Refund Cannot Be Withheld Without Express Order and Hearing Under Section 54(11)

By | September 7, 2026
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Refund Cannot Be Withheld Without Express Order and Hearing Under Section 54(11)
Issue
Whether the revenue authorities can withhold a GST cash ledger refund by issuing a deficiency memo under Rule 90(3) without initiating formal proceedings and passing a reasoned order under Section 54(11).
Facts
  • Assessee Profile: The petitioner is a works contractor registered under the State GST framework.
  • Period Involved: Financial Year 2022-23.
  • Original Refund Claim: The petitioner claimed a refund of excess balance available in the electronic cash ledger.
  • Initial Rejection & Appeal: The original refund application was rejected alleging ineligible Input Tax Credit based on e-way bill and return mismatches. However, the Appellate Authority set aside this rejection order in favor of the petitioner.
  • Department’s Challenge: The Revenue initiated revisionary proceedings before the Commissioner and subsequently filed an appeal before the GST Appellate Tribunal.
  • Fresh Claim & Deficiency Memo: Upon the petitioner filing a fresh refund claim, the proper officer issued a deficiency memo in Form GST RFD-03 under Rule 90(3), alleging the refund was inadmissible due to prior-year tax dues.
  • Absence of Statutory Proceeding: Official records revealed that the Commissioner had not initiated any independent exercise or issued an order under Section 54(11) to formally withhold the refund.
Decision
  • Deficiency Memo Misused: Held that the impugned show-cause notice/deficiency memo was issued under Rule 90(3), which cannot substitute a formal withholding order under Section 54(11).
  • Withholding Unwarranted: Held that in the absence of an explicit proceeding and order under Section 54(11), withholding the petitioner’s refund was entirely unwarranted and legally unsustainable.
  • Remand for Due Process: Directed the Commissioner to issue a formal notice, afford a opportunity of hearing, and pass a reasoned order under Section 54(11) regarding the disbursement or withholding of refund during the pendency of the appeal before the Tribunal.
  • Final Outcome: The writ petition was disposed of accordingly, partly in favor of the assessee [Paras 10 to 12].
Key Takeaways
  • Strict Statutory Prerequisites: The tax department cannot casually withhold legitimate GST refunds using procedural forms like Form GST RFD-03 under Rule 90(3) without fulfilling the substantive requirements of Section 54(11).
  • Mandatory Natural Justice: Withholding a refund under Section 54(11) requires the Commissioner to independently apply their mind, grant the taxpayer a fair hearing, and issue a speaking order.
  • Pending Appeals Do Not Auto-Stay Refunds: The mere filing or pendency of a departmental appeal before the Appellate Tribunal does not automatically grant the revenue a right to stay or withhold a refund without a specific order under Section 54(11).
HIGH COURT OF PATNA
KPIL-JWIL Joint Venture
v.
State of Bihar
Anil Kumar Sinha and Vikash Kumar, JJ.
Civil Writ Jurisdiction Case No. 5398 of 2026
AUGUST  13, 2026
Rahul Tangri, Adv. for the Petitioner. Ravish Chandra, Adv. for the Respondent.
JUDGMENT
1. Heard the parties.
2. The petitioner has filed the present writ application for quashing of the Deficiency Memo / Show Cause Notice in Form GST RFD-03 dated 01.03.2025 issued by the respondent no. 2-Joint Commissioner of State Tax, Munger Circle, Munger by which the respondent proposes to reject the refund of Rs. 1,75,00,000/- which has accumulated in the Electronic Cash Ledger of the petitioner. The petitioner has further prayed for issuance of writ of mandamus directing the respondent no. 2 to refund the aforesaid amount.
