Delay in Deficiency Memo Cannot Hold Up Refund; HC Orders Decision in One Month
Issue
Whether the GST department can keep a refund application pending by raising fresh deficiency objections after the expiry of the statutory 15-day period prescribed for issuing a Deficiency Memo (Form GST RFD-03), or if the application must be deemed complete and processed within the statutory timeline.
Facts
Claim: The petitioner, Gameloft Software (P.) Ltd., filed refund claims for excess IGST paid on zero-rated supplies for the period April 2019–June 2020.
History: The initial refund claims were rejected due to alleged deficiencies. Consequently, the petitioner submitted revised refund applications.
The Lapse: Under Rule 90(2) of the CGST Rules, the proper officer is required to scrutinize the application and issue a deficiency memo within 15 days if any defects are found. In this case, no deficiency memo was issued within this mandatory 15-day window.
Department’s Action: Despite missing the deadline, the Department later raised fresh objections regarding deficiencies and kept the refund claims pending indefinitely, affecting the taxpayer’s cash flow.
Writ Petition: The petitioner approached the Delhi High Court seeking directions for the expeditious disposal of the claims, citing the statutory time limit.
Decision
The Delhi High Court disposed of the writ petition with strict directions to the Department.
Strict Timelines: The Court held that refund processing is governed by strict statutory timelines (Section 54(7) mandates an order within 60 days). Delays or raising objections after the prescribed period undermine the GST scheme and cause undue financial hardship.
Application Deemed Complete: Relying on precedents (like Jian International), the legal position is that if no deficiency memo is issued within 15 days, the application is presumed to be complete in all respects.
Direction: The Court ordered the Department to take a prompt and reasoned decision on all pending refund claims.
Resolution Mechanism: To resolve the dispute practically, the petitioner was directed to appear before the authority to clarify any specific deficiencies pointed out, but the final refund orders must be passed within one month in accordance with the law.
Key Takeaways
15-Day Rule is Sacrosanct: The tax officer has a non-negotiable window of 15 days to identify errors in a refund application. Once this period lapses without a Deficiency Memo (RFD-03), the right to reject the application on technical deficiencies is effectively lost.
60-Day Refund Mandate: The ultimate timeline for sanctioned refunds is 60 days from the date of a complete application. Administrative delays cannot be used to breach this statutory right.
Interest Liability: Delays beyond the statutory period generally attract interest liability for the department under Section 56, emphasizing the need for timely adjudication.