2025 (8) TMI 789 - HC - GST

Refund ordered of excess tax to electronic credit ledger; respondents may retain only 20% under statutory pre-deposit rules

HC allowed the petition and directed refund of the excess amount recovered to the petitioner's electronic credit ledger within one week. The court found ... Maintainability of petition - availability of alternative remedy - requirement of pre-deposit - Refund of excess amount recovered from the petitioner - appeal was heard without any further pre-deposit - HELD THAT:- It would transpire that even before the statutory period for preferring an appeal from an order passed under Section 73 of the said Act dated 14th June, 2023 for the tax period of 2017-2018 had expired, the entire tax was recovered from the petitioner No. 1 on 3rd August, 2023. Such fact would corroborate from the electronic credit ledger statement enclosed to the petition. Although, the petitioners had made representations before the authorities, such representations were kept pending. In the interregnum, the statutory appeal filed by the petitioners from the order passed under Section 73 was decided by treating the recovery as a pre-deposit. Even after the appeal was disposed of and a revised demand was raised, in form APL 04, the respondents did not refund the balance amount by retaining 20% of the amount of tax in dispute. The Statute recognizes the right of the petitioner to maintain an appeal by depositing 10% of the tax in dispute from an order passed by the proper officer. Similar statutory remedy from an order passed under Section 107 by the appellate authority is also available by making a further pre-deposit i.e. 10% of the remaining amount of the tax in dispute before the appellate Tribunal. Admittedly, the appellate tribunal is yet to be constituted. Considering the fact that the respondents at best could have been entitled to 20 per cent of the amount of tax in dispute, having regard to the provisions contained in Section 107(6) and Section 112(8) of the said Act, the balance amount ought to be refunded to the petitioner No. 1. Accordingly, the respondent No. 1 is directed to refund the balance amount to the petitioner’s electronic credit ledger within a period of one week from the date of communication of this order. Petition disposed off. 1. ISSUES PRESENTED and CONSIDERED Whether the recovery of the entire tax demand prior to the expiry of the statutory period for filing an appeal under Section 107 of the WBGST/CGST Act, 2017 was lawful. Whether the retention of the entire recovered amount without refunding the balance after the appellate authority's modification of the demand was justified. Whether the rejection of the refund application on the ground that no refund order was passed by any authority was legally sustainable. The scope and applicability of Sections 107(6) and 112(8) of the WBGST/CGST Act, 2017 concerning the amount of tax that can be retained during the pendency of an appeal. The entitlement of the petitioner to a refund of the excess amount recovered beyond the permissible pre-deposit or retention under the statute. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Legality of Recovery of Entire Tax Demand Prior to Expiry of Statutory Appeal Period Relevant legal framework and precedents: Section 73 of the WBGST/CGST Act, 2017 empowers the authority to determine tax demand. Section 107 provides the right to appeal against such orders within a stipulated period. The statute contemplates that recovery of tax demand prior to the expiry of the appeal period must be regulated and consistent with the appeal mechanism. Court's interpretation and reasoning: The Court noted that the entire tax demand was debited from the petitioner's electronic credit ledger before the statutory appeal period expired. This premature recovery was held to be a grave procedural error and contrary to the statutory scheme which provides for a right of appeal and regulated pre-deposit requirements. Key evidence and findings: The electronic credit ledger statement confirmed the debit of the entire demand on 3rd August, 2023, before the appeal period ended on the same date. The petitioners had also made representations which were not acted upon. Application of law to facts: The Court found that recovery prior to the expiry of the appeal period undermined the statutory right to appeal and was therefore unlawful. Treatment of competing arguments: The State's position that the recovery was valid was rejected due to lack of statutory support and procedural fairness. Conclusions: The recovery of the entire tax demand before the expiry of the appeal period was illegal and constituted a violation of the petitioner's statutory rights. Issue 2: Retention of Entire Amount Post-Appellate Modification and Non-Refund of Balance Relevant legal framework and precedents: Section 107(6) and Section 112(8) of the WBGST/CGST Act, 2017 provide that during the pendency of an appeal, the authorities may retain only a portion (commonly 20%) of the tax in dispute as a pre-deposit or security. Court's interpretation and reasoning: The appellate authority modified the original demand, reducing the amount payable. Despite