3. The brief facts of the case is that the petitioner is a works contractor registered with the Munger Circle of the Commercial Tax Department. The petitioner had applied for refund of excess balance in its Electronic Cash Ledger on 15.12.2023 to the tune of Rs. 1,75,00,000/-. The refund application of the petitioner was rejected on 31.05.2024 on the ground that the petitioner had availed ineligible input tax credit to the tune of Rs. 24,13,37,314.00 for the year 2022-23 as was arrived at by analysis of inward e-way bills generated by its suppliers, GSTR – 3B and GSTR-2A. Aggrieved by the same, the petitioner filed statutory Appeal before the Appellate Authority and the Appellate Authority set aside the order rejecting refund of the petitioner on 31.12.2024. A revision application was filed by revenue on 28.01.2025 challenging the order passed by the Appellate Authority before the Commissioner of State Taxes under Section 108 of the CGST / BGST Act, 2017.
4. The petitioner filed a fresh refund application on 05.02.2025. The adjudicating authority issued deficiency memo on 01.03.2025 which has been challenged before this Court in the present writ application stating therein that as per data available on GSTBO refund is not admissible under Section 54 of the the CGST / BGST Act, 2017 read with Rule 90 of the CGST / BGST Rules, 2017 because of undischarged assessed tax liability of the petitioner for previous years. During pendency of the writ application the respondents authorities filed an Appeal on 30.06.2026 under Section 112 of the CGST / BGST Act, 2017 before the GST Appellate Tribunal, Patna.
5. Mr. Rahul Tangri, learned counsel for the petitioner appearing through virtual mode argued that action of the respondents authorities is in violation of statutory provisions inasmuch as per Section 54 (11) of the CGST Act, 2017 they cannot withhold refund during pendency of appeal before the Tribunal unless the Commissioner is of the opinion that grant of such refund is likely to adversely affect the revenue in the Appeal filed by it. The Commissioner after giving the taxable person an opportunity of being heard can withhold the refund till such time as he may determine. In the present matter the respondent authorities have failed to pass any order withholding refund of the petitioner during pendency of Appeal before the GST Appellate Tribunal.
6. Mr. Ravish Chandra, learned counsel for the State on the other hand argued that Show Cause Notice has been issued to the petitioner under Rule 90(3) of the Central Goods & Services Tax Rules, 2017 (for short “CGST Rules, 2017”) but petitioner instead of awaiting final order passed by Joint Commissioner has filed the present writ application which is premature in nature.
7. We have heard learned counsel for the parties and have gone through the relevant provisions including the materials available on record. It appears that impugned Show Cause Notice has been issued under Rule 90(3) of the CGST Rules, 2017 which says that if any deficiencies are noticed, the proper officer shall communicate the deficiencies to the applicant in Form GST RFD-03 through common portal electronically, requiring him to file a fresh refund application after rectification of such deficiencies.
8. It is specific case of the petitioner that after rejection of petitioner’s claim of refund by the Appellate Authority, the petitioner filed an application for refund upon which a deficiency note has been issued by the respondents. The further case of the petitioner is that the respondents cannot withhold the refund on the ground that they have filed revision application before the Tribunal until a specific order in this regard is passed by the Commissioner under Sectio) of the CGST Act, 2017.
9. From the submissions made by learned counsel for the State and the relevant records it do not appear that any proceeding or any exercise was taken by the Commissioner in terms of Section 54(11) of the CGST Act, 2017 warranting the Revenue to withhold Rs. 1,75,00,000/- of the petitioner.
10. In these circumstances, we direct the Commissioner to pass a specific order in terms of Section 54(11) of the CGST Act, 2017 during pendency of the Appeal before the Tribunal with regard to payment / withholding of refund after giving Show Cause Notice and proper opportunity of hearing to the petitioner.
11. Consequently, the present writ application is disposed with a direction to the respondent – Commissioner to issue Show Cause Notice to the petitioner within a period of one week from today, which should be duly served upon him through common portal, SMS and email. The petitioner is given liberty to file its reply within a further period of one week after receipt of the Show Cause Notice. After receipt of reply filed by the petitioner, a date shall be fixed by the Commissioner with prior information to the petitioner for personal hearing and after hearing the petitioner and considering the reply to the Show Cause Notice, the Commissioner shall pass a reasoned order within a period of further one month from the date of closure of the hearing.
12. With the aforesaid observation and direction, the writ application is disposed of.