 100% Export Oriented Unit engaged in manufacturing and exporting pharmacopoeia-grade absorbent cotton. It exports its finished products without payment of domestic GST and claims refunds of accumulated input tax credit under Section 16(3)(a) of the IGST Act, 2017.
The Tribunal considered the August 2020 refund application as the lead case. For that month, the company claimed a refund of ₹63,17,232, comprising CGST and SGST of ₹23,25,889 each and IGST of ₹16,65,454.
By an order dated January 12, 2021, the adjudicating authority partly sanctioned the refund but rejected ₹18,09,402, consisting of CGST and SGST of ₹9,04,701 each. The reason recorded for the rejection was “Mismatch of ITC”.
However, the authority did not issue a show cause notice in Form GST RFD-08 before rejecting the disputed amount. The taxpayer was consequently given neither an opportunity to submit a reply in Form GST RFD-09 nor a hearing at the adjudication stage.
The taxpayer challenged the rejection before the Joint Commissioner of State Tax (Appeals), Thane Rural Division, Bhayander.
During those proceedings, the taxpayer raised the failure to issue the mandatory notice and submitted reconciliation charts. It also relied on Notification No. 30/2020-Central Tax dated April 3, 2020, and Circular No. 142/12/2020-GST dated October 9, 2020, concerning the cumulative application of Rule 36(4) for February to August 2020.
The first appellate authority expressly acknowledged that the adjudicating authority had not followed Rule 92(3), as no Form GST RFD-08 had been issued and no hearing had been granted.
Nevertheless, it upheld the rejection on the ground that the taxpayer had failed to produce certain invoices, particulars relating to suppliers who had not filed GSTR-3B, and details concerning capital goods ITC during appellate proceedings.
Before the Tribunal, the Revenue admitted that Form GST RFD-08 had not been separately issued before the refund was restricted.
It argued, however, that the taxpayer subsequently received an effective opportunity to present its case before the appellate authority. According to the Revenue, the taxpayer was asked to produce supporting invoices, suppliers’ return-filing and tax-payment details, and documents relating to capital goods credit, but failed to furnish the required material.
The Revenue therefore maintained that the appellate proceedings had cured the original procedural omission and that the taxpayer had not established any specific prejudice.
Rejecting the Revenue’s argument, the Tribunal held that Rule 92(3) lays down a mandatory procedure whenever an officer proposes to reject the whole or any part of a refund claim.
The rule requires the officer to record reasons and issue a notice in Form GST RFD-08, allowing the applicant 15 days from receipt to furnish a reply in Form GST RFD-09. The officer must consider that reply before passing an order in Form GST RFD-06. The proviso also prohibits rejection without giving the applicant an opportunity of being heard.
The Bench held that the use of “shall”, read with the express hearing requirement, leaves the adjudicating authority with no discretion to bypass these safeguards.
It observed that the absence of a notice deprived the taxpayer of knowledge of the precise grounds underlying the alleged ITC mismatch and the opportunity to submit a specific, document-supported response.
The Tribunal held that the right to notice and a hearing before an adverse decision is a fundamental statutory protection rooted in the principle of audi alteram partem.
“A post-decisional hearing at the appellate stage cannot serve as a substitute for a pre-decisional statutory notice,” the Bench observed.
Referring to the Supreme Court’s decision in Kranti Associates Pvt. Ltd. v. Masood Ahmed Khan, the Tribunal emphasised the obligation of quasi-judicial authorities to follow statutory procedure, act fairly and issue reasoned orders.
It held that once the original rejection was legally unsustainable for violating mandatory procedure, the appellate order confirming it could not survive. Having recognised the breach, the first appellate authority ought to have remanded the matter instead of proceeding to determine refund admissibility on merits.
The Tribunal set aside the appellate orders and the original orders to the extent they rejected the refund claims.
It directed the adjudicating authority, if proposing any rejection after verification, to issue a detailed Form GST RFD-08 specifying invoice-wise particulars of the alleged ITC mismatch or other grounds. Any such notice must remain subject to the provisions and timelines permitted by law.
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