TaxTMI 
TaxTMI 
2026 (9) TMI 1894
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....reating the said amount as erroneously refunded. During pendency of those proceedings, the appellant deposited Rs.90,35,671/- through FORM GST DRC-03 dated 08.11.2021, but did not deposit the interest demanded thereon. The legal effect of such payment, including whether any dispute concerning the principal amount survives for determination in the present appeal and whether the appellant nevertheless remains entitled to contest the consequential interest, is considered hereinafter. I. FACTS AND PROCEDURAL HISTORY 3. The appellant is engaged, inter alia, in extraction of coal and bauxite and in manufacture of aluminium and copper. Its operations during the period July 2017 to March 2018 resulted in accumulation of input tax credit on account of an inverted duty structure. On 31.12.2018, the appellant filed an application in FORM GST RFD-01A, ARN AA220318001451X, claiming refund of Rs.24,61,34,059/- under the State tax head under Section 54(3) of the CGGST Act read with Rule 89(5) of the CGGST Rules. 4. In the refund proceedings, a show-cause notice in FORM GST RFD-08 dated 11.01.2019 proposed rejection of Rs.23,70,36,223/-, principally on the ground that the amount pertained....
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.... at Rs.38,27,659/-. The appellant filed a detailed reply dated 15.07.2021 disputing both the characterisation of the sanctioned amount as an erroneous refund and the consequential liability to interest. 9. While the Section 73 proceedings were pending, the Hon'ble Supreme Court delivered judgment on 13.09.2021 in Union of India v. VKC Footsteps (Supra) India Pvt. Ltd., (2022) 2 SCC 603: 2021 (52) GSTL 513 (SC). The Hon'ble Supreme Court upheld the statutory validity of the amended Rule 89(5), including the confinement of 'Net ITC' in the inverted-duty refund formula to input tax credit availed on inputs, and disapproved the contrary view which had treated exclusion of input services from the formula as ultra vires Section 54(3). 10. A further/fresh FORM GST DRC-01 was issued on 06.10.2021. Thereafter, during pendency of the proceedings initiated under Section 73, the appellant deposited Rs.90,35,671/- through FORM GST DRC-03 dated 08.11.2021. In its submissions, the appellant has characterised the payment as having been made after the decision in VKC Footsteps (Supra), 'as an abundant caution and to buy peace of mind'. The legal effect of that characterisation, and the conseq....
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....d the Authorised Representative for the respondent at length and perused the appeal memorandum, counter-statement, refund proceedings, show-cause notice(s), order-in-original, order-in-appeal and the arguments submitted at final hearing. 16. The prayer in the memorandum of appeal is to set aside Order-in-Appeal No. 112/GST/2022 dated 14.11.2022 insofar as it is against the appellant, to allow the appeal, to grant personal hearing, and to pass such further order(s) as may be deemed fit and proper. That general prayer has, however, to be read with the statutory appeal form and the quantified dispute carried to this Tribunal: the appeal memorandum shows Rs.44,51,491/- as the amount of interest under dispute, while no amount is shown as disputed under the head of erroneous refund and no amount of the principal Rs.90,35,671/-is claimed as refundable/restorable in the present appeal. At the oral hearing, learned representatives for both sides further agreed that the sanctioned refund of Rs.90,35,671/-was actually credited/disbursed to the appellant on 13.02.2019, the date of the refund sanction order, and that the principal amount was paid back on 08.11.2021. These two dates are thus ....
