GST Dept Cannot Withhold Refund Permitted by Appellate Authority in absence of Contrary Decision: Delhi HC directs to Process Refund with Interest [Read Order]

In a recent ruling, the Delhi High Court has ruled that the GST ( Goods and Services Tax ) department cannot withhold the refund permitted by the appellate authority as no review order has been passed against the order.

The Court found that without an active challenge to the appellate order or a review being passed, any effort to withhold the refund on the basis of departmental opinion would be legally untenable.

The Petitioner in the present case is engaged in the wholesale trade and export of FMCGs and is registered with the GST Department. The Appellate Authority, through an Order-in-Appeal dated 17th January 2024, had allowed the refund claim for the tax period of December 2022. The authority found the claim to be genuine and compliant with Section 16(2) of the CGST Act, 2017. Despite this order, the refund was not processed by the GST Department.

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The department issued Show Cause Notice seeking to why the refund claim filed by him should not be rejected on the ground that the L1 and L2 suppliers’ licences as mentioned in the show cause were cancelled.

The Department counsel appearing for the Revenue Department submitted that the Department intends to file an appeal against the Order-in-Appeal dated 17th January,2024. However, since there is no Appellate Tribunal as on date, the appeal has not been filed. He submitted that the absence of a functioning Appellate Tribunal has delayed the process.

The Petitioner, represented by Advocate Mr. Siddhant Sarwal, argued that since no review or appeal had been filed and no stay had been granted, the order passed by the Appellate Authority continued to remain binding and operative. It was further submitted that the mere intention to challenge the order could not be a ground to withhold the refund.

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In addition the counsel of the petitioner relied upon the decision of the Coordinate Bench of this Court in G.S. Industries v. Commissioner Central Goods and Services Tax Delhi West & Ors. to argue that the processing of refund cannot be held back.  However, the government Counsel sought to distinguish the G.S. Industries  on the ground that in the said case, there was no opinion under Section 54(11) of the GST Act.

The bench, analysing Section 54(11), observed that two conditions must be satisfied for the Department to lawfully withhold a refund: (i) the refund order must be the subject of an appeal or any pending proceeding; and (ii) the Commissioner must opine that such refund would adversely affect revenue due to malfeasance or fraud. In the present case, while an opinion had been given, there were no pending proceedings, no appeal, and no review order. Hence, the opinion under Section 54(11), in remote, could not be the basis for withholding the refund.
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Justice Pratibha M. Singh and Justice Rajneesh Kumar Gupta strongly relied upon the precedent set in G.S. Industries, where a similar issue was decided in favour of the assessee. The court observed that in that matter the refund was not processed despite a favourable order by the Appellate Authority, merely on the basis of the Department's intention to file an appeal. The High Court, in that case, held that in the absence of a stay or challenge, the appellate order must be acted upon.

The Delhi High Court directed the GST Department to process the refund sanctioned by the Appellate Authority within two months, along with applicable interest under Section 56 of the CGST Act, 2017.

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The Court observed that unless a timely and valid challenge is instituted, the refund order cannot be unilaterally disregarded. It further noted that unjustified withholding of refunds is contrary to the law and financially detrimental to the revenue due to accruing interest.

To Read the full text of the Order CLICK HERE

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