A Stayed GST Demand Cannot Be Recovered By Adjusting A Refund

A Stay Stops Recovery Without Cancelling the Demand

A demand may remain unpaid and appear outstanding in departmental records, yet its recovery may be stayed. The existence of a demand and the right to recover it are separate questions. A stay does not decide that the demand is wrong or cancel the liability. It prevents recovery for as long as the stay applies. The Department must therefore check the recovery position before adjusting a refund. An outstanding entry alone is not sufficient authority to take money otherwise payable to the taxpayer.

This distinction arose in Trivitron Healthcare Private Ltd. Versus The Deputy Commissioner, Division – VI, CGST & Central Excise Commissionerate, Belapur. & Ors. - 2026 (10) TMI 855 - BOMBAY HIGH COURT. Hon'ble Mr Justice M.S. Karnik and Hon'ble Mr Justice Sandesh D. Patil of the Bombay High Court decided Writ Petition No.12365 of 2026. The Department had determined that Rs.64,01,750 was eligible for refund, but adjusted the entire amount against an earlier demand. The petitioner had completed the prescribed pre-deposit, filed its Tribunal appeal, and the recovery of the balance demand stood stayed.

Adjusting a refund against a demand is a form of recovery, even if the taxpayer makes no separate payment. The issue was therefore whether the Department could retain the refund towards a demand protected by the stay. The Court did not need to decide the correctness of the earlier demand to answer that question. The judgment required the restoration of the adjusted amount while leaving the underlying appellate disputes open. It thus preserved both the taxpayer's protection against recovery and the Department's right to defend the demand on appeal.

The Required Pre-Deposit Protects the Balance Demand From Recovery

An assessment order dated 30.08.2022 raised a demand of Rs. 1,12,34,474 for financial years 2017-18, 2018-19, and 2019-20. The petitioner filed its first appeal after paying a 10% pre-deposit through Form GST DRC-03. The appellate authority rejected the appeal, and the order was received on 10.07.2023. On 20.10.2023, the petitioner informed the Department that it intended to approach the GST Appellate Tribunal when it became functional. This communication explained its intention to continue the challenge; it did not, by itself, replace the applicable payment and appeal requirements.

On 19.08.2025, the petitioner paid a further 10% through the Electronic Credit Ledger. The judgment records that the two payments completed the applicable aggregate 20% pre-deposit. The Tribunal appeal was subsequently filed on 15.07.2026. Section 112(8) of the CGST Act, 2017 prescribes the payments required for a Tribunal appeal. Section 112(9) of the CGST Act, 2017 provides that recovery of the balance amount is deemed to be stayed when the applicable requirements are met. In this case, the completed pre-deposit and the Tribunal appeal supported that protection.

The pre-deposit therefore serves two purposes: it satisfies a statutory payment requirement for pursuing the appeal and protects the remaining demand from recovery while the stay operates. The Department cannot recognise compliance with the appeal while disregarding its effect on recovery. The percentages stated here describe the payments recognised in this judgment; they should not be treated as a universal formula for every appeal. The essential point is compliance with the statutory requirements applicable to the particular case.

The Circular Provided Recovery Protection While Tribunal Appeals Were Unavailable

After the first appeal was rejected, taxpayers faced a practical difficulty: they wanted to appeal further, but the GST Appellate Tribunal was not operational. CBIC Circular No.224/18/2024-GST dated 11.07.2024 addressed recovery during that period. It allowed taxpayers to pay the prescribed pre-deposit and undertake to file the Tribunal appeal within the applicable time once the Tribunal became operational. Protection against recovery depended on completing these steps, not merely expressing an intention to appeal.

The circular did not grant an unconditional stay. If the required payment or undertaking was not furnished, recovery could proceed according to law. Likewise, failure to file the appeal within the applicable period after the Tribunal became operational could result in recovery of the balance demand. For example, a letter stating "we intend to appeal" did not replace the prescribed payment and undertaking. The temporary difficulty in accessing the Tribunal did not remove the conditions attached to recovery protection.

In the present case of Trivitron Healthcare, the petitioner had completed the pre-deposit recognised in the judgment and subsequently filed its Tribunal appeal. The protection therefore rested on compliance with the order in that case. The decision should not be understood as granting a stay to every taxpayer who had merely announced an intention to appeal.

A Stayed Demand Cannot Be Recovered Through Refund Adjustment

The petitioner applied for a refund under Section 54 of the CGST Act, 2017 on 21.06.2025, covering July-September 2023. By order dated 11.08.2025, the Department found Rs. 64,01,750 eligible for refund but used the entire amount to adjust the earlier demand arising from the assessment order dated 30.08.2022. It defended this action by stating that the demand remained unpaid and adjustment was permissible under Section 54 of the CGST Act, 2017.

Using a taxpayer's refund to discharge a demand is a form of recovery. Calling it an "adjustment" does not change its effect. For example, suppose a taxpayer has an eligible refund of Rs.5 lakh and a separate demand whose recovery is stayed. If the Department applies that refund against the demand, it has recovered Rs.5 lakh without asking the taxpayer to make a fresh payment. A stay would offer little protection if the Department could achieve indirectly what it could not do through direct recovery.