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....tax credit erroneously refunded'. On that basis it is contended that a cash refund sourced from accumulated ITC is outside the erroneous-refund limb. 21. On interest, learned counsel submits that there is no substantive charging provision for interest on an 'erroneous refund'. It is urged that Section 50(1) speaks of a person liable to pay tax who fails to pay such tax within the prescribed period, while Section 73 merely uses the expression 'along with interest payable thereon under section 50'. Reliance is placed on Mahindra & Mahindra Ltd. v. Union of India, 2022 SCC OnLine Bom 3155; J.K. Synthetics Ltd. v. Commercial Taxes Officer, (1994) 4 SCC 276; Vikrant Tyres Ltd. v. First ITO, (2001) 3 SCC 76; India Carbon Ltd. v. State of Assam, (1997) 6 SCC 479; and V.V.S. Sugars v. Government of A.P., (1999) 4 SCC 192, for the proposition that liability to interest must rest on clear substantive statutory authority and cannot be supplied merely by implication. 22. Reliance is also placed on Orion Steel Corporation v. CCE, 2008 (231) ELT 332 (Tri. -Ahmd.), to contend that where refund was held under an operative order and was repaid after reversal, interest could not run from the o....
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.... (supra) and Eveready Industries (supra), reliance is placed on Honda Siel Power Products v. Union of India [2020 (372) E.L.T. 30 (All.)], Torrent Pharmaceuticals Ltd. v. Union of India [2024-VlL-648-GUJ] and Auroglobal Comtrade Pvt. Ltd. v. Joint Commissioner, GST & Central Excise [2026 (105) G.S.T.L. 116 (Ori.)], besides decisions under the earlier indirect-tax enactments including ITC Ltd. v. CCE, Kolkata-IV [2019 (368) E.LT. 216 (S.C.)], CCE, Kanpur vs Flock (India) Pvt Ltd [2000-VIL-12-SC-CE], Commissioner of Central GST And Central Excise Vs Krishi Rasayan Exports Pvt Ltd [2023-Vil-438-.J&K-Ce], Tripura Ispat vs. Union Of India [2021 (1) TMI 753] and other authorities collected in the rejoinder. The appellant also refers to CBEC Circular No. 423/56/98-CX dated 22.09.1998. The common proposition for which these materials are cited is that a subsisting adjudicatory refund order cannot be nullified collaterally by the authority which granted it and that the prescribed appellate/revisional route must first be followed. 27. The rejoinder separately presses the textual objection to Section 73. According to the appellant, Section 73(1) identifies four situations - non-payment, sh....
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....rlier proceedings were pending; and that the amount repaid in cash has not been re-credited to the appellant's electronic credit ledger. It also reiterates the original-stage personal-hearing objection under Section 75(4), relying on Eminent Logistics v. Assistant Commissioner of State Tax [2025 (6) T MI 1843 - CALCUTTA HIGH COURT]. These pleas, insofar as they survive the position taken at final hearing, are dealt with in the findings below. B. Submissions of the respondent 30. The respondent supports the orders below. It submits that the refund claim was governed by the substituted Rule 89(5), made effective from 01.07.2017, and that the Hon'ble Supreme Court in VKC Footsteps (Supra) has conclusively upheld the statutory architecture under which 'Net ITC' for the inverted-duty formula is confined to input-goods credit. According to the respondent, the legal premise on which inclusion of input-service credit had been claimed therefore does not survive. 31. It is submitted that correct application of Rule 89(5) resulted in no positive refund entitlement. The computation recorded by the first appellate authority has not been displaced by any alternative computation from the....
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....t of Rs.90,35,671/- and absence of any competing computation from the appellant. (4) Whether Section 73 read with Section 50 supplies substantive statutory authority to levy interest on an erroneous refund, and whether the authorities cited by the appellant require a different conclusion. (5) Whether retrospective operation of the substituted Rule 89(5), or the subsequent decision in VKC Footsteps (Supra), renders the interest demand impermissibly retrospective. (6) Whether the personal-hearing ground requires interference when remand is expressly not pressed and the matter has been fully argued on merits. (7) Whether the rate, period and amount of interest of Rs.44,51,491/- call for interference. IV. STATUTORY FRAMEWORK 39. Section 54(3), insofar as relevant, provides that a registered person may claim refund of any unutilised input tax credit at the end of any tax period, subject to the proviso that no refund of unutilised input tax credit shall be allowed except, inter alia, where the credit has accumulated on account of the rate of tax on inputs being higher than the rate of tax on output supplies. The right to refund is therefore statu....