this, the respondents did not refund the balance amount after retaining only 20% as permitted. The Court held this withholding of the balance amount without any statutory basis to be irrational and contrary to the statutory provisions. Key evidence and findings: The appellate order dated 29th August, 2024 and the revised demand form APL 04 confirmed modification of the demand. The communication dated 29th October, 2024 and subsequent refund application rejection showed the respondents' refusal to refund the excess amount. Application of law to facts: The respondents were entitled to retain only 20% of the tax in dispute; the balance amount should have been re-credited or refunded to the petitioner's electronic credit ledger. Treatment of competing arguments: The State's refusal to refund on the basis that no refund order was passed was found to be an unreasonable interpretation of the law, ignoring the statutory scheme of pre-deposit and retention during appeals. Conclusions: The respondents' failure to refund the excess amount after the appellate modification was unlawful and the balance amount was ordered to be refunded. Issue 3: Validity of Rejection of Refund Application on Ground of Absence of Refund Order Relevant legal framework and precedents: The statutory framework requires a refund order to be passed for processing refunds. However, where excess tax has been recovered without lawful basis, the right to refund arises independent of formal refund orders. Court's interpretation and reasoning: The Court held that the rejection of the refund application on the sole ground that no refund order was passed was irrational. The right to refund in this case arose from the unlawful recovery and retention of amounts beyond the statutory limit. Key evidence and findings: The refund application in form GSTRFD 01 was rejected by order dated 11th March, 2025 citing absence of refund order. Application of law to facts: The Court emphasized that the statutory provisions and principles of natural justice require refund of amounts unlawfully recovered, notwithstanding procedural formalities. Treatment of competing arguments: The State's reliance on the absence of a refund order was rejected as an overly formalistic approach inconsistent with substantive rights. Conclusions: The rejection of the refund application on the ground of absence of refund order was unsustainable and set aside. Issue 4: Interpretation and Application of Sections 107(6) and 112(8) Regarding Pre-Deposit and Retention of Tax in Dispute Relevant legal framework and precedents: Section 107(6) mandates that during the pendency of appeal under Section 107, the appellant must deposit 10% of the tax in dispute, and the authorities may retain 20% of the tax in dispute as security. Section 112(8) contains similar provisions for appeals before the appellate tribunal. Court's interpretation and reasoning: The Court interpreted these provisions as limiting the amount that can be retained by the tax authorities during the pendency of appeal to 20% of the disputed tax. Any amount recovered beyond this limit must be refunded or re-credited. Key evidence and findings: The petitioner deposited the requisite amounts as pre-deposit and the appellate authority modified the demand accordingly. The appellate tribunal was yet to be constituted, so further pre-deposit was not applicable at this stage. Application of law to facts: Since the petitioner complied with pre-deposit requirements and the appellate order reduced the demand, the authorities were only entitled to retain 20% of the disputed tax, mandating refund of the balance. Treatment of competing arguments: The State's position that the entire amount could be retained was rejected as inconsistent with the statutory provisions. Conclusions: The statutory scheme clearly limits retention to 20% of the disputed tax during appeals, and this limit was not observed by the respondents. Issue 5: Entitlement to Refund of Excess Amount Recovered Beyond Statutory Pre-Deposit or Retention Relevant legal framework and precedents: The principles of natural justice and statutory provisions under the WBGST/CGST Act mandate refund of excess tax recovered without lawful basis. Court's interpretation and reasoning: The Court held that the petitioner was entitled to refund of the excess amount recovered beyond the permissible 20% retention. The respondents' failure to refund despite appellate modification and statutory provisions was unjustified. Key evidence and findings: The petitioner's repeated representations and refund application were ignored or rejected without lawful basis. The appellate authority's order recognized a reduced demand, reinforcing the entitlement to refund. Application of law to facts: The Court directed the respondents to refund the balance amount to the petitioner's electronic credit ledger within one week of communication of the order. Treatment of competing arguments: The State's arguments for withholding the amount were rejected as lacking statutory or equitable justification. Conclusions: The petitioner's entitlement to refund of the excess amount was upheld and the refund rejection order was set aside.