Refund Withheld Unjustifiably: Department Cannot Retain Refund Approved by Appellate Authority Without Pending Appeal or Review

By | June 9, 2025
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Refund Withheld Unjustifiably: Department Cannot Retain Refund Approved by Appellate Authority Without Pending Appeal or Review

Issue:

Whether the Goods and Services Tax (GST) department can withhold the processing and sanction of a refund claim, which has been allowed by the Appellate Authority, merely based on its internal “opinion” that granting the refund would adversely affect revenue, without any appeal or review proceeding being actively pending against the Appellate Authority’s order.

Facts:

For the period October 2022, the assessee’s refund claim was initially rejected. However, on appeal, the Appellate Authority subsequently granted the refund. Despite this favorable appellate order, the department withheld further processing and sanction of the refund. The department’s justification for holding back the refund was its “opinion” that granting the refund at this stage would “adversely affect revenue.” This withholding was intended to last until a final decision on appeals filed against the Appellate Authority’s orders or the finality of appeal proceedings against said orders, whichever would be later.

Decision:

The court ruled in favor of the assessee. It held that the department’s opinion could not be relied upon on a standalone basis without any challenge to the order by the Appellate Authority. Citing Shalender Kumar v. Commissioner Delhi West CGST Commissionerate (Delhi), the court reiterated that in the absence of any appeal or other proceedings pending challenging the order of the Appellate Authority, an opinion under Section 54(11) of the Central Goods and Services Tax Act, 2017 (CGST Act), cannot 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: An order passed by the Appellate Authority allowing a refund claim is binding on the subordinate authorities. Unless this order is stayed by a higher forum or challenged through a statutory appeal/review process, the department is obligated to implement it.
  • Limited Scope of Section 54(11): Section 54(11) of the CGST Act allows the Commissioner to withhold a refund if an appeal or further proceeding is pending against the order of refund. The crucial condition is the pendency of a challenge to the refund order itself. An internal “opinion” or a general apprehension of revenue loss is insufficient to trigger this power if no actual legal challenge to the appellate order has been initiated.
  • No Indefinite Withholding: The department cannot indefinitely hold back a refund that has been legally sanctioned by an appellate authority. There must be a clear statutory basis for such withholding.
  • Burden on Department to Challenge: If the department believes the Appellate Authority’s order is erroneous, its recourse is to file an appeal before the appropriate higher forum (e.g., Tribunal or High Court) and seek a stay on the refund. It cannot bypass this process by merely forming an internal opinion.
  • Taxpayer’s Right to Refund: The decision upholds the taxpayer’s statutory right to a refund once it is legally determined as due, preventing arbitrary retention by the tax authorities.
  • Judicial Consistency: The reliance on the Shalender Kumar precedent demonstrates consistency in judicial interpretation regarding the limitations on the department’s power to withhold refunds post-appellate orders.
HIGH COURT OF DELHI
JVG Technology (P.) Ltd.
v.
Commissioner CGST
PRATHIBA M. SINGH and Rajneesh Kumar Gupta, JJ.
W.P. (C) No. 5757 OF 2025
CM APPL. No. 26284 OF 2025
MAY  23, 2025
Abhas Mishra, Adv. for the Petitioner. R. Ramachandran, Sr. Standing Counsel and Prateek Dhir, Adv. for the Respondent.
ORDER
Prathiba M. Singh, J.- This hearing has been done through hybrid mode.
2. The present petition has been filed on behalf of the Petitioner-M/s JVG Technology Private Limited under Article 226 and 227 of the Constitution of India, inter alia, seeking a direction to the Respondent No. 2 Department (hereinafter, ‘Department’) to sanction the refund claim of the Petitioner amounting Rs. 5,00,98,287/- along with applicable interest in terms of Section 56 of the Central Goods and Service Tax Act, 2017 (hereinafter, ‘CGST Act’).
3. The case of the Petitioner is that it is engaged in the business of export of mobile phones. For the said purpose, the Petitioner is registered with the GST Department vide registration no. 07AAFCJ6874R1ZL. The Petitioner procures input services from various dealers in respect of domestic sales and discharges GST liability at 18%. It is stated that usually, the Petitioner has an excess balance and unutilized Input Tax Credit (hereinafter ‘ITC’) exists in favour of the Petitioner. The present petition relates to refund of the unutilized ITC as per the provisions of clause (i) to the proviso of Section 54 (3) of the CGST Act.
4. It is further stated that the Petitioner filed a refund claim on 29th October, 2022 in form GST RFD-01 for seeking refund of Rs.2,03,00,339/-for the month of September, 2022. It also filed another refund application dated 26th November 2022 in the same form for seeking refund of Rs.2,97,97,948/- for the month of October, 2022. Thereafter two Show Cause Notices were issued on 29th May, 2023 (hereinafter, the ‘Show Cause Notice’) and the Petitioner filed an online reply to the same. However, during the pendency of the Show Cause Notices, both the refund claims were rejected vide order dated 26th June, 2023 passed by the Office of Assistant Commissioner, Central Tax GST West, Rohini, Delhi. This order was challenged by the Petitioner before the Appellate authority. The Appellate authority allowed the refund claim on 11th December, 2023. The operative portion of the said order reads as under:-
“..8. The appeal filed by M/s JVG Technology Pvt. Ltd., 2nd Floor, 22, Vaishali Enclave, New Delhi – 110034 against Order-inOriginalIn-Original Nos. ZH0706230413076 & ZK0706230413132 both dated 30.06.2023 are hereby allowed. The impugned orders both dated 30.06.2023 are set aside as discussed supra The appeals are disposed of in terms of Section 107(12) of CGST Act, 2017.”
5. In the meantime, after the Appellate authority’s order, it is stated that the Petitioner repeatedly made representations. However, the refund has not been granted. Hence, the present petition.
6. The case of the Department is that by exercising powers under Section 54(11) of the CGST Act, 2017, the order under appeal has been reversed in the following terms:
“ORDER
I withhold the further processing and sanction of refund filed by the taxpayer M/s. JVG Technology Private Limited, 2nd Floor, 22 Vaishali Enclave, Near Kohat Metro Station, New Delhi-110034 vide ARN No. AA07122308125C dated 29.12.2023 filed consequent to passing of Orders-in-Appeal No. 195-196/ADC/ Central Tax/ Appeal-11/Delhi/2023-24 dated 11.12.2023 till final decision on appeals filed against said orders dated 11.12.2023 or the finality of the appeal proceedings against said orders, whichever is later, as grant of refund at this stage will adversely affect the revenue in said appeal on account of the malfeasance or fraud committed as discussed supra. “
7. The position under Section 54(11) of the CGST Act, 2017 has been recently considered by this Court in Shalender Kumar v. Commissioner Delhi West CGST Commissionerate(Delhi)/W.P. (C) 3824/2025 dated 3rd April, 2025 wherein the Court observed as under:
“….
12. Section 54(11) of the CGST Act, 2017, reads as under:
“Section 54 – xxx
Section 54(11) – Where an order giving rise to a refund is the subject matter of an appeal or further proceedings or where any other proceedings under this Act is pending and the Commissioner is of the opinion that grant of such refund is likely to adversely affect the revenue in the said appeal or other proceedings on account of malfeasance or fraud committed, he may, after giving the taxable person an opportunity of being heard, withhold the refund till such time as he may determine.”
13. A perusal of Section 54(11) of the Act would show that the refund can be held back on the satisfaction of the following two conditions –
(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.
14. In the opinion of this Court the Department’s opinion under Section 54(11)cannot 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 under Section 54(11) cannot result in holding back the refund. The refund having been permitted by the Appellate Authority and no order in review having been passed, the Department cannot hold back the refund. In G.S. Industries (supra) the Coordinate Bench has observed as under:
“xxx xxx xxx

