Can opportunity of being heard be substituted by telephonic conversations and exchange of e-mails?

Section 54 of the CGST Act deals with refund of tax. Sub-section (1) says that any person claiming refund of any tax and interest may make an application before the expiry of two years from the relevant date in the prescribed form and manner. As per sub-section (5), if on receipt of any such application, the proper officer is satisfied that the whole or part of the amount claimed as refund is refundable, he may make an order accordingly. In terms of sub-section (7), the proper officer shall issue the order under sub-section (5) within 60 days from the date of receipt of the application, complete in all respects.

Chapter X of the CGST Rules deals with refund. Rule 89 forming part of chapter X provides for filing of application for refund of tax, interest etc. in the prescribed electronic form. Rule 92 which is also part of chapter X deals with an order sanctioning refund. According to Sub-rule (3), where the proper officer is satisfied, for reasons to be recorded in writing, that the whole or any part of the amount claimed as refund is not admissible or is not payable to the applicant, he shall issue a notice in Form GST RFD-08 to the applicant, requiring him to furnish a reply in FORM GST RFD-09 within a period of fifteen days of the receipt of such notice and after considering the reply, make an order in FORM GST RFD-06 sanctioning the amount of refund in whole or part, or rejecting the said refund claim and the said order shall be made available to the applicant electronically and the provisions of sub-rule (1) shall, mutatis mutandis, apply to the extent refund is allowed

No application for refund shall be rejected without giving the applicant an opportunity of being heard. Let us refer to the case of BA Continuum India Pvt. Ltd. Vs Union of India and others (Bombay High Court), where the question raised was whether could opportunity of being heard be substituted by telephonic conversations and exchange of e-mails?

Facts of the Case:

• Petitioner was engaged in the business of providing information technology and information technology enabled services to customers located outside India.
• Under the erstwhile service tax regime, petitioner was registered with the service tax department.
• With effect from 01.07.2017, GST regime came into effect and in compliance thereto petitioner migrated from service tax registration to GST registration and was allotted GST identification number in the State of Maharashtra.
• Petitioner had entered into a master agreement with Bank of America National Association (BANA), a national banking association incorporated under the laws of United States of America.
• The agreement was entered into to provide for information technology and information technology enabled services by the petitioner to BANA.
• In order to provide the mentioned output services, petitioner received various input services and availed the credit of tax paid thereon.
• According to the petitioner, the services provided by it to BANA qualified as “export of service” as well as “zero-rated supply” in terms of sections 2(6) and 16 of the IGST Act.
• Petitioner exported the said services without payment of tax and filed related applications in the prescribed format on various dates claiming refund of unutilized input tax credit under section 16(3) of the IGST Act read with section 54 of the CGST Act and Rule 89 of the CGST Rules.
• Petitioner filed five refund applications covering five different periods claiming total refund of Rs.9,58,13,338
• It was alleged in the show cause notices that the tax payer i.e., the petitioner was facilitating supply of services between two persons on account of Bank of America.
• Thus, the tax payer was an intermediary under section 2(13) of the IGST Act.
• The place of supply in case of intermediary services shall be location of the supplier of services i.e., India.
• As the place of said supply is India then the said supply of services would not be eligible to be treated as export of services as per section 2(6) of the IGST Act.
• Hence, the claim of refund of input tax credit on export of services without payment of integrated tax was not liable to be allowed.
• Five identical orders were passed by the respondent rejecting the refund applications filed by the petitioner.
• Respondent on consideration of the master service agreement held that petitioner facilitated services provided by BANA to its customers; services provided by the petitioner qualifies as ‘intermediary services’; and in case intermediary services are provided to the recipient located outside India, the inter-state provisions as contained in section 7(5)(c) of IGST Act would be applicable and hence IGST was payable on the transactions under dispute.
• Petitioner did not satisfy the conditions for treating the supply of services as an export of services.
• Since petitioner had not paid IGST, that amount of IGST would offset the quantum of refund claimed. Therefore, for the said reason, petitioner was not eligible and entitled to refund.
• Assailing the legality and validity of the aforesaid orders, present writ petition was filed before the High Court (HC) seeking the relief.

Observations of the HC on issue of the present case

• HC under Article 226 of the Constitution of India confined its scrutiny to the decision-making process culminating in passing of the impugned orders.
• In exercise of the power of judicial review, merit of the decision per se was not examined.
• Therefore, HC was consciously not entering into the arena of merit of the petitioner’s claim to refund at this stage.
• HC noticed that petitioner had filed five applications for refund covering five periods from April, 2018 to June, 2019 on 27.12.2019, 21.01.2020, 27.01.2020, 17.02.2020 and 19.02.2020.
• Respondent had issued show cause notices thereafter to the petitioner. Those were in fact notices for rejection of application for refund.
• While giving reasons as to why petitioner was not eligible to get the refund, petitioner was granted 15 days’ time to file reply and was also directed to appear before respondent
• The Chartered Accountant of the petitioner had attended the office of respondent and had submitted documents sought for.
• He was again asked to appear for production of further documents mentioned in the order-sheet. However, no further physical proceedings took place thereafter.
• HC also found that a large number of e-mails exchanged between the parties were placed on record. In one of the e-mails, respondent had informed the petitioner that she was unable to see the reply of the petitioner in the electronic format till 18.04.2020 due to log in error.
• Referring to request of the petitioner for an opportunity to be heard, it was mentioned that due to lock-down conditions and restrictions, it would not be possible to give an opportunity for personal hearing.
• Petitioner was called upon to submit details via e-mail which would be treated as an opportunity of hearing.
• In this connection, reliance was placed on the Trade Circular dated 17.03.2020.

