Goods & Services Tax (GST) in IndiaRefund of ITC cannot be Denied on mere Suspicion of Issuance of fake Invoices by Supplier

March 21, 20230

The Delhi High Court in M/s Balaji Exim Vs Commissioner of Delhi Goods and Service Tax & Anr., [W.P.(C) 10407 of 2022 & W.P.(C) 10423 of 2022 decided on 10.03.2023] held that the refund of ITC cannot be rejected merely on suspicion of issuance of fake invoices by the Supplier especially in absence of any conclusive or cogent material on record.


M/s Balaji Exim (hereinafter referred to as the “Petitioner”) filed a refund application on 11.09.2020 seeking a refund of the unutilized Input Tax Credit (hereinafter referred to as “ITC”) amounting to Rs. 72,03,961/- comprising of Integrated Goods and Services Tax (“IGST”) amounting to Rs.19,53,062/- and Cess of Rs. 52,50,899/-. The Petitioner filed another refund application on 12.09.2020 claiming a refund of ITC of Rs.12,40,270/- comprising of IGST of Rs.3,37,174/- and Cess of Rs.9,03,096/- for the goods exported.

The Respondent No.2 issued an acknowledgment on 27.09.2020 in respect of the Refund Application dated 12.09.2020, whereas, issued a deficiency memo on 21.09.2020 with respect to the Refund Application dated 11.09.2020 as the supporting documents were not uploaded on the GST portal.

The Petitioner further filed another Refund Application on 23.09.2020 along with the supporting documents and was acknowledged by the Respondent on 01.10.2020. The Refund Applications were not processed as the supplier from whom the goods were procured by the Petitioner, had allegedly received fake invoices from its suppliers.  The officers of Central GST, Anti Evasion Branch, Delhi West Commissionerate conducted a search in the office of the Petitioner on 21.10.2020. Thereafter, a summons was issued to the Petitioner to tender the documents in the office of the Commissioner of CGST (hereinafter referred to as the “Respondent No.1”).

The Petitioner appeared before the Superintendent, Anti Evasion Branch on 23.10.2020 and furnished the documents and another summons was issued on 28.10.2020 for the documents that were already submitted.  The Petitioner made several requests to Respondent No. 2 for early disposal of Refund Applications.

Meanwhile, the ITC of M/s. Shruti Exports (hereinafter referred to as the “Supplier”) was blocked for issuing fake invoices. The Supplier had filed a writ petition in the Calcutta High Court seeking to unblock of its Electronic Credit Ledger.

The Respondent No.2 issued a Show Cause Notice (hereinafter referred to as the “SCN”) on 04.06.2021, proposing to reject the refund claims of the Petitioner. The Petitioner replied to the SCN that the purchases made from the Supplier are genuine and the Calcutta High Court had also unblocked the ITC of the Supplier.

The Respondent No.2 vide Order dated 02.07.2021 rejected the refund claim stating that an investigation was initiated against the Supplier from which the Petitioner had procured the goods, and two invoices issued by the Supplier to the Petitioner were fake, even though the AIO System reflected the invoices claimed in the Refund Application.

The Petitioner preferred an appeal against the Order dated 02.07.2021, where the Appellate Authority dismissed the appeal vide Order dated 31.03.2022 (hereinafter referred to as the “Impugned Order”) stating that though the Petitioner was in possession of the tax invoices, it could not be inferred that the Petitioner had received the goods. Hence, the Refund Applications were rejected merely on the apprehension that the Supplier had issued fake invoices.

Hence, the Petitioner has filed the present Petition, as although the statutory right to appeal against the Impugned Order is available, the remedy cannot be availed as the Tribunal is not constituted.


Whether refund of ITC can be denied on mere suspicion of issuance of fake invoices by the Supplier?


The Petitioner submitted that the refund was rejected on the mere suspicion that the fake invoices were issued by the Supplier. There is no conclusive finding or cogent evidence regarding the same.

It was also argued that the goods were exported and received by the Petitioner and IGST and Cess were also paid for the exported goods.


The Delhi High Court observed that the Petitioner was denied the refund on mere suspicion without any cogent material. The goods have been exported and the Petitioner had paid the taxes and hence, the refund cannot be denied. It was further observed that allegations of fake credit availed by the Supplier cannot be a ground for rejecting Petitioner’s refund in absence of any material evidence.

The High Court relied on Quest Merchandising India Pvt. Ltd. v. Government of NCT of Delhi & Ors. [2017 SCC Online Delhi 11286] and held that the Petitioner was eligible for a refund of ITC on the exported goods and allowed the Petition. The High Court further directed the Respondents to process the Refund Applications of the Petitioner for refund of ITC along with Cess.

The Court further clarified that on finding any material regarding the non-supply of goods by the Supplier to the Petitioner, the Respondents were free to initiate actions warranted in law.


The Delhi High Court held that a Refund Application cannot be rejected on a mere suspicion that the Supplier had issued fake invoices. Moreover, when the Petitioner had already paid the applicable taxes and exported the goods. Hence, in absence of any conclusive evidence or cogent material against the issuance of fake invoices by the Supplier, the Refund Application cannot be rejected

– Team AMLEGALS, assisted by Ms. Juhi Bansal (Intern)

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