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....f unutilised ITC due to inverted tax structure'. Paragraph 4.3 further requires the proper officer, before allowing re-credit, to be satisfied that the erroneous refund has been deposited together with 'applicable interest, as per the provisions of section 50'. The Circular and Rule 86(4B) post-date the refund and the adjudication involved in the present case and are therefore not treated as the source of the appellant's liability. They are noticed only as subsequent statutory material consistent with the legislative scheme under which a monetary refund of unutilised ITC under Section 54(3) may answer the description of an erroneous refund and the applicable interest, if otherwise attracted, is referable to Section 50. 42. Section 73 is the principal demand provision invoked in the present case. Its material language expressly covers an amount 'erroneously refunded' and links the recoverable amount with interest under Section 50. The relevant portions of Section 73(1) may be noticed: "Where it appears to the proper officer that any tax has not been paid or short paid or erroneously refunded ... he shall serve notice ... requiring him to show cause as to why he should no....
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.... 'erroneous refund' under Section 73 45. The appellant's textual submission proceeds on an unduly compartmentalised reading of Section 73. Section 54(3) itself contemplates a statutory 'refund of any unutilised input tax credit'. Input tax credit is credit of input tax. When such credit remains in the electronic credit ledger, the statutory expression 'input tax credit wrongly availed or utilised' addresses wrongful availment or utilisation. When, however, accumulated credit is converted, on the claimant's application, into a monetary payment by Government under Section 54, the transaction is a refund. If the amount so paid exceeds what Section 54 read with Rule 89(5) permits, it is capable of answering the statutory description 'erroneously refunded'. Section 73 itself addresses the person 'to whom the refund has erroneously been made'. To exclude every Section 54(3) cash refund merely because its source is ITC would leave a substantial class of statutory refunds outside the express erroneous-refund limb without any language in the Act requiring such exclusion. 46. The later Rule 86(4B) and Circular No. 174/06/2022-GST reinforce this construction without creating it. The ....
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....ders and examination for departmental appeal under Section 107(2). There is therefore force in the appellant's premise that finality of an adjudicatory refund order is a matter of legal significance. The question is whether that premise makes Sections 107(2) and 108 exclusive remedies and excludes Section 73 altogether. 50. In our view, it does not. Section 73 is itself a substantive statutory provision enacted specifically for determination of, inter alia, tax 'erroneously refunded'. Neither Section 107(2), Section 108 nor Section 73 contains language making the Section 73 jurisdiction conditional upon prior departmental appeal or revision of the refund order. The provisions therefore operate in related but distinct fields: departmental appeal/revision tests the legality or propriety and continued efficacy of the refund order as an order, whereas Section 73 provides demand-and-determination machinery for amounts not paid, short paid or erroneously refunded, subject to its own notice, adjudication and limitation safeguards. An executive instruction prescribing review of refund orders cannot read into Section 73 an additional jurisdictional condition which the legislature has not....
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.... 18.12.2025: 2026 (105) G.S.T.L. 116 (Ori.), also requires careful distinction. There the Commissioner had already examined the refund order under Section 107(2), a departmental appeal had actually been filed, and the Appellate Authority had affirmed the refund on merits. Section 107(16) expressly made that appellate order final and binding subject to the statutory higher remedies. The subsequent Section 73 notice sought to reagitate the self-same issues already decided in the departmental appeal; the Hon'ble High Court therefore held that the Joint Commissioner could not set the appellate order at naught. Hindalco's case contains no departmental appellate order affirming RFD-06. Auroglobal (supra), therefore, strongly protects the finality of an existing appellate adjudication, but does not decide whether Section 73 is unavailable merely because an original RFD-06 has not first been appealed or revised. 52. The current GST position also includes M/s Paradeep Phosphates Limited v. Union of India & Ors., W.P.(C) No. 16154 of 2025, decided on 02.07.2026 (Ori.). There, refunds for periods including July 2017 to June 2018 had earlier been sanctioned; after the retrospective amendmen....
