GEXCOM/SCN/GST/12404/2024-CGST-RANGE-2-DIV-PWN-COMMRTE-SHIMLA I/2468956/2024

कायालय सहायक आयु /OFFICE OF THE ASSISTANT

COMMISSIONER
क ीय व तु एं व सेवा कर मंडल/CENTRAL GOODS & SERVICE TAX
DIVISION
10 A, SECTOR-1 ए, परवानू, जला सोलन (िह. .)
Email:[email protected] Ph. 01792-235626
Date:25-10-2024

DIN NO.

Show Cause Notice

1. M/s Microtek New Technologies Private Limited, Plot No. 14, Ground Floor, Sector-
2, Parwanoo, Solan (H.P.)-173220 (hereinafter referred to as the “Party”) having
GSTIN-02AANCM4346D1ZQ, are said to be engaged in the manufacture/supply of
Electrical Transformers, Static Converters, Other Breathing Appliances, Hydrometers
and similar floating instruments, Pyrometers etc falling under HSN
9020/9025/8504/9405 etc.
2. The party has filed a refund claim of Rs. 56,64,148/-, on account of accumulation of
Input Tax Credit due to inverted tax structure for the month of October-2022, under
ARN-AA020224010888I dated 29-02-2024, under Section 54(3)(ii) of the
CGST/HPGST Act, 2017 read with Rule 89(5) of the CGST/HPGST Rules, 2017, in
Form GST RFD-01. The jurisdictional Assistant Commissioner of CGST Division
Parwanoo, after conducting due verification has sanctioned an amount of Rs.
56,64,148/-, vide Refund Sanction Order No. ZF0204240479086 dated 29-04-2024,
as per details below :-
Turnover of Adjusted Total Net Input Tax Tax Payable on Refund
inverted-rated Turnover Credit Inverted rated sanctioned
supply of goods supply
and services
₹ 4,60,62,312 ₹ 16,07,47,664 ₹ 4,05,41,519 ₹ 59,53,042 ₹ 56,64,148

3.The Refund Sanction Order No. ZF0204240479086 dated 29-04-2024, passed by the
Assistant Commissioner, CGST Division- Parwanoo, has been reviewed by the
Competent Authority i.e. Commissioner, CGST Commissionerate, Shimla under Section
107 of the CGST/HPGST Act, 2017 read with Section 20 of the IGST Act, 2017 and
while reviewing the aforesaid Refund Order it was found that the order passed was not
proper and legal and accordingly, Commissioner/ Reviewing Authority has passed the
Order-In-Review No. 44 /Review/GST/RFD/2024-25 dated 23.10.2024. The said Order-
In-Review with its contents are reproduced as follows:-
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4.1 Upon perusal of the GSTR-3B for the month of October-2022, filed by the party, it was
noticed that the party has reported “Net ITC available” as Rs. 4,68,94,733/- (Rs.
2,84,24,623/- as IGST, Rs. 92,35,055/- as CGST and Rs. 92,35,055/- as SGST), which
included ITC of Rs. 85,465/- availed on inward supplies liable to reverse charge and ITC of
Rs. 1,91,55,712/- availed on Import of goods. Further, upon perusal of ‘Annexure-B’
(Statement of Invoices to be submitted with application for refund of unutilized Input Tax
Credit) filed by the party along with the refund claim in FORM GST RFD-01, for the month
of October-2022, vide ARN-AA020224010888I dated 29-02-2024, it was noticed that the
said ‘Annexure-B’ contains details of 3541 invoices pertaining to ITC availed on the three
categories i.e. “Inputs”, “Input Services” and “Capital Goods”.

