Proxima Steel Forging Pvt. Ltd. Union of India and others (Punjab and Haryana High Court)

Proxima Steel Forging Pvt. Ltd., based in Punjab, is embroiled in a legal dispute with tax authorities over a refund claim of Rs. 2,02,09,111. The case, currently pending in the Punjab and Haryana High Court, raises important questions about procedural compliance under the Central Goods and Services Tax (CGST) framework.

Background of the Case

Proxima Steel initially applied for a refund but this application was rejected by the Deputy Commissioner due to time limits as per the July 2021 circular. This decision led Proxima Steel to appeal to the Joint Commissioner, who ruled in the company’s favour. In an order dated August 29, 2023, the Joint Commissioner noted that the refund request should not be rejected solely due to time constraints. Emphasizing adherence to the principles of natural justice, he directed the officer concerned to re-evaluate the refund claim on its merits.

Response of the Deputy Commissioner

Following the Joint Commissioner’s order, the Deputy Commissioner, identified as Sewa Ram, reconsidered the application. Ram corresponded with the Joint Commissioner in December 2023, seeking clarification on the appeal decision. However, on December 29, the Joint Commissioner rejected this request for clarification, considering it to be outside the permissible scope of Section 161 of the CGST Act. Later, on January 24, 2024, the Deputy Commissioner once again rejected Proxima Steel’s application for refund, citing statute of limitations as the reason.

Proxima Steel’s Petition in the Supreme Court

Frustrated with repeated layoffs, Proxima Steel challenged the Deputy Commissioner’s order dated January 2024 by filing a writ petition in the Punjab and Haryana High Court. The Company argued that the Deputy Commissioner’s repeated refusal to address the issue of repayment on its merits contradicted the Joint Commissioner’s decision on appeal.

Observations of the Supreme Court

During the hearing, the High Court noted that the Deputy Commissioner’s appeal decision was clearly ignored. The Court observed that despite the Joint Commissioner’s express instruction to consider the refund claim within the applicable time frame, the Deputy Commissioner, a subordinate official, failed to do so. The court stated that such actions indicate a breakdown of hierarchical harmony within the CGST system.

The court expressed concern that if appeal decisions were not carried out by subordinate officials, this could lead to administrative disorganization and diminish public confidence in the appeal process. The court also stated that disobedience could lead to increased litigation and put undue pressure on judicial resources.

Court Directives Regarding Circular Action

In view of these findings, the High Court directed the Commissioner to initiate disciplinary proceedings against Deputy Commissioner Sewa Ram, citing her apparent insubordination. The Court instructed the Commissioner to initiate major criminal proceedings to ensure compliance with the appeal decisions.

Additionally, the High Court ordered the appointment of another officer to consider Proxima Steel’s refund application. The newly appointed official must consider the extradition application solely on its merits and decide within two months.

The court also disposed of various applications in the case, effectively closing the current chapter of this protracted legal matter.

Results of the Case

This case highlights the need for due process and adherence to appeal directives within the tax administration. As more taxpayers confront the complexity of CGST provisions, consistent enforcement and open communication within the departmental hierarchy remains critical. The outcome of this case may affect how refund applications rejected on procedural grounds are handled in the future, particularly and could set a precedent for disciplinary measures against officers who fail to comply with the rules.

FULL TEXT OF THE PENJAB AND HARYANA HIGH COURT DECISION/ORDER

1. A refund application was filed by the petitioner seeking refund of Rs.2,02,09,111/-. The extradition application in question was rejected by the relevant Deputy Commissioner on the grounds of statute of limitations, stating that the extradition application was made after a two-year period within the scope of the Circular dated 20.07.2021.

2. The appeal allowed by the order of the Joint Commissioner dated 29.08.2023 was preferred by the petitioner and decided as follows:-

“…. Therefore, I think that the refund request should not be rejected due to statute of limitations. I therefore remand the present matter to the appropriate officer for further consideration of the appellant’s refund application and only on the merits. The appropriate officer will make a detailed speaking order after considering the appellant’s submissions and will adhere to the principles of Natural Justice.

4. In view of the above I give the following order:-

ORDER

This impugned order is set aside and the appeal filed by the appellant is based on clause 3.2 above. It is permitted to be accepted subject to the conditions specified in paragraph “.

3. Deputy Commissioner Sewa Ram heard the application again and passed an order; here he refers to a letter dated 14.12.2023 addressed to the Joint Commissioner seeking clarification or orders in the appeal. The Joint Commissioner responded to his letter dated 14.12.2023 on 29.12.2023 and rejected the same stating that it was outside the scope of Section 161 of the CGST Act. Thereupon, the relevant Deputy Commissioner once again rejected the out-of-time extradition request with his instruction dated 24.01.2024.

4. In these circumstances, the petitioner approached this Court challenging the order dated 24.01.2024 of the Deputy Commissioner.

5. Noting that the Deputy Commissioner in his order dated 24.01.2024 noticed that the Joint Commissioner had rejected the request for correction/clarification of the decision passed in the appeal, he nevertheless proceeds to re-dismiss the appeal with reasons. Due to the limitation, the Commissioner is not asked what steps have been taken against his subordinate who challenged his authority. We instructed him to make a statement.

However, no statement was made by him.

6. We find that the Deputy Commissioner has asserted his authority over and above the decision given in the appeal by the Joint Commissioner, who had already observed that the application should be considered in due course and decided on merits.

However, the Deputy Commissioner, a junior officer, refused to examine the case on merits and once again dismissed the application on the grounds of statute of limitations. Such approach adopted by the junior officer is the result of actual failure of the hierarchy system in CGST.

7. If junior officers do not comply with appeal orders, it will be a form of administrative chaos. Such officers need to be dealt with strictly by the Ministry so that they do not set a precedent for others to start disobeying. This also reflects the general public’s belief in appeals; This situation will be in doubt if the appeal decisions are not complied with. The case is also unnecessarily difficult before this Court. This kind of disobedience needs to be dealt with more harshly.

8. We accordingly direct the Commissioner to take appropriate departmental action by initiating action for major penalty against the Deputy Commissioner concerned, Sewa Ram, for her insubordination.

We dispose of this writ petition, setting aside the order dated 24.01.2024 of the Deputy Commissioner and also direct the Commissioner to appoint another officer to deal with the petitioner’s application for refund, who will decide purely on merits. within the specified two-month period.

The application(s), if any, will also be destroyed.