Refund granted by appellate authority cannot be withheld on mere presumption of malfeasance or fraud u/s 54(11) the CGST Act, 2017

The Hon’ble Delhi High Court in the case of Omega Qms. Versus Commissioner, CGST, Delhi West & Anr. - 2025 (8) TMI 1451 - DELHI HIGH COURT held that a sanctioned refund granted by Appellate Authority cannot be withheld merely on the Commissioner’s opinion under Section 54(11) of the CGST Act in the absence of a pending appeal or other proceeding challenging the appellate order; the Department must process and release the refund along with interest unless and until an appeal or stay is actually pending.

Facts:

Omega QMS. (“the Petitioner”) is engaged in technical consultancy services and sought a refund of ₹83.46 lakhs for FY 2019-20 under the CGST Act.

Commissioner, CGST, Delhi West & Anr. (“the Respondent”) initially rejected the refund application through an Order-in-Original dated August 24, 2021.

The Petitioner appealed before the Appellate Authority, and by Order-in-Appeal dated June 20, 2022, allowed the refund and set aside the initial rejection.

The Petitioner contended that, since the Appellate Authority’s order was not challenged by any appeal or stayed, the refund was legally due and could not be withheld merely on the Department's intent to review or file a future appeal. The Department’s “review opinion” under Section 54(11), without actual proceedings, could not operate as a bar to refund release.

The Respondent contended that, as the Commissioner had issued an opinion under Section 54(11) stating that grant of refund might adversely affect revenue due to alleged malfeasance or fraud and that an appeal was intended, it was entitled to withhold the refund until finality of appellate proceedings, even though no appeal or stay actually existed.

The Petitioner, aggrieved by the ongoing withholding of refund despite a favourable and unchallenged appellate order, filed the present writ petition under Article 226 seeking directions for refund with interest.

Issue:

Whether a refund, granted by an Appellate Authority, can be withheld merely on the Commissioner’s opinion under Section 54(11) of the CGST Act in the absence of any pending appeal or legal proceeding challenging the appellate order ?

Held:

The Hon’ble Delhi High Court in Omega Qms. Versus Commissioner, CGST, Delhi West & Anr. - 2025 (8) TMI 1451 - DELHI HIGH COURTheld as under:

• Observed that, Section 54(11) of the CGST Act requires satisfaction of two statutory conditions: (i) that the refund-giving order is the subject of an appeal or other pending proceeding, and (ii) that the Commissioner opines the grant of refund is likely to adversely affect revenue due to malfeasance or fraud.
• Noted that, the Department’s opinion under Section 54(11) cannot be relied upon 'on a standalone basis'. Without an actually pending appeal or legal proceeding, the Commissioner’s withholding order is ultra vires the statute.
• Held that, the Appellate Authority’s order allowing refund was final and binding as it had not been stayed or set aside, nor was it subject to any current appeal and directed the Department to credit the refund along with interest under Section 56 of the CGST Act by September 30, 2025, subject to any actual appeal filed in the interim; if so, further refund processing would be governed by the appellate outcome.

Our Comments:

The Delhi High Court’s decision enforces the strict wording of Section 54(11) that, ‘actual pendency of appeal or proceeding’ is a precondition, and not a mere future intention.

In the case of G.S. Industries Versus Commissioner Central Goods And Services Tax Delhi West & Anr. & Ors. - 2023 (4) TMI 404 - DELHI HIGH COURTthe Court directed refund disbursal despite departmental intent to appeal, holding that only a pending appeal or stay can justify withholding, not mere administrative preparations. Similarly in the case of Mr. Brij Mohan Mangla Versus Union Of India & Ors. - 2023 (3) TMI 327 - DELHI HIGH COURT also supported immediate refund when there was no operative stay or appeal, with ability for department to recover in case of future reversal. These cases align with the present ruling and reinforce statutory certainty, reducing arbitrariness and administrative delays in GST refunds.

Relevant Provisions:

Section 54(11) of the CGST Act, 2017:

“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.”

 (Author can be reached at [email protected])