In the circumstances established in Trivitron Healthcare, Section 112(9) of the CGST Act, 2017, read with Section 112(8) of the CGST Act, 2017 and CBIC Circular No.224/18/2024-GST dated 11.07.2024, protected the balance demand from recovery. The adjustment therefore could not be sustained merely because the assessment order remained in existence. The stay stopped recovery; it did not cancel the demand. The Tribunal remained responsible for deciding whether the demand was correct, and any eventual recovery would depend on the appellate outcome and applicable law.

Reversing an Adjustment Does Not Allow the Entire Refund Claim

The refund order raised two separate disputes. First, the Department found Rs. 64,01,750 eligible for refund but adjusted it against the earlier demand instead of paying it to the petitioner. Second, the Department disallowed Rs. 21,97,190.45. The petitioner challenged that disallowance through a separate first appeal filed on 09.11.2025. The two amounts therefore involved different questions and different reliefs.

For the eligible amount, the question was whether the Department could use it to recover the earlier demand despite the recovery stay. For the disallowed amount, the question was whether the petitioner had established its entitlement to refund. Success on the first question did not automatically answer the second. A direction to return money improperly adjusted cannot, by itself, establish eligibility for another amount rejected in the same refund order.

The High Court's relief was confined to reversing the adjustment of Rs.64,01,750. It did not direct payment of the separately disputed Rs.21,97,190.45. The First Appellate Authority retained the Power to decide that amount on merits and in accordance with law. The writ petition corrected the recovery action without deciding the entire refund claim.

A Different Trade Name Did Not Mean a Different Taxpayer

The Department argued that the writ petition was not maintainable because it was filed in the name of Trivitron Healthcare Private Limited, whereas the GST records showed "Kiran Medical Systems (A Division of Trivitron Healthcare Private Limited)". However, Trivitron Healthcare Private Limited remained the company's legal name. The trade name was amended on 18.05.2018, but the GST registration number did not change. The amended description also expressly identified Kiran Medical Systems as a division of the same company, not a separate legal entity.

The petitioner explained that entering the GST registration number automatically filled the name in the Tribunal appeal. It could not manually change that name. The unchanged registration number and the reference to the company in the trade name established the connection between the petitioner and the appellant described in the appeal. On these facts, the naming difference did not justify refusing relief against the refund adjustment.

The Tribunal could examine any remaining question about the description in the appeal. The decision recognised the taxpayer's identity despite the name difference; it did not make correct identification unnecessary. It should therefore not be understood as permitting the Tribunal to ignore any naming error. The relevant records must establish that the proceedings concern the same taxpayer.

Return of the Refund Did Not Decide Either Appeal

On 08.12.2025, the petitioner sought rectification, stating that the full prescribed pre-deposit had been paid and the refund adjustment was contrary to the recovery stay. The Court rejected the application on 10.12.2025, without reasons or consideration of those objections, as recorded in the judgment. The High Court directed reversal of the adjustment of Rs. 64,01,750 and return of that amount within four weeks of uploading its order. The Court allowed the writ petition without costs. No separate direction awarding interest was issued.

The relief concerned the refund adjustment, not the correctness of the underlying demand. The Tribunal appeal against that demand remained open for decision on its own merits and according to law. Returning the adjusted refund did not cancel the assessment or establish that the Department's demand was incorrect. It gave effect to the protection against recovery while the appellate dispute continued.

The separate first appeal concerning the disallowed refund of Rs.21,97,190.45 also remained open. That amount was not allowed merely because the eligible refund adjustment was reversed. Both appellate authorities had to decide the disputes before them independently. The petitioner succeeded against the adjustment but still had to establish its case in the pending appeals.

Recovery Requires Examination of Compliance and the Relevant Dates

The chronology is important. The refund was adjusted on 11.08.2025, and the petitioner paid the further pre-deposit on 19.08.2025, completing the aggregate 20% pre-deposit recognised in the judgment. On 08.12.2025, it sought rectification to place these payments on record. It submitted that it had fully satisfied the payment requirement for its Tribunal appeal and that the adjustment was contrary to Section 112(8) of the CGST Act, 2017, read with Section 112(9) of the CGST Act, 2017.

The rectification application was rejected on 10.12.2025, without reasons or consideration of these contentions, as recorded in the judgment. That rejection formed part of the writ challenge. The Tribunal appeal was subsequently filed on 15.07.2026. The payment records, rectification application and appeal therefore formed an important part of the compliance history supporting reversal of the adjustment. The decision should not be read as a general rule that every payment made after recovery automatically makes the earlier recovery unlawful.

The practical lesson is to preserve the assessment order, payment evidence, undertakings, appeal records and correspondence questioning the adjustment. These documents help establish when the applicable requirements were met and what recovery protection followed. The Department must examine that material and address the taxpayer's objections rather than rely only on an outstanding demand entry. An unpaid demand is not necessarily recoverable, and refund adjustment cannot defeat an operative statutory stay.

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