GST refund rejection for ineligible input tax credit can trigger recovery proceedings; interim abeyance granted pending second appeal.

Where refund of unutilized input tax credit is rejected on the ground of ineligibility, the refund circular permits the proper officer to issue notice under section 54 read with sections 73 or 74 of the CGST Act, and Clause 22 does not apply to such a dispute. The objection that recovery proceedings were barred was rejected. The court also granted conditional protection where the petitioner's second appeal could not be filed on the portal due to a technical glitch after the required deposit had been made, directing that the impugned order remain in abeyance until the appeal is decided and then operate according to that result.

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Issues: (i) Whether the circular governing rejection of refund claims permitted proceedings under sections 73 or 74 where the dispute concerned ineligibility of input tax credit. (ii) Whether the impugned order could be kept in abeyance until disposal of the petitioner's second appeal, which had not been taken on file due to portal glitches.

Issue (i): Whether the circular governing rejection of refund claims permitted proceedings under sections 73 or 74 where the dispute concerned ineligibility of input tax credit.

Analysis: The circular contemplated that where refund of unutilized or accumulated input tax credit is rejected on the ground of ineligibility, the proper officer may issue notice under section 54 of the Central Goods and Services Tax Act, 2017 read with sections 73 or 74 of the Central Goods and Services Tax Act, 2017, and proceed accordingly. Clause 22 applied only where refund was rejected for reasons other than ineligibility of credit. Since the dispute in hand concerned alleged ineligibility of credit, that clause could not be invoked.

Conclusion: The objection based on Clause 22 was rejected, and the circular was held applicable to the dispute.

Issue (ii): Whether the impugned order could be kept in abeyance until disposal of the petitioner's second appeal, which had not been taken on file due to portal glitches.

Analysis: The petitioner had already deposited the required 10% and had attempted to file the second appeal, but it was not taken on file because of a portal glitch. In those circumstances, the impugned order was directed to remain in suspense until the appellate authority decided the second appeal, with the order to operate only according to the result of that appeal.

Conclusion: Interim protection was granted by keeping the impugned order in abeyance until the second appeal is decided.

Final Conclusion: The writ petition was disposed of by upholding the applicability of the recovery mechanism under the refund circular, while granting conditional protection to the petitioner by deferring the operation of the impugned order until the second appeal is decided.

Ratio Decidendi: Where rejection of refund is founded on alleged ineligibility of input tax credit, the circular permits recovery proceedings under the GST recovery provisions, and the coercive order may be kept in abeyance where the statutory appeal could not be filed due to a technical portal failure.

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