Refund along with statutory interest allowed when wrongly adjusted against cancelled outstanding liability

The Hon’ble Delhi High Court in the case of HARBHAJAN SINGH THUKRAL Versus GOVERNMENT OF NCT OF DELHI DEPARTMENT OF TRADE AND TAXES & ANR. - 2025 (10) TMI 482 - DELHI HIGH COURT held that if a refund amount belonging to a taxpayer is mistakenly adjusted against an outstanding demand, which was later cancelled, the taxpayer must receive the refund along with statutory interest.

Facts:

Harbhajan Singh Thukral ('the Petitioner'), engaged in trading motor parts and mobiles, applied for refund of excess balance in the electronic cash ledger.

The Government of NCT of Delhi, Department of Trade and Taxes and others ('the Respondent') accepted the refund application but adjusted the refund amount towards the Petitioner's outstanding liability.

The Petitioner contended that the amount was wrongly appropriated against an outstanding demand, which was later cancelled in an official order dated July 24, 2023 in FORM GST DRC-8A, but the refund was not adjusted back to them.

The Respondent contended that the refund was appropriately adjusted towards the arrears reflected on the system, and the cancellation order was not uploaded on the relevant portal at the time of adjustment.

The Petitioner approached the Court by way of writ petition seeking direction for refund of the amount wrongly appropriated along with interest under statutory provisions.

Issue:

Whether the Petitioner is entitled to refund with interest when the refund amount is wrongly adjusted against a cancelled demand?

Held:

The Hon’ble Delhi High Court in HARBHAJAN SINGH THUKRAL Versus GOVERNMENT OF NCT OF DELHI DEPARTMENT OF TRADE AND TAXES & ANR. - 2025 (10) TMI 482 - DELHI HIGH COURTheld as under:

• Observed that, though initially refund of ₹7,71,000 was issued, it was appropriated against outstanding liability of ₹10,71,941.
• Noted that, the outstanding demand against the Petitioner was cancelled vide official order dated July 24, 2023, but the order was not uploaded in the system, which caused the wrongful adjustment.
• Directed that, the refund amount along with statutory interest be paid to the Petitioner within two months.

Our Comments:

The judgment reiterates the principle that when a refund is wrongly adjusted against cancelled demands, the taxpayer is entitled to the refund along with interest, ensuring the principles of natural justice and fair treatment in fiscal matters. The Court referred to procedural lapses such as non-uploading of cancellation orders on official portals as critically impacting the refund process.

Relevant Provisions:

Section 54 of the CGST Act, 2017

54. Refund of tax-

“(1) Any person claiming refund of any tax and interest, if any, paid on such tax or any other amount paid by him, may make an application before the expiry of two years from the relevant date in such form and manner as may be prescribed:

Provided that a registered person, claiming refund of any balance in the electronic cash ledger in accordance with the provisions of sub-section (6) of section 49, may claim such refund in such form and manner as may be prescribed...”

Section 56 of the CGST Act, 2017 –

56. Interest on delayed refunds.-

“If any tax ordered to be refunded under sub-section (5) of section 54 to any applicant is not refunded within sixty days from the date of receipt of application under sub-section (1) of that section, interest at such rate not exceeding six per cent. as may be specified in the notification issued by the Government on the recommendations of the Council shall be payable in respect of such refund for the period of delay beyond sixty days from the date of receipt of such application till the date of refund of such tax, to be computed in such manner and subject to such conditions and restrictions as may be prescribed:

Provided that where any claim of refund arises from an order passed by an adjudicating authority or Appellate Authority or Appellate Tribunal or court which has attained finality and the same is not refunded within sixty days from the date of receipt of application filed consequent to such order, interest at such rate not exceeding nine per cent. as may be notified by the Government on the recommendations of the Council shall be payable in respect of such refund from the date immediately after the expiry of sixty days from the date of receipt of application till the date of refund.”

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