Transitional Credit Refund Claim Must Be Decided On Merits

Transitional Credit Refund Claim Must Be Decided On Merits Before Demanding Interest On Reversal

Issue

Whether a refund claim for transitional Input Tax Credit (ITC) can be left unconsidered on merits due to portal window closures or jurisdictional issues while simultaneously demanding interest on reversed credit.

Facts

The petitioner, a private limited company developing fracking technology, imported a CT Compact 450 X-Ray inspection system in June 2017, prior to the implementation of GST.
Customs clearance was delayed pending a No Objection Certificate (NOC). Following the rollout of GST in July 2017, the petitioner asserted transitional credit.
Based on advice from Central GST authorities, the petitioner availed the ITC through Form GSTR-3B.
In 2023, the petitioner was informed that ITC on pre-GST imports was not allowable, whereupon the State authorities insisted on reversal, and the petitioner accordingly reversed the ITC entries.
The petitioner pursued a refund of the reversed credit before the Central authority, but received a communication citing the closed TRAN-1 portal window and State jurisdiction, without any decision on the merits of the refund claim.
An appeal against this communication was treated as invalid on the grounds that the communication did not constitute a formal refund decision.

Decision

The High Court held that the petitioner’s refund claim had not been considered on its merits by the Central authority, as the impugned communication was confined merely to portal window closures and jurisdictional aspects.
Held that the refund claim required substantive examination on its peculiar facts and the applicable legal framework.
The court granted liberty to the petitioner to file a representation before the competent respondent authority for a decision on the merits of the refund entitlement based on transitional credit.
Held that since the substantive examination of the refund entitlement remained pending, the interest demand on the reversed credit could not be sustained.
The State appellate order and endorsement were quashed without prejudice to fresh action following the Central authority’s decision on the refund claim.

Key Takeaways

Mandatory Disposal on Merits: Revenue authorities cannot reject or leave refund claims unadjudicated simply by citing portal window closures or jurisdictional transfers without deciding the underlying entitlement on merits.
Interest Demand Premature During Pending Determination: Demands for interest arising from reversed ITC cannot be enforced while the taxpayer’s substantive claim for refund or credit entitlement remains pending determination.
Procedural Barriers Cannot Override Substantive Adjudication: Technical or administrative communications regarding portal availability do not substitute a valid statutory order on a refund application.

HIGH COURT OF KARNATAKA

Super Wave Technology (P.) Ltd.

Assistant Commissioner of Central Tax

B.M. Shyam Prasad, J.

WRIT PETITION NO. 13162 OF 2026 (T-RES)

AUGUST 24, 2026

K.S. Naveen Kumar and Dakshina Murthy R., Advs. for the Petitioner. Jeevan J. Neeralagi, Adv. and Smt. Malavika Prasad, HCGP for the Respondent.

ORDER

1. The petitioner is a Private Limited Company engaged in developing “fracking” technology, and in June 2017, the petitioner has imported “CT Compact 450 size X Ray inspection system” from Germany. The petitioner could not offer the customs duty because it had to obtain a ‘No-Objection Certificate’ from the Atomic Energy Regulatory Board, Government of India, and this No-Objection is issued only on 11.09.2017. The petitioner in the circumstances, and with the GST Regime with effect from 01.07.2017, asserts that it was entitled to a transitional credit but was advised by the Central GST Authorities to file a declaration in Form GSTR-3B to avail such benefit.

2. The petitioner’s further case is that in terms of the advice, it has availed ITC and filed GSTR-3B declaration only to be told in the year 2023 that it would not be entitled to ITC based on the afore import. This has led to two proceedings. One with the Central Authorities for refund of the excess duty and the other with the State Authorities claiming interest because of the availment of ITC in filing declaration in Form GSTR-3B.

3. Mr. K. S. Naveen Kumar, the learned counsel for the petitioner, submits [a] that with the State Authorities insisting upon reversal, and the entries being reversed, the petitioner has filed an application with the second respondent for refund, only to be issued with Annexure – L that is dated 20.05.2025 informing the petitioner that the claim falls under the jurisdiction of the State GST Authorities, [b] that GST common portal for filing TRAN-1 application between 01.10.2022 and 30.11.2022 is opened, [c] that the petitioner being aggrieved by this information as against a decision on refund, has filed an appeal with the third respondent only to be issued with Annexure – N which is dated 12.09.2025, and [d] that the petitioner’s appeal is taken as an invalid appeal only because Communication [Annexure – L] is referred and not a decision.

4. These are the submissions are as regards the petitioner’s grievance with the outcome on the application for refund, and insofar as the State Authorities’ insistence for interest, Mr. Naveen Kumar submits that it is on the advice of the Central Authorities that the petitioner had filed a declaration in Form GSTR-3B and claimed ITC and that the petitioner cannot be called upon to pay interest until the petitioner’s case is completely examined by the Central Authorities.

5. Mr. Jeevan J Neeralagi, a learned Standing counsel for the first to fourth and the seventh respondents, and Ms. Malavika Prasad, a learned High Court Government Pleader who accepts notice for the fifth and the sixth respondents, are heard on the circumstances in which there could be interference in the present petition. The first overwhelming fact is that the petitioner’s claim for refund has not been considered by the Central Tax Authorities.

6. This stands out because the application has resulted in the Communication dated 20.05.2025 informing the petitioner that the GST Portal for filing TRAN-1 application was open for a particular period and that the jurisdiction is with the State GST Authorities. The appeal is disposed of opining that there is no decision on the petitioner’s request for refund and that a decision is a condition precedent to entertain an appeal.

7. This Court is of the opinion that this outcome does not decide on the petitioner’s claim for refund and such claim must be examined in the light of the facts set out as peculiar to the petitioner and the law that would be applicable. This offers the first reason for interference. The petitioner asserts that it has filed returns in Form GSTR-3B claiming ITC, including the customs duty, only because the State Authorities did not accept it after some lapse of time, the ITC is reversed. Whether this indeed is a fact must also be examined as part of the first aspect and when that is being examined, the demand for interest cannot be sustained. Therefore, the following:

ORDER

The petition stands disposed of reserving liberty to the petitioner to file a certified copy of this order along with a detailed representation with the second respondent within three [3] weeks from the date of receipt of a certified copy of this order calling upon the second respondent to examine the peculiarities relied upon by the petitioner and decide on whether the petitioner must be admitted to any refund because it would have been entitled to transitional credit.

The Order dated 05.01.2026 passed by the Joint Commissioner of Commercial Taxes (Appeals)-9, Koramangala, Bengaluru [Annexure -R] and the Summary thereof of the even date [Annexure-R] as also the Endorsement dated 07.01.2026 [Annexure – S] are quashed but without prejudice to the State Authorities to commence proceedings once there is a decision by the second respondent on the petitioner’s entitlement to refund based on transitional credit as asserted.