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....resses the person to whom such refund has been made. The expression "erroneously refunded" cannot be rendered otiose merely because the payment originated in an order in FORM GST RFD-06. Whether Section 73 is being invoked for the statutory purpose for which that power has been conferred, or is instead being employed to circumvent an adjudication which has attained finality, must therefore be examined in the factual and legal setting of the particular proceedings. 54. Patanjali Foods (supra) requires careful consideration in that context. There, refund pertaining to February and March, 2021 had been sanctioned by order dated 12.01.2024. The subsequent proceedings under Section 73 proceeded on the basis of para 2(2) of Circular No. 181/13/2022-GST dated 10.11.2022, which sought to apply the restriction flowing from Notification No. 9/2022-Central Tax (Rate) dated 13.07.2022 to refund applications filed after the notification even where the refund pertained to an earlier period. The Hon'ble Gujarat High Court struck down para 2(2) of the said Circular and, further, noticing that the refund had already been sanctioned by a quasi-judicial order against which neither appeal under Sec....
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....ot sought restitution of the principal amount so restored. These subsequent circumstances do not constitute the source of jurisdiction under Section 73; they are relevant to the nature and scope of the controversy that survives before us. Having regard to the express erroneous-refund limb of Section 73 and the particular factual and procedural setting noticed above, we are unable to hold that non-invocation of Section 107(2) or Section 108, by itself, deprived the proper officer of jurisdiction under Section 73. We accordingly do not read Section 73 as a general power to reopen concluded refund adjudications, nor do we hold that it may be employed to disregard a subsisting appellate determination. Our conclusion is confined to the statutory erroneous-refund proceedings and the factual setting before us. 55. This conclusion does not treat RFD-06 as non-adjudicatory or devoid of legal efficacy. RFD-06 being a statutory refund order, its existence could not simply be disregarded in proceedings under Section 73. The proper officer was required to identify, through notice and adjudication, the statutory basis upon which the amount sanctioned thereunder nevertheless answered the de....
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....med the validity of Rule 89(5), disapproved the contrary view of the Hon'ble Gujarat High Court and declined to judicially rewrite the formula. The legal premise on which the appellant had challenged the amended formula therefore did not survive that judgment. VKC Footsteps (Supra) does not, by itself, calculate appellant's refund, but it conclusively settles the validity and interpretation of the rule by which that refund falls to be computed. The Hon'ble Supreme Court rejected the invitation to read down the Rule 89(5) formula merely because anomalies were demonstrated. In paragraph 104 of VKC Footsteps (supra), the Court rejected the submission for reading down, and in paragraph 112 affirmed the view of the Hon'ble Madras High Court while disapproving the contrary view of the Hon'ble Gujarat High Court. For the controversy actually raised and adjudicated in the present proceedings, therefore, the Rule 89(5) formula whose validity was upheld in VKC Footsteps (supra) governs. After VKC Footsteps (supra), and while the proceedings under Section 73 were pending, the appellant deposited Rs.90,35,671/- through DRC-03. Its description of that payment as having been made "as an ab....
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....b-section (9), which requires determination of the amount of tax, interest and penalty due. These are not incidental or isolated references to interest; they form an integral part of the statutory scheme governing determination and recovery under Section 73, including in a case of erroneous refund. Section 73 thus does not merely provide for recovery of the principal amount while leaving liability to interest to implication. It expressly links the interest component to Section 50. The relevant question, therefore, is whether Section 50, when read with the express provisions of Section 73 relating to an erroneous refund, supplies the statutory basis and measure for the interest demanded-not whether interest can be imposed independently of the statute on considerations of equity or compensation. 60. An erroneous refund determined under Section 73 cannot be treated as a private-law debt divorced from the statutory tax scheme. The amount refunded under Section 54(3) represents input tax credit - credit of input tax - converted into money on the claimant's application. If that monetary conversion exceeds the statutory entitlement under Section 54 read with Rule 89(5), Section 73 c....