4.2 The GST Law also permits refund of unutilised ITC if such credit accumulation is on
account of rate of tax on inputs being higher than the rate of tax on output supplies (other
than nil rated or fully exempt supplies) subject to certain exceptions. As per Section 54(3) of
the CGST Act, 2017, a registered person may claim refund of unutilised input tax credit at
the end of any tax period. The relevant excerpts of Section 54 of the CGST/HPGST Act,
2017, is as under:-

Section 54. Refund of tax.-

-----
(3) Subject to the provisions of sub-section (10), a registered person may claim refund
of any unutilised input tax credit at the end of any tax period:
Provided that no refund of unutilised input tax credit shall be allowed in cases other
than-

(i) zero rated supplies made without payment of tax;

(ii) where the credit has accumulated on account of rate of tax on inputs being higher
than the rate of tax on output supplies (other than nil rated or fully exempt supplies),
except supplies of goods or services or both as may be notified by the Government on
the recommendations of the Council:

Provided further that no refund of unutilised input tax credit shall be allowed in cases
where the goods exported out of India are subjected to export duty:
Provided also that no refund of input tax credit shall be allowed, if the supplier of
goods or services or both avails of drawback in respect of central tax or claims refund
of the integrated tax paid on such supplies.

(4) The application shall be accompanied by-

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(a) such documentary evidence as may be prescribed to establish that a refund is due
to the applicant; and
(b) such documentary or other evidence (including the documents referred to in section
33) as the applicant may furnish to establish that the amount of tax and interest, if any,
paid on such tax or any other amount paid in relation to which such refund is claimed
was collected from, or paid by, him and the incidence of such tax and interest had not
been passed on to any other person:
Provided that where the amount claimed as refund is less than two lakh rupees, it shall
not be necessary for the applicant to furnish any documentary and other evidences but
he may file a declaration, based on the documentary or other evidences available with
him, certifying that the incidence of such tax and interest had not been passed on to any
other person.

4.3 The Refund of unutilised input tax credit is allowed in the cases where the credit has
accumulated on account of rate of tax on inputs being higher than the rate of tax on output
supplies (other than nil rated or fully exempt supplies) in terms of Section 54(3)(ii) of the
CGST/HPGST Act, 2017. The procedure relating to filing, processing and disposal of
refund claim on account of ITC accumulated due to rate of tax on inputs being higher than
the rate of tax on outward supplies (other than nil rated or fully exempt supplies) is
contained in Rule 89(5) of the CGST Rules, 2017. The relevant excerpts of Rule 89(5) of the
CGST/HPGST Rules, 2017, is as under:-

RULE 89. Application for refund of tax, interest, penalty, fees or any other
amount. —

(5) In the case of refund on account of inverted duty structure, refund of input tax
credit shall be granted as per the following formula :-
Maximum Refund =
Amount
{(Turnover of inverted rated supply of goods and
services) x Net ITC ÷ Adjusted Total Turnover} -
“{tax payable on such inverted rated supply of goods
and services x (Net ITC ÷ ITC availed on inputs and
input services)}.
Explanation : - For the purposes of this sub-rule, the expressions -
(a) Net ITC shall mean input tax credit availed on inputs during the relevant
period other than the input tax credit availed for which refund is claimed under sub-
rules (4A) or (4B) or both; and
(b) “Adjusted Total turnover” and “relevant period” shall have the same
meaning as assigned to them in sub-rule (4).
Further, the definition of “Adjusted Total Turnover” and “Relevant Period” as given
in Rule 89(4) of the CGST/HPGST Rules, 2017 is as under:-
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(E) “Adjusted Total Turnover” means the sum total of the value of -

(a) the turnover in a State or a Union territory, as defined under clause

(112) of section 2, excluding the turnover of services; and

(b) the turnover of zero-rated supply of services determined in terms of

clause (D) above and non-zero-rated supply of services,

excluding -

(i) the value of exempt supplies other than zero-rated supplies; and
(ii) the turnover of supplies in respect of which refund is claimed under
sub-rule (4A) or sub-rule (4B) or both, if any,
during the relevant period.

(F) “Relevant period” means the period for which the claim has been filed.

Explanation. - For the purposes of this sub-rule, the value of goods exported out of
India shall be taken as -

(i) the Free on Board (FOB) value declared in the Shipping Bill or Bill of Export
form, as the case may be, as per the Shipping Bill and Bill of Export (Forms)
Regulations, 2017; or

(ii) the value declared in tax invoice or bill of supply,

whichever is less.

