Invocation of Revision Powers under GST to Deny Refund of Excess ECL/ECrL Amounts: Supreme Court dismisses Revenue SLP [Read Judgement]

The Supreme Court of India has dismissed a Special Leave Petition (SLP) filed by the Union of India challenging a Delhi High Court order that quashed a Revenue authority’s decision to withhold a refund of Rs 5.5 crore from the Electronic Cash Ledger (ECL) of a taxpayer under the Goods and Services Tax (GST) regime.

The ruling of the Supreme Court Partial Court Working Days Bench of Justice Sudhanshu Dhulia and Justice Joymalya Bagchi limited the use of revision powers under Section 108 of the Central Goods and Services Tax Act, 2017 (CGST Act) to deny refunds, especially where no conclusive finding of illegality or prejudice to revenue has been recorded.

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The matter arose from a refund sanction order dated December 9, 2022, granted in favor of M/s HCC VCCL Joint Venture for a sum of Rs 5.5 crore credited to its Electronic Cash Ledger. Subsequently, the GST revisional authority invoked its power under Section 108 to stay the refund order on July 5, 2023, extending the stay for two years via corrigendum. The Revenue based its revision on intelligence inputs alleging irregularities related to the taxpayer’s input tax credit (ITC) claims, including purported non-payment to suppliers within the prescribed 180-day period and discrepancies in accounting treatment of assets like vehicles and machinery.

The High Court, however, had held that Section 108 allows revision only where an order is “erroneous, illegal, improper, or prejudicial to revenue” and that such an opinion must be formed before invoking revision. The Court observed that no such prima facie conclusion was drawn by the revisional authority before suspending the refund. Importantly, the High Court noted that the powers to withhold refund under Section 108 cannot be used as a routine measure based merely on allegations or ongoing inquiries, especially in the absence of any outstanding demand or liability against the taxpayer.

Further, the Court observed that both Electronic Credit Ledger and Electronic Cash Ledger balances are treated equally under the CGST Act, and restrictions applicable to input tax credit balances cannot be unilaterally extended to cash ledger refunds without due basis. The revisional authority’s assumption that refund orders can be stayed on mere suspicion of ITC misuse was found to be untenable.

In dismissing the Union of India’s appeal, the Supreme Court upheld the High Court’s reasoning and declined to interfere with its order. The apex court, however, left open the possibility for the Revenue to proceed with fresh proceedings as per law, preserving all rights of the parties.

Revenue now needs to establish a clear prima facie case before withholding refunds from taxpayers.

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