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) 142342022 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.”

15. In view of this position, the refund in favour of the Petitioner would be liable to be allowed in terms of the order passed by the Appellate Authority.
16. It is, however, made clear that if in law the Department can still challenge the said Appellate Authority’s order, the processing of refund in terms of the today’s order of this Court shall be subject to the decision in any appeal. The refund shall be processed along with interest in terms of Section 56 of the CGST Act, 2017, within a period of two months.
17. In the opinion of this Court, considering the fact that refund amounts are payable with interest for the delayed period for paying the refund, it would in fact be contrary to the interest of the Department itself to hold back the refund inasmuch as if any appeal is filed and the order of the Appellate Authority is reversed, then the same would also bind the Petitioner.”
8. In view of the above settled legal position, under Section 54(11) of the CGST Act, that the opinion of the Department cannot be relied upon on a stand-alone basis, without any challenge to the order by the Appellate authority, it is directed that the refund amount be released in favour of the Petitioner along with the statutory interest. The Petitioner is free to file an application if the refund amount is not credited by 10th July 2025.
9. If, however, any appeal is filed challenging the Appellate authority’s order by the Department, then the processing of refund in terms of this order, shall be subject to the decision in the appeal.
10. The petition is disposed of in these terms. Pending application(s), if any, are also disposed of.