The Delhi High Court has upheld the withholding of a ₹3.15 crore GST refund, holding that an ongoing anti-evasion investigation, supported by material indicating fraud or malfeasance, can justify action under Section 54(11) of the Central Goods and Services Tax Act, 2017, even where the taxpayer has obtained a favourable appellate order.
The Bench of Justice Anil Kshetrapal and Justice Shail Jain dismissed the petition which sought implementation of an appellate order allowing its refund claims and quashing the Commissioner’s subsequent decision to withhold the refund.
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The company was engaged in exporting electronic goods, including microphones, telephone sets, smartphones, monitors, projectors, automatic data processing machines and related accessories.
For exports made on payment of Integrated GST between November 2023 and January 2024, it filed five refund applications aggregating to ₹3,15,30,605.03.
The tax department issued show cause notices alleging, among other things, that the applications lacked the necessary supporting documents. Although the company submitted replies and documents, the refund applications were rejected through separate orders passed between March and June 2024, primarily on the ground of incomplete documentation.
The company challenged these orders before the appellate authority. It maintained that the necessary documents had accompanied its applications and furnished screenshots from the GST portal to substantiate its position.
By an Order-in-Appeal, the appellate authority allowed all five appeals, finding that the refund claims had been rejected without properly appreciating the company’s submissions and the facts.
The competent authority reviewed the decision and directed that it be challenged before the Goods and Services Tax Appellate Tribunal once the Tribunal became functional.
The company subsequently filed a consolidated refund claim on June 25, 2024, seeking payment of the entire amount.
However, after providing opportunities for a personal hearing, the Commissioner passed an order dated September 24, 2024, withholding the refund under Section 54(11).
The company approached the High Court seeking release of the refund with applicable interest. The central question was whether the Commissioner had validly exercised the statutory power to withhold it.
The company argued that no appeal was pending before the GSTAT when the withholding order was passed. According to its submissions, the appeal was filed only on April 10, 2026.
It contended that merely contemplating an appeal could not amount to a pending proceeding under Section 54(11). It also argued that an investigation or inquiry could not, by itself, be treated as a proceeding sufficient to invoke that provision.
The company emphasised that no court or tribunal had stayed the appellate order granting relief. It further submitted that the show cause notice issued in August 2026 did not exist when the refund was withheld in September 2024 and could not retrospectively justify that decision.
It also maintained that an unadjudicated show cause notice could not override the rights flowing from a favourable appellate order.
Examining Section 54(11), the High Court explained that the provision requires two cumulative conditions.
First, the refund-generating order must be the subject of an appeal or further proceedings, or other proceedings under the Act must be pending. Second, the Commissioner must independently form an opinion, after giving the taxpayer an opportunity to be heard, that granting the refund is likely to adversely affect revenue on account of fraud or malfeasance.
The Bench interpreted the expression “any other proceedings” broadly. It held that the provision is not restricted to a formally instituted appeal and can encompass proceedings under the Act bearing on the correctness or finality of the order from which the refund arises.
The Court described Section 54(11) as an independent statutory safeguard for protecting revenue. Its operation, the Bench held, does not depend on a separate stay order from a court or tribunal.
The Court acknowledged earlier decisions, including Mandy Enterprises and Alex Tour & Travel, which establish that the department cannot keep a favourable appellate order in abeyance merely because it intends to challenge it.
However, the Bench distinguished those cases because the present withholding order was supported by an ongoing anti-evasion investigation and independent material concerning alleged fraud.
Consequently, even if the company’s argument about the absence of a pending appeal in September 2024 were accepted, it would not resolve the dispute. The Commissioner’s order did not rest solely on the proposed appeal.
The High Court recorded that the Anti-Evasion Wing, CGST Delhi South, had received the case from the Okhla Division on March 26, 2024.
The investigation therefore began nearly three months before the favourable appellate order and almost six months before the Commissioner withheld the refund.
It involved verification of suppliers and their premises, examination of transportation details, recording of statements and scrutiny of the goods claimed to have been exported. The subsequent show cause notice quantified allegedly inadmissible input tax credit at ₹6,53,08,612.
The Bench held that the later issuance of a show cause notice did not mean the investigation had begun only at that stage. Rather, the notice crystallised allegations arising from an investigation already underway when the withholding order was passed.
In relation to one supplier, the premises owner reportedly stated that the property had never been rented or otherwise provided to that entity. The Commissioner also examined suppliers at different levels of the supply chain, several of whose registrations appeared as cancelled suo motu on the GST portal.
The investigation additionally recorded statements from vehicle owners denying transportation of the goods reflected in the relevant e-way bills.
The judgment also refers to subsequent verification of the IMEI numbers of mobile phones claimed to have been exported. According to the investigation material reproduced in the ruling, information obtained from Apple India and companies in the identified supply chain did not establish the company’s place in that chain for the phones examined.
The Court found that the withholding order rested on a cumulative examination of the supply chain and supporting material, rather than a bare apprehension or an isolated disputed transaction.
The Bench also considered the relevance of Section 16(2)(b), which requires receipt of goods or services for entitlement to input tax credit.
The Commissioner’s order had recorded that possession of tax invoices alone was insufficient where actual transactions and physical movement of goods were not substantiated.
The High Court held that supplier verification reports, cancelled registrations and material concerning the absence of genuine supplies were relevant to assessing compliance with the requirement of actual receipt.
In the circumstances, the Court concluded that the Commissioner had formed the requisite opinion on the basis of material concerning suspected fraud or malfeasance.
Addressing the company’s argument that the Commissioner had acted administratively rather than as an adjudicating authority, the Court observed that Section 54(11) expressly confers the withholding power on the Commissioner.
It explained that this power is distinct from adjudication under Sections 73 and 74 and the appellate mechanism under Section 107. The absence of an appeal under Section 107 did not exclude judicial review under Article 226 of the Constitution.
Nevertheless, with an appeal already before the GSTAT, the Bench declined to determine disputed factual questions concerning the genuineness of suppliers, actual movement of goods and the correctness of the findings in the withholding order and show cause notice.
The company was permitted to raise all its contentions, including those concerning Section 54(11), before the Tribunal. The GSTAT was directed to consider them uninfluenced by the High Court’s observations.
The Court concluded that an anti-evasion investigation was already pending when the refund was withheld and that the Commissioner’s opinion was supported by contemporaneous material.
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