What is the Trade Circular dated 17.03.2020?

• At this stage, HC adverted to the said trade circular.
• Commissioner of State Tax, Maharashtra issued a trade circular on 17.03.2020 laying down guidelines in view of outbreak of coronavirus.
• Because of the pandemic and the resultant lock-down, departmental authorities were advised to take up on priority basis assessment proceedings under the Maharashtra Value Added Tax Act, 2002, which were getting barred by limitation on 31.03.2020.
• Departmental authorities were advised to carry out proceedings through e-mail to avoid physical interaction with assessee’s or their authorized representatives.
• Thus, from the above it was evident that the Trade Circular dated 17.03.2020 dealt with time barring assessments under the Maharashtra Value Added Tax Act, 2002 and could not be relied upon to dispense with physical hearing while rejecting refund applications.

Observations of HC on whether telephonic conversations could be a substitute for a hearing in person or not

• Petitioner in its detailed reply had specifically requested respondent to withdraw the proposal to pass ex-parte orders in its case without granting personal hearing based on detailed legal and factual submissions.
• This was followed by a number of e-mails requesting respondent for granting opportunity of being heard in person.
• There were some telephonic conversations between officials working under respondent and the tax consultants of the petitioner.
• While respondents would like to contend that such telephonic conversations could be construed to be an extension of hearing, the same was disputed by the petitioner by contending that those conversations were for very brief periods lasting for about a minute or so in which subordinate officials working under respondent sought for documents etc.
• In any event, no record of such telephonic conversations was maintained. What transpired in such conversations was also not known.
• Therefore, such telephonic conversations could not be a substitute for a hearing in person or could not be construed to be a hearing.

Observations of HC on provisions of refund

• Respondent had passed five different but identical orders rejecting the claim of refund made by the petitioner on merit.
• Referring to Section 54 of CGST Act and Rule 92 of CGST Rules, it was evident that in a case where the proper officer was satisfied for reasons to be recorded in writing that the whole or any part of the amount claimed as refund was not admissible or was not payable, he would issue notice to the applicant requiring filing of reply within 15 days of receipt of notice and after considering the reply make an order sanctioning the amount of refund in whole or in part or rejecting the refund claim which order shall be made available to the applicant.
• As per the proviso, an application for refund shall not be rejected without giving the applicant an opportunity of being heard.
• Therefore, there was a clear legal mandate that if an application for refund was to be rejected, the same could only be done after giving the applicant an opportunity of being heard.

Observations of HC on the Importance of ‘opportunity of being heard’

• The expression ‘opportunity of being heard’ was not an expression of empty formality.
• It was a part of the well-recognized principle which forms the base of natural justice and was central to fair procedure.
• The principle was that no one should be condemned unheard.
• By way of judicial pronouncements, the said expression was made central to the decision-making process, breach of which would be construed to be violation of the principles of natural justice thus adversely affecting the decision-making process; a ground for invoking the power of judicial review.
• When the law required that no application for refund shall be rejected without giving an applicant an opportunity of being heard, the same could not be substituted by telephonic conversations and exchange of e-mails.
• This was more so in the case of a claim for refund where no time limit was fixed vis-a-vis rejection of claim.
• Under sub-section (7) of section 54, a time-limit of 60 days is prescribed for making of an order allowing claim of refund; but that period of 60 days would commence from the date of receipt of the application complete in all respects (emphasis is ours) without there being a corresponding provision for rejection of application not complete in all respects.
• Admittedly in this case, no hearing was granted to the petitioner. Impugned orders, therefore, would be in violation of the proviso to subrule (3) of rule 92 of the CGST Rules and also in violation of the principles of natural justice.
• HC was of the view that the matter should be remanded back to the original authority for a fresh decision in accordance with law after giving an opportunity of being heard to the petitioner.
• Since respondent had already taken a view on merit by disclosing her mind which was adverse to the petitioner, it would be in the interest of justice and fairness if another competent officer was assigned the task of deciding the refund applications of the petitioner.

Therefore, HC set aside the impugned orders. Applications of the petitioner for remand would now be considered afresh by another proper officer. The applications for refund would be heard by the new officer within a period of three months from the date of receipt of a copy of this order after giving an opportunity of being heard to the petitioner.

In simple words, opportunity of being heard cannot be substituted by telephonic conversations and exchange of e-mails, when the law requires that no application for refund shall be rejected without giving an applicant an opportunity of being heard