Refund Withholding Unjustified in Absence of Pending Appeal or Review Against Appellate Authority’s Order
Issue:
Whether the tax department can indefinitely withhold a refund claim, which has been allowed by the Appellate Authority, merely based on its own internal “opinion” under Section 54(11) of the Central Goods and Services Tax Act, 2017, when no appeal or review proceeding is pending against the Appellate Authority’s order.
Facts:
The assessee had filed a claim for a refund of unutilized Input Tax Credit (ITC). A show-cause notice was issued to the assessee, to which a reply was duly filed. However, while the show-cause notice was pending, the refund claim was rejected. The assessee challenged this rejection before the Appellate Authority, which subsequently allowed the refund claim. Despite repeated representations by the assessee, the refund was not granted. In the instant writ petition, the assessee sought the release of the refund. The department seemed to be relying on its “opinion” under Section 54(11) to justify holding back the refund.
Decision:
The court held that the department’s opinion could not be relied upon on a standalone basis. In the absence of an appeal or any other proceeding pending, challenging the order of the appellate authority, the opinion of the department under Section 54(11) could not result in holding back the refund. Since the refund had been permitted by the Appellate Authority and no order in review had been passed, the department could not hold back the refund.
Key Takeaways:
- Finality of Appellate Order: Once an Appellate Authority has allowed a refund claim, that order attains a degree of finality. Unless that order is challenged through a higher appeal or review mechanism, the department is generally bound to execute it.
- Limited Scope of Departmental “Opinion” under Section 54(11): Section 54(11) allows the Commissioner to withhold a refund if the order under appeal/review is likely to be set aside or modified. However, this power is not unfettered. It cannot be used to indefinitely withhold a refund when there is no active appeal or review proceeding in progress that challenges the order granting the refund. The “opinion” must be grounded in an ongoing legal challenge.
- Absence of Pending Proceedings: The critical factor is the absence of any pending appeal or review against the Appellate Authority’s order. If the department has not challenged the appellate order, it cannot unilaterally decide to not process the refund based on its internal reservations.
- Expeditious Refunds: The judgment reinforces the principle that refunds, once legally due and allowed by a competent authority, should be processed expeditiously to avoid causing undue hardship to taxpayers.
- Duty to Comply: The department has a duty to comply with the orders of appellate authorities in the absence of a stay, appeal, or review.
CM APPL. No. 17335 of 2025
| (i) | when an order directing a refund is subject matter of a proceeding which is pending either in appeal or any other proceeding under the Act; and |
| (ii) | thereafter the Commissioner gives an opinion that the grant of refund is likely to adversely affect the revenue. |
7. The petitioner responded to the said Show Cause Notices. Petitioner’s explanation was not accepted and by a separate order dated 14.12.2020, the applications for refund were rejected.
8. The petitioner filed separate appeals impugning the orders-in-original dated 14.12.2020, which were disposed of by a common order dated 03.01.2022 (Order-in-appeal No.209-210/2021-2022). The Appellate Authority allowed the petitioner’s appeal. It accepted that the petitioner was in existence at the material time, and the findings contrary to the same were erroneous. The Appellate Authority relied upon certain documents, including electricity bills, income tax returns etc. filed by the petitioner. The Appellate Authority also found that the Adjudicating Authority had not provided any basis for observing that the product manufactured by the petitioner required very less or no brass at all.
9. Since the petitioner succeeded in its appeal, the petitioner is entitled to the refund as claimed. However, notwithstanding the same, the refund has not been disbursed.
10. Ms. Narain, learned counsel appearing for the respondent, submits that the respondent has decided to challenge the Order-in-appeal dated 03.01.2022, and the Commissioner has passed an order dated 19.05.2022, setting out the grounds on which the appeal is required to be preferred against the Orderin-appeal.
11. The principal question that falls for consideration by this Court is whether the benefit of Order-in-appeal dated 03.01.2022 can be denied to the petitioner and the refund amount be withheld solely on the ground that the respondent has decided to file an appeal against the said order.
12. Concededly, the respondent has not filed any appeal against the order-in-appeal dated 03.01.2022, and there is no order of any Court or Tribunal staying the said order. Indisputably, the order-in-appeal dated 03.01.2022 cannot be ignored by the respondents solely because according to the revenue, the said order is erroneous and is required to be set aside.
13. Learned counsel for the parties also pointed out that the said issue is covered by the earlier decision of this Court in Mr. Brij Mohan Mangla v. Union of India & Ors.: W.P.(C) 14234/2022 dated23.02.2023.
14. In view of the above, the present petition is allowed. The respondents are directed to forthwith process the petitioner’s claim for refund including interest.
15. It is, however, clarified that this would not preclude the respondents from availing any remedy against the Order-in-appeal dated 03.01.2022 passed by the Appellate Authority. Further, in the event, the respondents prevail in their challenge to order-in-appeal dated 03.01.2022, the respondents would also be entitled to take consequential action for recovery of any amount that has been disbursed, albeit in accordance with the law.”