2025 (5) TMI 371 - HC - GST

Obligation to comply with the appellate authority s order directing release of the refund amount despite the Commissioner s decision to file an appeal against that order - interest on refund claim - HELD THAT - The plain language in which Section 54(11) stands couched and which refers to a contingency where an order giving rise to a refund is the subject matter of an appeal - the mere decision to prefer or institute an appeal would not qualify Section 54(11). This is held since a decision taken by the Commissioner to assail an order cannot ipso facto or automatically result in the principal order being placed in abeyance. Reliance placed in the decision which had been rendered by the Division Bench of the Court in Alex Tour Travel (P) Ltd. vs. Commr. (CGST) 2023 (5) TMI 505 - DELHI HIGH COURT where it was held that Undisputedly the Revenue is entitled to file an appeal under section 112 of the Central Goods and Services tax Act 2017 within a period of three months from the date of the order. We are informed that the said period has been extended as the Appellate Tribunal has not been constituted as yet. However the respondent cannot refuse to comply with the appellate orders on this ground. The respondents are commanded to affect the refund to the writ petitioner forthwith together with statutory interest as payable - petition allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Court are:

(a) Whether the respondents are obligated to comply with the appellate authority's order dated 10 May 2024 directing release of the refund amount of Rs. 18,33,000/- despite the Commissioner's decision to file an appeal against that order.

(b) Whether the respondents are required to pay interest on the refund in terms of Section 56 of the CGST Act, 2017.

(c) The interpretation and applicability of Section 54(11) of the Central Goods and Services Tax Act, 2017, particularly whether the mere filing of an appeal by the Commissioner can justify withholding the refund.

(d) The enforceability of the earlier direction of the High Court dated 18 November 2024, which had directed the respondent to release the refund expeditiously within three weeks.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (a): Obligation to comply with the appellate authority's order for refund release despite appeal

Relevant legal framework and precedents: Section 54(11) of the CGST Act allows withholding of refund only where an order giving rise to the refund is the subject matter of an appeal or other proceedings and the Commissioner opines that the refund would adversely affect revenue due to malfeasance or fraud, after giving the taxable person an opportunity of being heard. The Division Bench decision in Alex Tour & Travel (P) Ltd. vs. Commissioner (CGST) was heavily relied upon, which held that the Revenue cannot refuse to comply with appellate orders merely because it proposes to appeal those orders. It was emphasized that no automatic stay arises from the filing of an appeal and that the Revenue must seek a stay order from a competent court if it wishes to withhold compliance.

Court's interpretation and reasoning: The Court rejected the respondents' submission that the mere decision to prefer an appeal under Section 54(11) justifies withholding the refund. The Court held that the plain language of Section 54(11) requires that the order giving rise to refund must actually be the subject matter of an appeal or proceeding, and that the Commissioner must have an opinion of potential adverse effect on revenue due to malfeasance or fraud. The mere filing or decision to file an appeal cannot ipso facto suspend the refund obligation.

Key evidence and findings: The Court noted that despite the earlier High Court direction dated 18 November 2024 to release the refund within three weeks, the respondents failed to comply. The refund claim arose from the appellate authority's order dated 10 May 2024 which had allowed the objections and set aside the rejection of the refund claim.

Application of law to facts: Applying the legal framework, the Court found no justification for withholding the refund as no stay order had been obtained by the respondents, nor was there any finding of malfeasance or fraud. The respondents' mere decision to appeal did not suspend the refund liability.

Treatment of competing arguments: The respondents argued that Section 54(11) allowed withholding of refund on appeal, but the Court distinguished between the decision to appeal and the actual pendency of appeal proceedings. The Court also relied on the precedent that the Revenue cannot ignore appellate orders without a stay. The petitioner's reliance on the earlier High Court direction was accepted as binding.

Conclusion: The respondents are obligated to comply with the appellate authority's order and release the refund forthwith despite the Commissioner's appeal decision.

Issue (b): Entitlement to interest on refund under Section 56 of the CGST Act

Relevant legal framework: Section 56 of the CGST Act provides for payment of interest on delayed refunds.

Court's interpretation and reasoning: The Court directed payment of statutory interest along with the refund, consistent with the provisions of Section 56. This aligns with the principle that delayed refunds attract interest to compensate the taxpayer for the time value of money.

Application of law to facts: Since the respondents failed to release the refund within the stipulated time and in compliance with the appellate order, they are liable to pay interest as per law.

Conclusion: The respondents must pay interest on the refund amount as stipulated under Section 56.

Issue (c): Interpretation and applicability of Section 54(11) of the CGST Act

Relevant legal framework: Section 54(11) states that where an order giving rise to a refund is the subject matter of an appeal or other proceedings, and the Commissioner opines that granting refund may adversely affect revenue due to malfeasance or fraud, refund may be withheld after hearing the taxable person.

Court's interpretation and reasoning: The Court emphasized the conditional nature of Section 54(11). It cannot be invoked merely because an appeal has been filed or proposed. The Commissioner's opinion must be based on malfeasance or fraud, and the taxable person must be given an opportunity of being heard. The Court held that the Commissioner's decision to appeal without such findings or hearing does not satisfy the conditions for withholding refund under Section 54(11).

Application of law to facts: No evidence or finding of malfeasance or fraud was shown. No opportunity of hearing was recorded. Therefore, Section 54(11) was inapplicable to justify withholding refund here.

Conclusion: Section 54(11) cannot be invoked to withhold refund merely on the ground of an appeal being filed.

Issue (d): Enforceability of the earlier High Court direction dated 18 November 2024

Relevant legal framework and precedents: The earlier order directed expeditious release of refund within three weeks. The Court in the present proceedings reaffirmed the binding nature of this direction, citing the principle that judicial directions must be complied with unless stayed or set aside by a competent authority.

Court's interpretation and reasoning: The Court noted that despite the clear direction, the respondents failed to act. The Court reiterated that the direction stands unless modified or stayed and must be obeyed.

Application of law to facts: The respondents' failure to comply with the earlier direction was unjustified and warranted intervention.

Conclusion: The earlier direction is enforceable and must be complied with forthwith.

3. SIGNIFICANT HOLDINGS

"We find ourselves unable to countenance that submission bearing in mind the plain language in which Section 54(11) stands couched and which refers to a contingency where an order giving rise to a refund 'is the subject matter of an appeal'. In our considered opinion, the mere decision to prefer or institute an appeal would not qualify Section 54(11)."

"A decision taken by the Commissioner to assail an order cannot ipso facto or automatically result in the principal order being placed in abeyance."

"The Revenue cannot refuse to comply with the appellate orders on this ground [of filing appeal]."

"There is no order passed by any competent court, staying the implementation of the orders-in-appeal passed by the appellate authority."

"This order would not preclude the respondent from availing statutory remedy against the orders-in- appeal in accordance with law."

The Court established the core principle that the mere filing or decision to file an appeal against an order granting refund does not entitle the Revenue to withhold the refund. The statutory conditions under Section 54(11) must be strictly satisfied, including a finding of malfeasance or fraud and opportunity of hearing. Until a stay is granted by a competent court, appellate orders directing refund must be complied with expeditiously. Further, delayed refunds attract interest under Section 56 of the CGST Act.

The final determination was that the respondents must forthwith release the refund amount of Rs. 18,33,000/- along with statutory interest, complying with the appellate authority's order and the earlier High Court direction, notwithstanding the Commissioner's appeal decision.