Demand Provision Cannot Be Used as Short Cut to Bypass Review

Demand Provision Cannot Be Used as Short Cut to Bypass Review and Appeal Against Refund Sanction Orders

Issue

Whether the tax authorities are legally permitted to invoke the demand provisions under Section 73 to nullify a previously sanctioned refund order, rather than pursuing the statutorily mandated route of reviewing the refund order and filing an appeal before the appellate authority.

Facts

The petitioner is a manufacturer of edible oils from crude oils who accumulated Input Tax Credit (ITC) under an inverted duty structure (inputs were taxed at higher rates of 12% or 18%, whereas outward supplies were taxed at a lower rate of 5%).
The petitioner filed refund applications for the period from April 2021 to March 2022, which the proper officer processed and officially sanctioned through speaking orders under Section 54 read with Rule 92.
Subsequently, instead of appealing those refund orders, the Deputy Commissioner directly issued a Show Cause Notice and passed an adjudication order under Section 73 (demand provision) to nullify the earlier refund sanction orders and recover the amounts.
The petitioner approached the High Court via a writ petition, arguing that the department had completely bypassed the binding administrative and statutory review mechanisms.

Decision

The issue was decided in favour of the assessee, and the court granted interim protection restraining the authorities from taking coercive actions.
Violation of CBIC Instructions: The High Court highlighted that CBIC Instruction No. 03/2022-GST explicitly mandates that if the department is aggrieved by a refund sanction order, the order must be formally reviewed for legality and propriety under Section 107, and a regular departmental appeal must be filed.
Jurisdictional Ergency: The record showed that the officer chose to circumvent this process by utilizing Section 73 to directly attack the validity of a concluded refund order. The court observed that using demand provisions to bypass the appellate mechanism is a prima facie jurisdictional error.
Interim Relief: Concluding that the petitioner had a strong prima facie case, the court stayed the operation of the demand order and barred the revenue from executing any coercive recovery actions pending final disposal.

Key Takeaways

Adherence to Review Mechanism: When a tax officer passes a speaking order sanctioning a refund, that order is a quasi-judicial determination. If the higher management of the department believes the refund was wrongly granted, their only legal remedy is to “review” and “appeal” against that order. They cannot use Section 73 as an aggressive shortcut to overwrite it.

CBIC Instructions Bind the Department: Executive instructions and circulars issued by the CBIC (such as Instruction No. 03/2022-GST) are strictly binding on downstream tax administrators. Officers cannot choose to ignore these standard operating procedures to invent their own recovery pathways.

Writ Remedy Against Jurisdictional Excess: While courts generally ask taxpayers to exhaust regular appellate options before filing a writ, they will promptly step in via Article 226 if a tax authority acts completely outside its statutory boundaries or acts in blatant disregard of its own departmental guidelines.

HIGH COURT OF ORISSA

AWL Agri Business

State of Odisha^*

HARISH TANDON, CJ.
and MURAHARI SRI RAMAN, J.

WP (C) No. 8349 of 2026

APRIL 16, 2026

Rudra Prasad Kar, Senior Advocate and Chitta Ranjan Das, Adv. for the Petitioner. Sunil Mishra, Standing Counsel for the Respondent.

ORDER

1. Assailing Order-in-Original dated 11.12.2025 passed under Section 73 of the Odisha Goods and Services Tax Act, 2017/the Central Goods and Services Tax Act, 2017 (Collectively, “the GST Act”) by the Deputy Commissioner of State Tax, Cuttack-I City Circle, the petitioner has filed this writ petition craving to invoke provisions under Article 226 of the Constitution of India.

2. The petitioner, engaged in manufacture of edible oils from crude oils, utilizing the inputs such as packing materials, chemicals and consumables subject to levy of goods and services tax @12% or 18%, as the case may be for supply of output which attracts goods and services tax @5%; as a result of such, the input tax credit remains accumulated. Under the perspective of inverted tax structure refund flows in terms of Section 54(3)(ii) of the GST Act. The authority concerned having considered refund applications with respect to relevant period(s) by speaking orders under Section 54(5) read with Rule 92 of the GST Rules sanctioned refunds.

3. It is contended by Sri Rudra Prasad Kar, learned Senior Advocate being assisted by Sri Chitta Ranjan Das, learned Advocate that without taking recourse to remedy of appeal available for the Department under Section 107 of the GST Act to question the sanctity of such refund orders, the authority concerned could not have issued notice in exercise of powers conferred under Section 73 of the said Act proposing to recover the refund already sanctioned by the competent authority in order to obviate said speaking orders.

3.1. He placed reliance on instruction No.03/2022-GST dated 14.06.2022 issued by the Government of India, Ministry of Finance Department of Revenue, Central Board of Indirect Taxes & Customs, GST Policy Wing to submit that the action of the authority is impeachable in determining the tax liability under Section 73 of the GST Act by nullifying the effect of orders sanctioning the refunds under Section 54 of the said Act. Such transgression of power is exceptionable and vulnerable. It is urged that the manner and method being prescribed under the Act for ventilation of grievance, erroneous device has been adopted by the Deputy Commissioner of State Tax, Cuttack-I City Circle. The order dated 11.12.2025 passed under Section 73 of the GST Act suffers serious infirmity in law. The matter requires consideration.

4. Heard. Issue notice.

5. Mr. Sunil Mishra, learned Standing Counsel accepts and waives issue of notice on behalf of the opposite parties. A copy of the writ petition has already been served on him, He seeks short accommodation to obtain instruction in this case and to file counter affidavit within two weeks from date after serving copy thereof on the learned counsel for the petitioner; rejoinder thereto, if any, be filed within a week thereafter.

6. List this matter on 7^th May, 2026.

I.A. No.5076 of 2026

7. Learned Senior Advocate has taken this Court to instruction dated 14.06.2022 issued by the Central Board Indirect Taxes & Customs, wherein it has been clearly stipulated that all refund orders are required to be reviewed for examination of legality and propriety of the refund orders and for taking a view whether an appeal before the appellate authority under provisions of Section 107 of the GST Act is required to be filed against the said refund orders.

8. On perusal of record, it is discernible that the Deputy Commissioner of State Tax, Cuttack-I City Circle has framed adjudication order under Section 73 of the GST Act seeking to nullify the effect of refund orders passed under Section 54 of the GST Act instead of adhering to the manner spelt out in the instruction by questioning the sanctity of the orders of refund. It appears the petitioner has made out a prima facie case in its favour and it is entitled for interim protection. Therefore, the authorities are restrained from taking coercive action against the petitioner pursuant to demand raised in the order dated 11.12.2025 under Section 73 of the GST Act for the tax periods from April, 2021 to March 2022 vide Annexure-6 till the next date of listing.