The Goods and Services Tax Appellate Tribunal (GSTAT), Patna Bench, has admitted a departmental appeal raising an important question concerning whether a GST refund application can be rejected merely because the taxpayer had not filed Form GSTR-1 at the time of making the refund claim.

The Bench of Manoj Shankar (Judicial Member) and Sanjay Kumar Mawandia (Technical Member), observed that the appeal involved a substantial question of law regarding the scope of the power available under Section 54(10) of the Central Goods and Services Tax Act, 2017.

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The Tribunal clarified that the matter had only been admitted for a hearing on merits. It has not yet delivered a final ruling on whether the refund was validly rejected.

The appeal arose after the appellate authority rejected the Department’s challenge concerning the refund claimed by Maniar Enterprises, proprietor of National Tyre Shop, Bhagalpur.

During the virtual admission hearing conducted through Webex, Santosh Kumar Samir, Superintendent, Bhagalpur Range, CGST and Central Excise, appeared as the Department’s authorised representative.

The departmental representative submitted that the appellate authority had rejected the Revenue’s appeal on the ground that Section 54(10) of the CGST Act permits the authorities only to withhold a refund where the prescribed returns have not been furnished.

According to the Department, the dispute required consideration on merits, particularly because the refund application had allegedly been filed when Form GSTR-1 remained unfiled.

The Revenue consequently requested the Tribunal to admit the appeal and examine whether non-filing of GSTR-1 at the time of making the refund application could justify rejection of the claim.

After examining the records and considering the Department’s submissions, the Tribunal found that the appeal raised a legal question requiring adjudication by a Division Bench.

The question identified by the Tribunal was whether a refund application could be rejected because of the non-filing of GSTR-1 at the time of filing the application when Section 54(10) expressly limits the authority’s power to withholding the refund rather than rejecting it altogether.

The distinction between “withholding” and “rejection” lies at the heart of the dispute.

Withholding ordinarily keeps the refund temporarily in abeyance until the statutory deficiency is cured or the relevant circumstances cease to exist. Rejection, in contrast, results in the denial of the refund claim and may require the taxpayer to pursue appellate or other legal remedies.

The case will therefore require the Tribunal to determine whether the failure to furnish GSTR-1 affects only the timing of the refund’s release or can also become a substantive ground for denying the refund application.

Section 54 of the CGST Act governs the grant of refunds under the GST framework. Sub-section (10) empowers the proper officer to withhold payment of a refund in specified circumstances, including where a registered person has not furnished a return or is required to pay tax, interest or penalty that has not been stayed.

The provision also enables the authorities to deduct unpaid tax, interest, penalty, late fee or other amounts from the refundable sum.

The legal issue before the GSTAT is whether this power can be extended beyond temporary withholding or adjustment to support the outright rejection of a refund claim due to the non-filing of GSTR-1.

The final decision could provide clarity on whether procedural non-compliance relating to return filing affects the admissibility of a refund itself or merely postpones its disbursement.

Having found that the appeal involved a question of law, the GSTAT admitted the Revenue’s appeal for consideration by the Division Bench.

The Tribunal directed that notice be issued to the respondent, Maniar Enterprises, permitting it to file cross-objections, if any, within six weeks.

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