Once Refund upheld in Appeal, GST Dept Cannot Initiate Recovery Proceedings on Same Issue: Orissa HC [Read Order]

In a recent ruling, the Orissa High Court held that the GST ( Goods and Services Tax ) department cannot initiate recovery proceedings under Section 73 of the CGST Act to reopen a refund claim after the refund has already been examined and confirmed by the appellate authority.

The Court ruled that once an appellate order upholds a refund on merits, subordinate tax authorities are bound by that decision and cannot indirectly nullify it by issuing a fresh show cause notice on the same issue.

Auroglobal Comtrade Pvt. Ltd., the petitioner, approached the High Court challenging a demand-cum-show cause notice issued under Section 73 of the CGST Act, seeking to recover a refund that had earlier been sanctioned and later affirmed by the appellate authority.

The petitioner is an exporter registered under GST and had filed a refund application in Form GST RFD-01 claiming refund of accumulated input tax credit on exports made without payment of integrated tax for the period April 2022 to March 2023. During scrutiny, the department raised an issue regarding short shipment of goods and proposed partial rejection of the refund.

After considering the petitioner’s response, the Assistant Commissioner passed a refund sanction order allowing the refund, except for a small inadmissible portion accepted by the petitioner.

Subsequently, the Commissioner issued a review order directing the department to file an appeal against the refund sanction. Acting on this direction, the department filed an appeal before the appellate authority. The Additional Commissioner (Appeals), after examining the matter on merits, dismissed the department’s appeal and confirmed the refund sanction.

Despite losing the appeal, the department issued a fresh demand-cum-show cause notice under Section 73 of the CGST Act, alleging that the refund had been erroneously granted and proposing recovery of the same amount along with interest and penalty. Aggrieved by this action, the petitioner approached the High Court.

The petitioner argued that once the refund sanction had been tested and upheld by the appellate authority, the department had no jurisdiction to reopen the same issue by invoking Section 73. They argued that the appellate order was binding on the department and could not be bypassed unless set aside by a higher forum. The petitioner further argued that the review order lost its relevance once the appeal was decided and that the fresh proceedings amounted to harassment and violation of judicial discipline.

The department argued that the proceedings under Section 73 were independent and were initiated pursuant to the review order passed by the Commissioner. They also argued that issuance of the demand notice was only a procedural step and that the department was still examining the possibility of challenging the appellate order.

The Division Bench comprising Chief Justice Chakradhari Sharan Singh and Justice M.S. Sahoo observed that once an appellate authority has decided an issue on merits, subordinate authorities are bound to follow that decision so long as it remains in force. The Court explained that the Commissioner’s review power under Section 107 is only an administrative mechanism to decide whether an appeal should be filed, and once the appeal is decided, the review order ceases to have any independent effect.

The Court pointed out that the department was attempting to do indirectly what it could not do directly, by reopening the refund through Section 73 proceedings after failing in appeal. Such an approach, the Court observed, was contrary to the statutory scheme and violated principles of judicial discipline.

The High Court further observed that allowing such action would result in uncertainty and repeated litigation, which is impermissible in tax administration. It explained that an appellate order cannot be ignored merely because the department does not agree with it.

In view of these findings, the High Court held that the initiation of proceedings under Section 73 to recover the refund was without jurisdiction and legally unsustainable. The Court quashed the demand-cum-show cause notice and the summary of demand issued thereafter.

The writ petition was allowed, and no order was passed as to costs.

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