Facts of the Case

The petitioner, M/s. Raj Kamal Cargo Movers, Jaipur, a proprietorship of Mr. Raj Kumar Gurjar, was subjected to demand orders dated 30.3.2021 and 28.5.2021 by the Assistant Commissioner, State Taxes, Enforcement Wing, creating demands of Rs.26,70,276 and Rs.34,88,364 respectively. On appeal, both orders were set aside and refund of the recovered amount of Rs.34,88,354 was directed. The petitioner applied online on 17.5.2022 for the refund under the Rajasthan Goods and Services Tax Act, 2017, but respondent no.1 referred the matter for withholding the refund under Section 54(11) of the Act. Respondent no.2, the Chief Commissioner, found no ground to withhold the refund by order dated 7.12.2022, but directed processing subject to the petitioner furnishing solvent security to the department's satisfaction. Though the petitioner complied by furnishing solvent security, respondent no.1's order dated 21.2.2023 instead insisted on a bank guarantee, and the refund remained withheld.

Issues Involved

  1. Whether the Assistant Commissioner (respondent no.1) could insist on a bank guarantee when the appellate/Chief Commissioner's order had directed processing of the refund upon furnishing solvent security.
  2. Whether "solvent security" under Section 54(11) of the Rajasthan GST Act, 2017 can be equated with a bank guarantee.

Petitioner's Arguments

  • The direction requiring solvent security was itself beyond the scope of Section 54(11) of the Act, yet the petitioner complied by furnishing it.
  • Respondent no.1, by demanding a bank guarantee over and above the Chief Commissioner's direction, acted beyond its scope and without justification.
  • Argued this amounted to high-handedness, since solvent security cannot be equated with a bank guarantee, and the demand was merely a device to block the refund already ordered.
  • Sought quashing of the order dated 21.2.2023 and a direction to refund the amount with up-to-date interest.

Respondent's Arguments

  • Filed a reply seeking to justify the original demand orders that had already been set aside by the appellate authority.
  • Contended that the demand for a bank guarantee was justified in the circumstances, to safeguard the interest of the State while making the refund.
  • Sought dismissal of the writ petition.

Court Order/Findings

  • The appellate/Chief Commissioner's order was clear and specifically required processing of the refund upon the petitioner furnishing solvent security "as per his satisfaction," not a bank guarantee.
  • The Court held that solvent security and bank guarantee are conceptually distinct — solvent security requires the recipient of the refund to show he is not insolvent and owns property equivalent to the amount, whereas a bank guarantee is an undertaking given by a bank on behalf of the applicant to a third party — and the two cannot be equated.
  • Found that respondent no.1, who had passed the original order set aside in appeal, appeared to be trying to block the refund by first seeking solvent security and then, once furnished, escalating the demand to a bank guarantee.
  • Held the demand for a bank guarantee was ex facie contrary to the directions of the Chief Commissioner's order and could not be sustained.
  • Allowed the writ petition; quashed the order dated 21.2.2023; directed respondent no.1 to comply with the appellate order dated 28.5.2021 and the Chief Commissioner's order dated 7.12.2022 within two weeks.

Important Clarification

  • Where a GST refund is directed to be processed against furnishing of "solvent security" under Section 54(11), the department cannot unilaterally substitute or upgrade that requirement to a bank guarantee.
  • Solvent security and bank guarantee are legally and functionally different instruments and cannot be read interchangeably by a lower authority to override a superior authority's direction.
  • Officers cannot use successive, escalating security demands to indefinitely delay a refund that has already been directed by a superior authority.

Sections Involved

  • Section 54(11) of the Rajasthan Goods and Services Tax Act, 2017 – empowers withholding of a refund pending further proceedings, subject to conditions such as security.

Decision – In Favour of

The order is in favour of the Assessee. The writ petition was allowed, the bank guarantee demand was quashed, and release of the refund in terms of the earlier appellate and Chief Commissioner's directions was ordered.

Related Case Laws

No directly on-point case notes are currently published on this site.

Case Details

  • Court: High Court of Judicature for Rajasthan, Bench at Jaipur
  • Case No.: D.B. Civil Writ Petition No. 5744/2023
  • CNR: Not available on record
  • Coram: Hon'ble Mr. Justice Arun Bhansali and Hon'ble Mr. Justice Ashutosh Kumar
  • Decision Date: 20.12.2023
  • Disposal Nature: Allowed

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