An accepted refund from the electronic cash ledger must be paid, not adjusted.

An accepted refund from the electronic cash ledger must be paid, not adjusted.

Issue

Can GST authorities, after formally accepting a refund application for an excess balance in the electronic cash ledger, unilaterally adjust that refund amount against a purported outstanding liability instead of paying it to the taxpayer?

Facts

• The petitioner-assessee had an excess balance of funds lying in their electronic cash ledger.
• They filed a formal refund application to claim this excess amount, which was their own money.
• The concerned jurisdictional officer accepted the refund application, thereby acknowledging that the amount was indeed refundable to the assessee.
• However, instead of paying the refund to the assessee’s bank account, the officer adjusted the entire refundable amount against a supposed outstanding liability of the assessee.
• The assessee challenged this action of adjustment by filing a writ petition in the High Court.

Decision

The High Court ruled decisively in favour of the assessee.

• It held that the amount of the refund, having been accepted by the officer, was liable to be paid directly to the assessee.
• The court did not uphold the department’s action of adjusting the refund. It directed the authorities to process the refund application and pay the amount to the assessee.
• Furthermore, the court ordered that the refund must be paid along with any applicable statutory interest, and the entire process was to be completed within a strict timeline of two months.

Key Takeways

• The Cash Ledger is the Taxpayer’s Money: The electronic cash ledger is effectively the taxpayer’s prepaid account with the government. Any excess balance in it is the taxpayer’s own money, and they have a clear right to its refund.
• Acceptance of a Refund Creates a Duty to Pay: Once a tax officer examines and accepts a refund application, the department’s role shifts to processing the payment. They cannot then unilaterally decide to withhold the amount or adjust it against another liability without following the specific, and often strict, legal process for such adjustments.
• Due Process for Adjustments: While the GST law does contain provisions that allow for the adjustment of refunds against outstanding demands, these can typically only be invoked for confirmed and final demands. A unilateral adjustment against an unconfirmed liability or without proper intimation is not permissible.
• The Right to Statutory Interest: A delay in paying a legitimate and accepted refund entitles the taxpayer to receive statutory interest for the period of the delay. The court’s order reinforces this legal right.