Contesting denial of tax refunds – Key learnings from the recent Delhi High Court judgment in BT (India)

The article is an analysis of the judgment passed by the Delhi High Court in BT (India) Private Limited v. Union of India & Ors.
Khaitan & Co - Onkar Sharma, Arjyadeep Roy
Khaitan & Co - Onkar Sharma, Arjyadeep Roy


In the realm of indirect taxation laws, one of the general principles underpinning the taxability of transactions is that taxes should not be exported.

Ensuring that taxes are not exported manifests in two ways - (i) the exporter is not subjected to tax on his outward export supplies; and (ii) taxes/credit of taxes paid on the input side, that is, on the input goods and services used for rendering the outward supply are also refunded.

In this regard, while in the context of the Goods and Services Tax (“GST”) regime, the concept of ‘zero-rated’ supply has been incorporated under Section 16 of the Integrated Goods and Services Tax Act, 2017 (“IGST Act”), the practice of not taxing exports was also a prevalent practice under the erstwhile regime under Finance Act, 1994 (“Finance Act”).

While statutorily exports are tax-free, there has been no scarcity of disputes in terms of refund-related issues. The Revenue on many occasions, at the time of sanctioning the refund of taxes paid on the input goods or services, has raised disputes to deny refunds. The recent Delhi High Court judgment in BT (India) Private Limited lays down important legal principles in this context which may help taxpayers in contesting denials of such refunds.

Delhi High Court judgment in BT (India) Private Limited v Union of India & Ors, WP No. 13968 of 2021 (“BT Judgment”)

BT India was involved in the export of services. Primarily, it exported information management systems and business support services to companies located outside India. BT India filed its service tax returns under Section 70 of the Finance Act and showed ‘Nil’ as its turnover under the self-assessment scheme. Under the Finance Act, Section 73 empowered the Department to question any self-assessment within the period prescribed therein. However, BT India’s assessments were never questioned.

In terms of the CENVAT Credit Rules, 2004 (“CCR”), BT India filed three refund applications for claiming a refund of the CENVAT Credit, that is, the taxes paid on inputs and input services for rendering its outward supply. The refund applications were filed in the year 2015.

After a lapse of more than three years, the Department first issued a deficiency memo in the year 2019, seeking certain documents. The same was followed by additional deficiency memos with respect to each refund application. BT India submitted the documents as sought. However, without the issue of any show cause notice, the Department passed an order in the year 2021 rejecting the refund applications primarily on the ground that (i) BT India did not submit the necessary documents and (ii) BT India qualified as an ‘intermediary’ and hence its services did not qualify as "exports."

Challenge before the hon’ble High Court:

The order passed by the Department was challenged before the hon’ble Delhi High Court primarily on the grounds that it had been passed without jurisdiction. The key grounds urged before the hon’ble High Court were:

a. Refunding CENVAT credit is nothing but a consequence of the primary service qualifying as an export. Refund proceedings are merely executionary in nature.

b. Once the Department did not question the self-assessed returns of BT India under Section 73 of the Finance Act, it did not have the right to question the same at the time of refund proceedings. In other words, under the garb of adjudicating a refund application, the Department cannot undertake a re-assessment.

c. The hon’ble Supreme Court in the case of ITC Ltd. v Commissioner of Central Excise, Kolkata-IV, 2019 (368) ELT 216 (SC) held that self-assessed returns are also ‘assessment’ and the only way to challenge the same would be by way of filing an appeal and such an assessment cannot be questioned in a refund proceeding.

d. The entire proceeding is without jurisdiction since the prescribed time limit for adjudicating the refund application has not been adhered to. As per the guidelines and circulars issued by the Central Board of Excise and Customs (“CBEC”), a refund application ought to be disposed of within a period of three months. In the present case, it took more than five years.

No show-cause notice was ever issued to BT India proposing to reject its refund application. A deficiency memo cannot be equated with a show-cause notice, BT India argued.

Observations of the hon’ble Delhi High Court:

The hon’ble High Court agreed with the submissions of BT India. The core question of law framed by the hon’ble High Court was in relation to the nature and extent of the power that is available to a refund adjudicating authority, that is, can a refund adjudicating authority undertake a virtual re-assessment to deny a refund claim or not.

A few critical observations are as follows:

a. The judgment of the hon’ble Supreme Court in the case of ITC (supra) was in the context of customs laws. However, the hon’ble Delhi High Court examined the provisions of gthe Customs Act, 1962 (“Customs Act”), the Finance Act and the Central Excise Act, 1944 (“Central Excise Act”), especially the provisions pertaining to assessments and refunds and concluded that the provisions were similar and therefore the observations made in the case of ITC (supra) would be applicable in the present case as well.

b. It was accordingly concluded that self-assessment under Section 70 of the Finance Act is also an ‘assessment’, and it can only be questioned in the manner as prescribed under the statute, that is, either by issuing a show cause notice under Section 73 of the Finance Act or by filing an appeal. Undisputed self-assessed returns cannot be questioned in refund proceedings, the Court held.

c. Grant of a refund in the context of exports is also executionary in nature and the Department is only entitled to verify the genuineness of the claims made and cannot undertake a virtual re-assessment so as to deny the refund.

d. Notification No. 27 / 2012- CE (NT) dated June 18, 2012 (“Notification No. 27”) (on which the Department placed strong reliance) only provides for procedural safeguards to be adopted in terms of determining the quantum of eligible refund. The terms, ‘safeguard, conditions, limitations’, appearing therein have to be given a reasonable interpretation.

e. BT India was never put to notice that it would be treated as an "intermediary." The deficiency memos did not allude to the same. In any case, a deficiency memo cannot be a substitute for a show cause notice.

Basis the foregoing observations, the writ petition of BT India was allowed, and the Department was directed to process the refund applications in accordance with the law.

Our Comments

Some of the important takeaways from the observations in the judgment can be summarized as under:

  • The judgment in the case of ITC (supra) has been applied in the context of the Finance Act for the first time. This is significant since it has been observed that the scheme of the Customs Act and the Finance Act, insofar as refunds and assessments are concerned, is similar. 

  • The judgment reinforces the position that a refund-related proceeding is merely executionary and that if self-assessed returns are not questioned, the same cannot be questioned in a refund proceeding.

  • This judgment can be used as a precedent for many refunds-related proceedings wherein the Department has been rejecting the applications by holding that the assessee in question qualifies as an ‘intermediary’ despite self-assessed returns not having been questioned.

  • This judgment will also have a strong persuasive value vis à vis the GST regime, which also functions under a self-assessment mode in terms of Section 59 of the Central Goods and Services Tax Act, 2017 (“CGST Act”). Hence, if a taxpayer’s export or other tax position is not questioned in terms of Section 73 or Section 74 of the CGST Act by the Revenue, it would be possible to argue for the taxpayer that the correctness of the same cannot be questioned in a refund proceeding under Section 54 of the CGST Act.  

About the authors: Onkar Sharma is a Partner and Arjyadeep Roy is a Senior Associate at Khaitan & Co.

The authors along with other lawyers from Khaitan & Co. successfully represented BT (India) before the Delhi High Court in this matter.

Disclaimer: The views of the author(s) in this article are personal and do not constitute legal or professional advice of Khaitan & Co. For any further queries or follow-up, please contact us at

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