4.4 Any person claiming refund of any tax, Interest, penalty, fees or any other amount paid
by him may file an application electronically in Form GST RFD-01, through the common
portal and such application shall be accompanied by any of the documentary evidences as
enumerated in Rule 89(2) of the CGST/HPGST Rules, 2017. For the present refund claim
the relevant Rule is 89(2)(h) and the relevant excerpts of the same is as under:-

Rule 89. Application for refund of tax, interest, penalty, fees or any other amount.-

(2) The application under sub-rule (1) shall be accompanied by any of the following
documentary evidences in Annexure 1 in FORM GST RFD-01, as applicable, to
establish that a refund is due to the applicant, namely:-

(h) a statement containing the number and the date of the invoices received and
issued during a tax period in a case where the claim pertains to refund of any
unutilised input tax credit under sub-section (3) of section 54 where the credit
has accumulated on account of the rate of tax on the inputs being higher than
the rate of tax on output supplies, other than nil-rated or fully exempt supplies;
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4.5 Upon perusal of Statement-1A of Annexure-1, as prescribed under Rule 89(2)(h) of the
CGST Rules, 2017, it was noticed that the party has reported the details of only 7 purchase
invoices involving ITC of Rs. 1,51,262.22/- (CGST of Rs. 75,631.11/- and SGST of Rs.
75,631.11/-), which are detailed as under:-

Sr. GSTIN of Supplier Invoice No. and Taxable IGST CGST SGST
No. date Value
1 02AAOCM8964A1ZF IN3100008752 dated 365555.16 0 32899.96 32899.96
03-10-2022
2 02AAOCM8939K1ZV IN3200003645 dated 2133.3 0 192 192
30-09-2022
3 02AAOCM8939K1ZV IN3200003653 dated 131101 0 11799.09 11799.09
03-10-2022
4 02AAOCM8953F1Z8 IN3600001522 dated 81290.26 0 7316.12 7316.12
04-10-2022
5 02AAOCM8940Q1ZQ IN3800003194 dated 56482.5 0 5083.43 5083.43
03-10-2022
6 02AAICK9723H1ZI IN3900001225 139006.91 0 12510.62 12510.62
dated 03-10-2022
7 02AAICK9723H1ZI IN3900001226 64776.5 5829.89 5829.89
dated 03-10-2022
TOTAL 840345.63 0 75631.11 75631.11

4.6 The Central Board of Indirect Taxes and Customs has laid down the modalities and the
documents to be submitted with the Refund Claim applications in FORM RFD-01 vide
Circular No. 125/44/2019-GST dated 18/11/2019, whereunder the Applicants of refunds of
unutilized ITC are required to upload the details of all the invoices on the basis of which
input tax credit has been availed during the relevant period for which the refund is being
claimed, in the format enclosed as Annexure-B along with the application for refund
claim. The party has also submitted such invoice wise details in ‘Annexure-B’ submitted
along with their refund claim in FORM RFD-01.

4.7 The party in the “Annexure-B”, as submitted by them along with the refund claim in
FORM GST RFD-01, has reported to have availed ITC of Rs. 40,02,561/-, under the
category “Input Services”, Rs. 85,465/- under RCM and ITC of Rs. 22,65,189/- under the
category of “Capital Goods”. However, upon perusal of Statement-1A of Annexure-1, as
prescribed under Rule 89(2)(h) of the CGST Rules, 2017, it was noticed that they have
reported the details of only 7 invoices having total ITC of Rs. 1,51,262.22/- only. Thus, the
details of purchase invoices, as reported by the party, in Statement-1A of Annexure-1, as
prescribed under Rule 89(2)(h) of the CGST Rules, 2017, contains details of only 7 invoices
involving total ITC of Rs. 1,51,262.22/- (CGST of Rs. 75,631.11/- and SGST of Rs.
75,631.11/-) and as detailed in “Annexure-B”, all these seven invoices pertain to Inputs.
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4.8 The refund sanctioning authority has computed the maximum refund admissible to the
party by considering the ITC availed on “Inputs” and “Input services” as Rs.
4,05,41,519/- and Rs. 63,53,215/- respectively. In the Statement-1A of Annexure-1, as
prescribed under Rule 89(2)(h) of the CGST Rules, 2017, as filed by the party, along with
the refund claim wherein they have reported details of only 7 purchase invoices having ITC
of Rs. 1,51,262.22/- (CGST of Rs. 75,631.11/- and SGST of Rs. 75,631.11/-), therefore, the
“Net ITC” admissible to the party is Rs. 1,51,262/- only, and not Rs. 4,05,41,519/- on the
basis of which the refund sanctioning authority has sanctioned refund of Rs. 56,64,148/- to
the party vide refund sanction order no. ZF0204240479086 dated 29-04-2024.

