The Orissa High Court has ruled that GST authorities cannot refuse or withhold a taxpayer’s refund merely because the statutory period for filing an appeal before the Goods and Services Tax Appellate Tribunal (GSTAT) has not expired or because the department is contemplating an appeal.
The bench of Chief Justice Harish Tandon and Justice M.S. Raman has observed that this approach is contrary to Section 54(11) of the Central Goods and Services Tax Act, 2017, and amounts to sitting in appeal over a binding appellate order.
The dispute arose from a search conducted by the Directorate General of GST Intelligence (DGGI) under Section 67 of the GST Act in relation to Hotel Rashmi Plaza. During the search on 10 August 2023, an amount of ₹33 lakh was recovered from M/s Rashmi Agency through Form GST DRC-03. According to the petitioner, the payment was made under protest and had been mistakenly deposited under the GSTIN of Rashmi Agency instead of Hotel Rashmi Plaza, which was the entity actually under investigation.
Subsequently, the petitioner challenged the rejection of its refund claim. On 27 February 2026, the Additional Commissioner of State Tax (Appeal) allowed the appeal in full, observing that the collection had been made during inspection in violation of CBIC Instruction No. 01/2022-23 and settled judicial principles. The appellate authority concluded that the taxpayer was not liable to pay the tax or interest and directed that the excess amount be refunded in accordance with law.
Following the appellate order, the petitioner filed a fresh refund application in Form GST RFD-01 seeking refund of ₹33 lakh.
The Deputy Commissioner, however, refused to consider the refund application through an order dated 2 May 2026 in Form GST RFD-06.
The authority reasoned that the State had six months under Section 112(3) of the GST Act to file an appeal before GSTAT and, until expiry of that period, the appellate order had not attained finality. According to the officer, granting the refund before expiry of the limitation period could adversely affect the interests of the revenue if the department subsequently succeeded in appeal.
The petitioner contended before the High Court that the Deputy Commissioner had acted completely without jurisdiction.
It argued that Section 54(11) empowers only the Commissioner to withhold refunds and only after satisfying specific statutory conditions. Since no appeal had actually been filed before GSTAT and no proceedings were pending on the date the refund application was rejected, there was no legal basis to invoke Section 54(11).
The petitioner further submitted that subordinate officers are duty-bound to implement appellate orders unless they are stayed or set aside by a competent authority, and cannot disregard binding appellate decisions merely because the department may choose to challenge them in future.
The State argued that granting the refund before expiry of the limitation period for filing an appeal could make recovery difficult if the appeal were eventually allowed in favour of the department.
It relied upon Section 54(11), contending that withholding the refund was necessary to safeguard revenue interests pending the possibility of further litigation.
The High Court rejected the department’s stand, observing that the Deputy Commissioner had effectively assumed powers not vested in him.
The Bench held that Section 54(11) permits withholding of refunds only when the refund arises from an order that is already the subject matter of an appeal or other pending proceedings; and the Commissioner forms an opinion that release of the refund is likely to adversely affect revenue on account of fraud or malfeasance.
The Court emphasized that these statutory conditions are mandatory and cannot be presumed merely because the department is considering filing an appeal. It further noted that Rule 92(2) of the GST Rules requires the authority to pass a reasoned order in Form GST RFD-07 while withholding any refund, recording specific reasons in accordance with law.
The Bench observed that simply citing Section 54(11) does not automatically authorize withholding of a refund.
An important fact noted by the Court was that the State actually filed its appeal before the GST Appellate Tribunal only on 24 June 2026, after receiving notice of the writ petition.
On the date when the Deputy Commissioner rejected the refund application—2 May 2026—there was admittedly no appeal pending before GSTAT and no other proceedings that could justify withholding of the refund under Section 54(11).
The Orissa High Court relied extensively on decisions of the Delhi High Court, including Truth Fashion v. Commissioner of DGST Delhi, Shalender Kumar v. Commissioner, Alex Tour & Travel Pvt. Ltd., and G.S. Industries, which consistently held that refund cannot be denied merely because the department proposes to challenge an appellate order.
The Court reiterated that an appellate order remains binding and enforceable unless stayed or overturned by a competent forum.
Holding that the Deputy Commissioner had no jurisdiction to refuse consideration of the refund application merely because the appeal period had not expired, the High Court set aside the impugned order dated 2 May 2026.
The Court remitted the matter to the Deputy Commissioner for fresh consideration of the refund application within two weeks, directing the authority to consider the petitioner’s reply to the show cause notice; take into account CBIC Instruction No. 01/2022-23 dated 25 May 2022; grant the petitioner a reasonable opportunity of hearing; and pass a fresh, reasoned order in accordance with law.
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