2025 (8) TMI 1451 - HC - GST

Department cannot withhold sanctioned refund under Section 54(11) where no appeal, review or stay exists

Omega Qms. Versus Commissioner, CGST, Delhi West & Anr.

The HC held that the department cannot withhold or stall a sanctioned refund solely on the basis of its opinion under Section 54(11) when there is no ... Withholding of processing and sanctioning of refund to the Petitioner - It is the grievance of the Petitioner that the Appellate Authority’s order has not been challenged or set aside by any forum and thus, it still stands - HELD THAT:- In the opinion of this Court the Department’s opinion under Section 54(11) of the Act 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) of the Act 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. In G.S. Industries [2023 (4) TMI 404 - DELHI HIGH COURT] the Coordinate Bench has observed that 'Concededly, the respondent has not filed any appeal against the order-in-appeal dated 03.01.2022, and there is no order of any Court or Tribunal staying the said order. Indisputably, the order-in-appeal dated 03.01.2022 cannot be ignored by the respondents solely because according to the revenue, the said order is erroneous and is required to be set aside.' The refund in favour of the Petitioner would be liable to be allowed in terms of the order passed by the Appellate Authority - Petition disposed off. ISSUES PRESENTED AND CONSIDERED 1. Whether a Commissioner's opinion under Section 54(11) of the Central Goods and Services Tax Act, 2017 can, by itself, justify withholding processing and sanction of a refund where an Appellate Authority has allowed the refund and no appeal or other proceeding challenging that Appellate Authority order is pending. 2. Whether the statutory conditions of Section 54(11) are satisfied when there exists only an intention to challenge an Appellate Authority order but no appeal has been filed and no stay or other proceedings are pending. 3. Whether, and to what extent, a court may direct immediate processing and disbursement of a refund allowed by an Appellate Authority, subject to the Department's right to subsequently challenge that order and seek recovery if successful. 4. Whether entitlement to interest under Section 56 of the Act arises where a refund directed by an Appellate Authority is withheld by the revenue pursuant to a Section 54(11) opinion absent any pending appeal. ISSUE-WISE DETAILED ANALYSIS - Applicability of Section 54(11) as a standalone ground to withhold refund Legal framework: Section 54(11) permits the Commissioner, after giving an opportunity of being heard, to withhold a refund where (i) the order giving rise to the refund is the subject matter of an appeal or other proceeding under the Act that is pending, and (ii) the Commissioner is of the opinion that grant of the refund is likely to adversely affect the revenue on account of malfeasance or fraud. Precedent treatment: Coordinate-bench decisions of this Court have held that where an Appellate Authority has allowed a refund and no appeal or stay is in existence, the revenue cannot deny the benefit of the appellate order merely on a decision or intention to challenge it (as applied in earlier reported decisions relied upon by the Petitioner and followed subsequently). Interpretation and reasoning: The Court interpreted Section 54(11) conjunctively - both the pendency of an appeal/proceeding and a reasoned opinion of likely adverse revenue effect due to malfeasance/fraud must coexist. An opinion recorded in isolation, without an actual pending appeal or proceeding against the order granting the refund, cannot lawfully operate to withhold processing. The Court emphasized that the statutory text requires that the order 'be the subject matter of an appeal or further proceedings ... pending' before the Commissioner's opinion can have effect. Ratio vs. Obiter: Ratio - A Commissioner's opinion under Section 54(11) cannot, by itself and in the absence of a pending appeal or other proceeding, justify withholding the processing and sanction of a refund allowed by an Appellate Authority. Obiter - Observations distinguishing factual permutations where malfeasance or fraud is established and an appeal is in fact pending. Conclusions: The impugned withholding based solely on a Section 54(11) opinion where no appeal or other proceeding was pending was impermissible; the refund must be processed in accordance with the Appellate Authority's order. ISSUE-WISE DETAILED ANALYSIS - Effect of a mere intention to file an appeal and absence of Appellate Tribunal Legal framework: Procedural rights to appeal exist under the Act, but the efficacy of Section 54(11) is triggered by pendency of appeal/proceedings, not