4.9 As per Rule 89(2)(h) of the CGST Rules, 2017, a person claiming refund of any
unutilised input tax credit under sub-section (3) of section 54, where the credit has
accumulated on account of the rate of tax on the inputs being higher than the rate of tax on
output supplies, other than nil-rated or fully exempt supplies has to furnish a statement
containing the number and the date of the invoices received and issued during a tax period,
for which the refund claim has been filed. Accordingly, the “Net ITC” and the “Tax
payable on inverted rated supply of goods and services”, amounts, as defined under Rule
89(5) of the CGST Rules,2017, is restricted to the extent of details of Purchase Invoices, as
furnished by the party in Statement -1A of Annexure-1, of FORM GST RFD-01. Since, the
party has not submitted the requisite details of all the Invoices on the strength of which they
have claimed
“Net ITC” of Rs. 4,05,41,519/- and ITC availed under the category of “Input Services”, of
Rs. 63,53,215/- therefore, only such ITC has been considered for determining the “Net
ITC” and “tax payable on inverted rated supply of goods”, so as to compute the maximum
refund admissible to the party under Rule 89(5) of the CGST Rules, 2017, the details of
which has been furnished by them in Statement -1A of Annexure-1, of FORM GST RFD-01.

4.10 The jurisdictional Assistant Commissioner of CGST Division Parwanoo cum refund
sanctioning authority has failed to correctly determine the “Net ITC” as well as “tax
payable on inverted rated supply of goods”, as the same was to be determined/computed as
under:-

Turnover of inverted-rated supply Net Input Tax Tax Payable on Inverted rated
of goods and services Credit supply
₹ 4,60,62,312 ₹ 1,51,262 {(68,85,936) * 1,51,262/ 1,51,262}
= ₹ 68,85,936

The amount of ITC availed under the category of “Input Services” has been restricted to
the details of corresponding invoices pertaining to Input Services as detailed/reported by
the party in Statement -1A of Annexure-1 of FORM GST RFD-01, as prescribed under
GEXCOM/SCN/GST/12404/2024-CGST-RANGE-2-DIV-PWN-COMMRTE-SHIMLA I/2468956/2024

Rule 89(2)(h) of the CGST Rules, 2017, therefore, the amount of ITC availed on input
services has been taken as NIL only.

4 . 11 The party in their refund claim filed in FORM GST RFD-01 under ARN-
AA020224010888I dated 29-02-2024, has reported, “Net ITC” of Rs. 4,05,41,519/- and
“Tax payable on inverted rated supply of goods and services” as Rs. 59,53,042/-. The
refund sanctioning authority has also sanctioned the refund of Rs. 56,64,148/- by
determining the same on “Net ITC” of Rs. 4,05,41,519/- and “Tax payable on inverted
rated supply of goods and services” of Rs. 59,53,042/-. For the purpose of calculation of
refund claim, as per the formula prescribed under Rule 89(5) of the CGST/HPGST Rules,
2017, the “Net ITC” and the “Tax payable on inverted rated supply of goods and
services”, comes to Rs1,51,262/-, and Rs. 68,85,936/- respectively (as computed at paras
4.8 and 4.10 supra) and not Rs. 4,05,41,519/-, and Rs. 59,53,042/- respectively, on the
basis of which the jurisdictional refund sanctioning authority has sanctioned the refund of
Rs. 56,64,148/- to the party.