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....icing Sections 73 and 74, the Hon'ble High Court held that there had to be "restitution of the unjust benefit gained" and declined to interfere with the interest demand. Although the factual source of credit was different, the decision directly negatives the broad proposition that a refund of credit, once sanctioned through RFD-06, is for that reason incapable of carrying statutory interest upon being found erroneous. 63. The authorities relied upon by the appellant do not lead to a contrary result. K. Synthetics (supra), Vikrant Tyres (supra), India Carbon (supra) and V.V.S. Sugars (supra) state the unexceptionable principle that interest requires substantive statutory authority and cannot be imposed merely by implication. Mahindra & Mahindra (supra) similarly turned on the statutory provisions considered there. In the present enactment, however, Section 73 repeatedly and expressly couples an erroneous refund with interest under Section 50. Vikrant Tyres, in particular, arose under Section 220(2) of the Income-tax Act and turned on non-fulfilment of the statutory condition of default under a demand notice. It does not negate an express GST erroneous-refund scheme. 64. Orion ....
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....lity itself was extended retrospectively by amendment. Crucially, the validating provision granted thirty days from Presidential assent for payment and provided interest only on default thereafter; the Hon'ble Supreme Court therefore held that the assessee was entitled to that statutory period before interest could arise. Here, by contrast, substituted Rule 89(5) had already been made effective from 01.07.2017 before the refund application dated 31.12.2018 and RFD-06 dated 13.02.2019. VKC Footsteps (supra) did not retrospectively create a new liability; it upheld and authoritatively declared the operation of an existing rule. 69. The rejoinder's still narrower plea that interest should in any event be excluded for 24.07.2020 to 13.09.2021 because the Gujarat High Court judgment in VKC Footsteps (Supra) then stood in favour of the appellant is also not accepted. A judicial decision of a High Court in another State, subsequently reversed by the Hon'ble Supreme Court, did not suspend the operation of the substituted Rule 89(5) or create a statutory interest-free interval. The appellant's bona fide reliance on that decision may explain its conduct, but Section 73 is the non-fraud pr....
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....ng where a request is received in writing or where an adverse decision is contemplated. The jurisdictional Hon'ble High Court has emphasised the mandatory character of such hearing. We do not dilute that principle. The record, however, also shows detailed replies by the appellant and repeated effective opportunities at the first appellate stage, including oral hearing on 27.06.2022; on 14.11.2022 the appellant itself requested decision on the basis of submissions already made. 72. More importantly, at the final hearing before this Tribunal, the appellant expressly stated that adequate opportunity of hearing had been afforded and did not press the plea for remand, but requested that the appeal be finally adjudicated on merits. The parties have accordingly been heard at length on all surviving legal and factual issues. The First Appellate Authority, while exercising jurisdiction under Section 107, was itself required to decide the appeal and had no unrestricted power of remand. In these circumstances, when the controversy is ripe for final determination and remand is expressly not sought, no useful purpose would be served by relegating the matter for fresh adjudication. The issues....
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....proposition advanced by the respondent, nor does it create an estoppel against a pure question of law. In particular, it does not preclude the appellant from contesting whether interest was legally leviable, its commencement date or its computation. Its legal effect is narrower: the amount alleged to have been erroneously refunded stood restored to Government during the Section 73 proceedings, while the interest component remained unpaid and therefore required adjudication. Read with the uncontroverted Rule 89(5) computation, VKC Footsteps (Supra), and the manner in which the present appeal itself quantifies the dispute solely as interest of Rs.44,51,491/-, this leaves no surviving restitutionary controversy regarding the principal amount in the present appeal. 77. The rejoinder's objection to the further DRC-01 dated 06.10.2021 and its statement that the cash repayment has not been re-credited to the electronic credit ledger do not alter the determination of the present appeal. The operative adjudication was under Section 73 and the appellant had notice of, and answered, the case of erroneous refund. The question of re-credit following repayment is governed by the statutory/rul....