2025 (5) TMI 1436 - HC - GST

Seeking release of refund claim along with applicable interest - Unutilized Input Tax Credit (ITC) - freight forwarding services to various clients in India and abroad - Procedural requirement for Withholding of Refund under Section 54(11) by the Commissioner - HELD THAT - The position under Section 54 (11) of the CGST Act 2017 has been recently considered by this Court in Shalender Kumar v. Commissioner Central Goods and Services Tax Delhi West Ors. 2025 (4) TMI 555 - DELHI HIGH COURT held that In the absence of an appeal or any other proceeding pending challenging the order of the Appellate Authority the opinion under Section 54 (11) cannot result in holding back the refund. Following the above settled legal position under Section 54 (11) that the opinion of the Department cannot be relied upon on a stand-alone basis without any challenge to the order by the Appellate Authority it is directed that the refund amount be released in favour of the Petitioner along with statutory interest. If however any appeal is filed challenging the Appellate authority s order by the department then the processing of refund in terms of this order shall be subject to the decision in the appeal. The petition is disposed of in these terms.

Summary

The core legal questions considered in this judgment revolve around the entitlement to a refund of unutilized Input Tax Credit (ITC) under the Central Goods and Services Tax (CGST) Act, 2017, specifically:

1. Whether the Petitioner is entitled to the refund claim of Rs. 19,09,038/- along with applicable interest under Section 56 of the CGST Act for unutilized ITC for the period January 2023.

2. The validity and applicability of the Department's decision to withhold the refund under Section 54(11) of the CGST Act, 2017, pending further appellate proceedings.

3. The legal effect of the Appellate Authority's order allowing the refund and whether the Department can withhold the refund despite such order without filing an appeal.

4. The procedural safeguards and conditions under which a refund can be withheld by the Commissioner under Section 54(11), particularly the requirement of malfeasance or fraud and the existence of pending proceedings.

Issue-wise Detailed Analysis

Issue 1: Entitlement to Refund of Unutilized ITC under Section 56 of the CGST Act

The Petitioner, engaged in freight forwarding services, had an unutilized ITC balance and filed a refund claim for the period January 2023. The refund claim was initially rejected by the Assistant Commissioner, Central Tax GST West, Rohini, Delhi. However, upon appeal, the Appellate Authority allowed the refund claim under Section 107(12) of the CGST Act.

The Court recognized that the Petitioner's entitlement to refund arises under the statutory provisions of the CGST Act, and the Appellate Authority's order is operative and binding unless challenged. The Petitioner's claim was supported by documentary evidence and was found to be valid by the Appellate Authority, which relied on the Petitioner's submissions and records.

The Department's initial rejection was found to be unsustainable in light of the Appellate Authority's order. The Court emphasized that the Petitioner is entitled to the refund along with interest as prescribed under Section 56, which mandates payment of interest on delayed refunds.

Issue 2: Withholding of Refund under Section 54(11) of the CGST Act

Section 54(11) empowers the Commissioner to withhold refund payments if two conditions are met: (i) the refund order is subject to pending appeal or proceedings, and (ii) the Commissioner is of the opinion that granting the refund would adversely affect revenue due to malfeasance or fraud.

The Department exercised this power to withhold the refund despite the Appellate Authority's order allowing the refund, citing malfeasance and pending appellate proceedings before GSTAT or higher forums. The Department's order was issued under Section 54(11) to withhold further processing and sanction of the refund.

The Court analyzed the scope and limitations of Section 54(11), referring to its prior ruling in Shalender Kumar v. Commissioner Central Goods and Services Tax, where it was held that the opinion of the Department under Section 54(11) cannot be relied upon in isolation. The Court clarified that in the absence of a pending appeal or proceedings challenging the Appellate Authority's order, the Department cannot withhold the refund merely on its opinion.

The Court underscored the necessity of two cumulative conditions: a pending appeal or proceeding against the refund order, and a reasoned opinion of potential revenue loss due to malfeasance. Without both, withholding refund is impermissible.

Issue 3: Effect of the Appellate Authority's Order and Department's Failure to Challenge

The Appellate Authority had allowed the refund claim on 16th January 2024. The Department did not file any appeal against this order before the GST Appellate Tribunal or any higher forum. The Court held that in such a scenario, the Department's unilateral decision to withhold the refund under Section 54(11) is untenable.

Relying on precedents, the Court noted that the benefit of an Appellate Authority's order cannot be denied to a taxpayer merely because the Department intends to challenge it or has formed an opinion that the order is erroneous. The Department must file a formal appeal to stay or challenge the order; otherwise, the order stands binding.

Further, the Court referred to a prior decision where it was held that the Department cannot ignore or withhold benefits granted by an appellate order in the absence of a stay or appeal. The Court emphasized that the Petitioner's right to refund, as upheld by the Appellate Authority, must be respected and implemented.

Issue 4: Procedural Safeguards and Conditions for Withholding Refund

The Court reiterated the procedural safeguards embedded in Section 54(11), including the requirement that the Commissioner must provide the taxable person an opportunity of being heard before withholding refund. The Court noted that the Department's opinion must be reasoned and supported by pending proceedings to justify withholding.

The Court also highlighted the practical considerations regarding delayed refunds, pointing out that withholding refunds leads to payment of interest under Section 56, which ultimately burdens the Department. Therefore, it is in the Department's interest to process refunds promptly unless legally justified otherwise.

The Court clarified that if the Department files an appeal challenging the Appellate Authority's order in the future, the refund processing can be subject to the outcome of such appeal, and appropriate recovery actions can be taken if the Department succeeds.

Significant Holdings

"Section 54(11) of the CGST Act, 2017, reads as under:

'Where an order giving rise to a refund is the subject matter of an appeal or further proceedings or where any other proceedings under this Act is pending and the Commissioner is of the opinion that grant of such refund is likely to adversely affect the revenue in the said appeal or other proceedings on account of malfeasance or fraud committed, he may, after giving the taxable person an opportunity of being heard, withhold the refund till such time as he may determine.'"

"The Department's opinion under Section 54(11) cannot be relied upon on a standalone basis. In the absence of an appeal or any other proceeding pending, challenging the order of the Appellate Authority, the opinion under Section 54(11) cannot result in holding back the refund."

"The refund having been permitted by the Appellate Authority and no order in review having been passed, the Department cannot hold back the refund."

"The benefit of an Order-in-appeal cannot be denied to the petitioner and the refund amount be withheld solely on the ground that the respondent has decided to file an appeal against the said order."

"Considering the fact that refund amounts are payable with interest for the delayed period for paying the refund, it would in fact be contrary to the interest of the Department itself to hold back the refund."

The Court thus concluded that the Petitioner is entitled to the refund claim along with interest under Section 56 of the CGST Act, 2017, as per the Appellate Authority's order. The Department's withholding of the refund under Section 54(11) without a pending appeal or proceedings challenging the Appellate Authority's order was held to be unlawful. The refund was directed to be processed within two months, subject to any future appeal filed by the Department, with the possibility of consequential recovery if the Department succeeds.