4.12 The jurisdictional Assistant Commissioner of CGST Division Parwanoo cum refund
sanctioning authority has thus erred in sanctioning the refund of Rs. 56,64,148/- to the
party vide Refund Sanction Order No. ZF0204240479086 dated 29-04-2024, by
determining/computing the refund claim on “Net ITC” of Rs. 4,05,41,519/- and “Tax
payable on inverted rated supply of goods and services” of Rs. 59,53,042/- instead of Rs.
1,51,262/- and Rs. 68,85,936/-, respectively, thereby has sanctioned excess refund to the
party, which merits recovery under Section 73 of the CGST/HPGST Act, 2017, along with
applicable interest under Section 50 of the CGST/HPGST Act, 2017 and leviable penalty
under Section 73 of the CGST/HPGST Act, 2017.

4.13 The actual tax payable, as submitted by the party, on outward supply of goods of value
of Rs. 4,60,62,312/- is Rs. 68,85,936/-, and the party has adjusted the ‘tax payable’ as per
the formula given under Rule 89(5) of the CGST Rules, 2017, by multiplying the same with
“Net ITC” and divided the same with “Net ITC + ITC availed on inputs and input
services”. For the purpose of determination of adjusted tax payable the party has taken the
ITC on input services as Rs. 63,53,215/-, whereas, the ITC availed on ‘input services’, as
reported in Annexure-B, is only of Rs. 40,88,026/- (including ITC of Rs. 85,465/- availed on
RCM). An amount of Rs. 22,65,189/- has been reported by the party in Annexure-B, as ITC
availed on capital goods.

4.14 Without prejudice to the submissions as made above, even if the “Net ITC” amount as
reported by the party is taken to be correct, then also the tax payable amount comes to Rs.
62,55,191/- {Rs. (68,85,936) * 4,05,41,518/4,46,29,544) and not Rs. 59,53,042/- as claimed
by the party, and hence, even on this account, the party has been sanctioned excess
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erroneous refund of Rs. 3,02,149/- i.e instead of Rs. 53,61,999/- the party has been
sanctioned an amount of Rs. 56,64,148/-.

4.15 The jurisdictional Assistant Commissioner of CGST Division, Parwanoo, thus has
erred in allowing the GST refund by way of cash to the party by determining the same on
“Net ITC” of Rs. 4,05,41,519/- and “Tax payable on inverted rated supply of goods and
services” of Rs. 59,53,042/-, instead of Rs. 1,51,262/- and Rs. 68,85,936/-, respectively,
and consequently has erroneously sanctioned, an amount of Rs. 56,64,148/- instead of Rs.
NIL i.e. in excess by an amount of Rs. 56,64,148/-, (as computed below), as refund to the
party vide Refund Sanction Order No. ZF0204240479086 dated 29-04-2024:-

Turnover of Adjusted Total Net Input Tax Tax Payable on Maximum

inverted-rated Turnover Credit Inverted rated Refund
supply of goods supply admissible
and services
₹ 4,60,62,312 ₹ 16,07,47,664 ₹ 1,51,262 ₹ 68,85,936 NIL

Refund Amount Sanctioned = ₹ 56,64,148/-

Maximum Refund amount admissible = NIL
Excess Refund sanctioned= ₹ 56,64,148 - NIL = ₹ 56,64,148/-

4.16 Accordingly, the Refund Sanction Order No. ZF0204240479086 dated 29-04-2024, is
bad in law and not proper, and the refund erroneously sanctioned to the party amounting to
Rs. 56,64,148/- is recoverable under Section 73(1) of the CGST Act, 2017/HPGST Act,
2017, along with applicable interest payable thereon as per section 50 of the CGST Act,
2017/HPGST Act, 2017, and penalty under Section 73 of the CGST Act, 2017/HPGST Act,
2017, read with Section 20 of the IGST Act, 2017.