by the revenue's undeployed intention to file one. Precedent treatment: Prior decisions of this Court held that a mere decision or intention to challenge an appellate order, unaccompanied by filing of an appeal or a stay order, does not permit denial of the benefit conferred by the appellate order. Interpretation and reasoning: The Court distinguished situations where the revenue has actually initiated appellate proceedings (or obtained a stay) from those where only an intention is expressed. The absence of a functioning appellate forum at a particular time cannot be used to justify withholding - the statutory condition is objective (pending proceedings) and not satisfied by intention. The Court rejected the Department's reliance on administrative intention as an independent ground for non-payment. Ratio vs. Obiter: Ratio - Withholding is not justified by administrative intention to appeal; actual pendency of appeal or other proceedings is mandatory under Section 54(11). Obiter - Practical observations on timing and availability of appellate fora. Conclusions: The Department's stated intention to file an appeal, without an actual pending appeal or stay, did not satisfy Section 54(11) and could not lawfully delay the refund. ISSUE-WISE DETAILED ANALYSIS - Direction to process refund subject to subsequent challenge and recovery Legal framework: When an appellate order in favour of a taxable person stands (i.e., is not set aside or stayed), courts can direct disbursement while preserving the revenue's statutory remedies, including filing of an appeal and recovery proceedings if the revenue later succeeds. Precedent treatment: The Court relied on earlier rulings directing immediate processing of refunds permitted by appellate orders, while clarifying that the revenue remains free to challenge such orders and, if successful, to undertake recovery according to law. Interpretation and reasoning: The Court balanced the taxpayer's right to receive amounts lawfully awarded by an appellate authority and the revenue's right to challenge erroneous orders. The remedy directed required the revenue to pursue substantive appeals as available in law; any successful challenge would permit lawful recovery of amounts disbursed. Accordingly, the Court ordered processing and disbursement within a fixed timeframe, subject to the result of any future appeal. Ratio vs. Obiter: Ratio - A court may direct processing and disbursement of refunds allowed by an appellate authority notwithstanding the revenue's later challenge, provided the disbursement is made subject to the outcome of any subsequent appeal and rights of recovery remain available to the revenue. Obiter - Practical timelines and modalities imposed in the present factual matrix. Conclusions: The refund shall be processed and disbursed with interest within a specified period, while preserving the Department's right to appeal and recover if it prevails. ISSUE-WISE DETAILED ANALYSIS - Entitlement to interest under Section 56 where refund was withheld Legal framework: Section 56 of the Act provides for payment of interest where refunds are due but not paid within the statutory timeframe, subject to conditions in the Act and rules. Precedent treatment: Prior rulings of this Court have awarded interest where the revenue wrongfully withheld refunds that had been directed by an appellate authority and no valid statutory basis existed for the withholding. Interpretation and reasoning: Given that the appellate order entitled the taxpayer to refund and no lawful ground under Section 54(11) existed to withhold it, the taxpayer became entitled to interest for the period of delay in disbursement. The Court therefore directed payment of interest in accordance with Section 56 along with processing of the refund. Ratio vs. Obiter: Ratio - Where refund is lawfully due and withheld without valid statutory justification, interest under Section 56 is payable. Obiter - Calculation or rate particulars left to the implementing authorities in accordance with the statute. Conclusions: Interest on the refund is payable and the refund must be processed along with interest within the timeframe ordered by the Court. ADDITIONAL OBSERVATIONS Cross-reference: The Court explicitly followed and applied the principles laid down in prior coordinate-bench decisions addressing withholding of refunds in absence of pending appeals; those decisions were treated as binding for the present facts. Practical directive: Processing and disbursement ordered within a specified period, with the caveat that if the Department files an appeal and succeeds, it may pursue recovery according to law - thereby preserving both the taxpayer's entitlements and the revenue's appellate remedies.