The Bombay High Court has held that a taxpayer who partly succeeds in a GST appeal acquires a statutory right to the proportionate refund of the amount deposited for filing that appeal and the refund cannot be withheld merely because the taxpayer intends to challenge the portion of the appellate order decided against it.
The Bench of Justice M.S. Karnik and Justice Sandesh D. Patil observed that once a portion of the tax demand has been set aside and the department has not challenged that relief, the proceedings attain finality to that extent.
The bench directed the Maharashtra GST authorities to refund ₹3.14 crore to assessee within six weeks.
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The dispute arose from an adjudication order dated February 21, 2024, under which the tax authorities confirmed a demand of ₹48,96,54,949 against the company.
The petitioner/assessee challenged the adjudication order before the First Appellate Authority. By an order dated March 17, 2025, the appellate authority partly allowed the appeal and dropped approximately 64% of the original demand.
Following the appellate order, the confirmed liability stood reduced to ₹17,50,70,729, while a demand of ₹31,45,84,219 was set aside.
The assessee subsequently filed an application in Form GST RFD-01 seeking a refund of ₹3,14,58,422. This represented the proportionate part of the 10% pre-deposit attributable to the demand that had been dropped in appeal.
The Deputy Commissioner of State Tax issued a show cause notice proposing to reject the refund. The authority noted that assessee had expressed its intention to challenge the remaining confirmed demand before the GST Appellate Tribunal.
According to the department, Circular No. 125/44/2019-GST dated November 18, 2019 permitted the refund of a pre-deposit only after the appellate proceedings had attained finality—that is, when no further appeal was pending or contemplated.
The refund authority held that the assessee’s proposed appeal before the GST Appellate Tribunal meant that the appellate proceedings remained unresolved. It therefore rejected the entire refund claim as premature through an order dated August 26, 2025.
Assessee approached the Bombay High Court under Article 226 of the Constitution, challenging that rejection.
The High Court found the department’s reasoning erroneous because it treated the entire appellate order as being under further challenge.
The Court explained that assessee intended to challenge only the portion of the appellate order that had gone against it—the confirmed demand of ₹17,50,70,729.
The company was not challenging the relief already granted to it. Moreover, the department had not filed an appeal against the deletion of the ₹31,45,84,219 demand.
Therefore, the proceedings had attained finality to the extent of the demand deleted by the appellate authority.
“The reasoning of the authority that the proceedings have not attained finality only because the petitioner proposes to challenge that part of the order which has gone against it is fallacious,” the Court observed.
The Bench held that assessee’s case was covered by the November 18, 2019 GST circular. The refund of the pre-deposit made under Section 107(6) of the MGST Act was admissible because the appellate proceedings had become final in relation to the ₹31.45 crore demand that had been dropped.
The requirement to make a further statutory pre-deposit for approaching the GST Appellate Tribunal in relation to the remaining dispute could not justify withholding the amount attributable to the demand already set aside.
The assessee would separately have to comply with the applicable pre-deposit requirement if it challenged the confirmed demand of ₹17.50 crore before the Tribunal, the Court clarified.
The High Court also explained the legal character of a statutory pre-deposit. Referring to its earlier ruling in Nelco Limited v. Union of India, the Bench observed that an amount deposited as a condition for hearing an appeal does not assume the character of tax or duty.
Instead, it is in the nature of a security deposit made to satisfy a statutory condition for maintaining the appeal.
Such an amount must be returned when the appellant succeeds, whether fully or partly. In cases of partial success, the taxpayer becomes entitled to a proportionate refund corresponding to the part of the demand set aside.
The Court held that once the demand of ₹31,45,84,219 was set aside, assessee acquired a statutory right to the refund of the corresponding pre-deposit of ₹3,14,58,422.
The authorities had no legal justification to continue retaining that amount.
The Bench further ruled that such unauthorised retention offended Article 265 of the Constitution, which provides that no tax may be levied or collected except by authority of law.
The appellate order was also binding on the Deputy Commissioner under Section 107(16) of the GST law. Consequently, the officer could not refuse to grant the consequential refund arising from the demand deleted in appeal.
The assessee requested payment of statutory interest on the refundable amount. During the proceedings, however, the Court asked whether the company was willing to give up the interest claim in the circumstances of the case.
The assessee stated that the company was satisfied with the refund of the principal amount and would not press its claim for interest. The Bench placed its appreciation for this gesture on record.
Allowing the writ petition, the High Court quashed the August 26, 2025 refund-rejection order. It directed the authorities to process and refund ₹3,14,58,422 expeditiously and, in any event, within six weeks from the communication of its judgment.
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