5. I, Farah Iqbal Gupta, Commissioner, CGST Commissionerate Shimla, in exercise of the

powers conferred upon me under Section 107 of the Central Goods and Services Tax Act,
2017, direct and authorize the Deputy/Assistant Commissioner, CGST Division-Parwanoo,
to file an appeal before the Additional/Joint Commissioner (Appeals) CGST Chandigarh,
Office of the Commissioner (Appeals), Chandigarh, with a prayer to determine the
following points arising out of the aforesaid Refund Sanction Order No. ZF0204240479086
dated 29-04-2024:-

(i) Whether, after taking into consideration the facts and legal provisions as discussed
above, the Refund Sanction order (RFD-06) No. ZF0204240479086 dated 29-04-2024,
passed by the Refund Sanctioning Authority in the case M/s Microtek New Technologies
Private Limited, having GSTIN-02AANCM4346D1ZQ is legal and proper?

(ii) Whether the excess refund erroneously granted by the Refund Sanctioning Authority
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vide Refund Sanction order (RFD-06) No. ZF0204240479086 dated 29-04-2024, needs to
be recovered along with applicable interest and leviable penalty?

(iii) Pass any other order as the Additional/Joint Commissioner (Appeals) may deem fit.

4. In view of the directions contained here-in-above, an appeal (AD0210240010282)

has been filed on portal on 24.10.2024 before the Commissioner (Appeals), Chandigarh
against the Refund Sanction Order No ZF0204240479086 dated 29-04-2024.

5. As the Refund Sanction Order No . ZF0204240479086 dated 29-04-2024 has not

been accepted by the competent authority and an appeal has been filed; a protective
demand is required to be raised to recover the erroneously sanctioned refund in terms of
Section 73 of the CGST/HPGST Act, 2017 read with Section 20 of the IGST Act, 2017
along with applicable interest in terms of Section 50 of the CGST/HPGST Act, 2017 and
penalty under Section 73 of the CGST/HPGST Act, 2017 as and when the above appeal
filed before the Commissioner (Appeals), Chandigarh against Refund Sanction Order No.
ZF0204240479086 dated 29-04-2024 decided in favour of the revenue.

6. Now therefore M/s Microtek New Technologies Private Limited, Plot No. 14,
Ground Floor, Sector-2, Parwanoo, Solan (H.P.)-173220 are hereby called upon to show
cause to the Assistant Commissioner, CGST Division, Parwanoo, as and when the cause of
action arises, as to why: -

(i) Refund amount of Rs. 56,64,148/ - erroneously sanctioned to them vide

Refund Sanction Order No. No ZF0204240479086 dated 29-04-2024, should not be
recovered from them under Section 73 of the CGST/HPGST Act, 2017 read with
Section 20 of the IGST Act, 2017 along with applicable interest in terms of Section
50 of the CGST/HPGST Act, 2017.

(ii) Penalty should not be imposed upon them in terms of Section 73 of the
CGST/HPGST Act, 2017 read with Section 20 of the IGST Act, 2017.

7. The Noticee should also note that if no cause is shown against the action proposed
to be taken within the above stipulated period or they do not appear before the Adjudicating
Authority without sufficient cause being shown when the case is posted for hearing, the
case will be decided ex-parte on the basis of evidence already available on record.

8. This show cause notice is issued without any prejudice to any other or further action
that has been taken or may be taken or contemplated against the Noticee either in this case
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or any other case under the provisions of CGST Act, 2017 and the Rules made there under
or any other law or Act for the time being in force in India.

VIJAYKUMAR K BARAIYA
ASSISTANT COMMISSIONER
By Registered A.D.
M/s Microtek New Technologies Private Limited,
Plot No. 14, Ground Floor, Sector-2, Parwanoo, Solan (H.P.)-173220

Copy to: -
1. The Assistant Commissioner (Review), CGST Commissionerate, Shimla for
information.
2. The Range Officer, CGST Range-II, Parwanoo.

Superintendent (Adj)