Facts of the Case

The petitioner, M/s Abarna Match Industries, represented by its proprietor D. Ramamoorthy (GSTIN 33AKCPR1371B1ZO, tax period 2018-19), had claimed and originally been granted a refund of input tax credit of Rs.4,75,859/-, which was subsequently reversed on appeal by the Revenue before the Appellate Authority. The petitioner decided to file a second appeal and had deposited 10% of the requisite amount, but the appeal could not be taken on file due to a glitch on the GST portal. In the interregnum, the respondent passed the impugned order dated 26.12.2025 under Section 74 of the TNGST Act, fixing the petitioner's liability along with penalty and interest. The petitioner challenged this order by writ petition before the Madurai Bench.

Issues Involved

  1. Whether an order under Section 73 or 74 could be validly passed while the refund-rejection appeal was itself pending, per CBIC Circular dated 18.11.2019.
  2. Whether the impugned order ought to be stayed pending the outcome of the petitioner's already-filed but portal-stalled second appeal.

Petitioner's Arguments

  • The petitioner argued that per Clause 22 of the CBIC circular dated 18.11.2019, an order under Section 73 or 74 cannot be passed in this kind of refund-rejection scenario.
  • It was submitted that the respondent could not, in any event, fix a Section 74 liability with penalty and interest in the circumstances of this case.

Respondent's Arguments

  • The Additional Government Pleader submitted that once a refund has already been granted and availed, the department must take steps under Section 73 or 74, as applicable, to recover the amount if the refund is later found ineligible, and that the authorities were justified in passing the impugned order.

Court Order / Findings

  • The Court examined Clauses 20 to 22 of the CBIC circular dated 18.11.2019 and held that where a refund is rejected on the ground of ineligibility of ITC, proceedings under Section 73/74 (per Clauses 20-21) are indeed contemplated, and it is only where refund is rejected for reasons other than ineligibility of credit that Clause 22 dispenses with such proceedings.
  • Since the respondent was claiming ineligibility of credit while the petitioner contended the credit was available, Clause 22 could not be invoked, and the Court left open, without deciding, whether the case in fact fell under Section 73 or 74.
  • Noting that the petitioner had already preferred a second appeal that had not been taken on file solely due to a portal glitch, the Court directed that the impugned order be kept in abeyance until the second appeal is decided — deemed to take effect only from the date of that decision.
  • The second appeal was directed to be taken on file as early as possible and disposed of by the appropriate authority; if the appeal succeeds, the impugned order stands automatically set aside/lapsed, and if it fails, the petitioner is at liberty to challenge the impugned order afresh, raising all grounds including on Section 74.

Important Clarification

  • CBIC Circular dated 18.11.2019 distinguishes refund rejections on the ground of ITC-ineligibility (which attract Section 73/74 proceedings) from rejections on other grounds (which do not).
  • Where a taxpayer's statutory second appeal is genuinely stalled by a portal or technical glitch (not the taxpayer's fault), courts may hold a parallel demand order in abeyance pending that appeal's outcome rather than quash it outright, preserving both sides' positions.

Sections Involved

  • Section 54, Central Goods and Services Tax Act, 2017 – governs refund claims, including of unutilised input tax credit.
  • Section 73 / Section 74, Central Goods and Services Tax Act, 2017 – recovery of tax/ITC wrongly availed, with or without allegation of fraud, respectively.
  • CBIC Circular dated 18.11.2019 (Clauses 20-22) – clarifies when Section 73/74 proceedings must accompany a refund rejection.

Decision – In Favour of

The decision is disposed of with directions, in part in favour of the Assessee — the demand order was not quashed but kept in abeyance pending the outcome of the petitioner's second appeal, with the ultimate result contingent on that appeal.

Case Details

Court: Madurai Bench of Madras High Court
Case No.: W.P(MD)No.11369 of 2026 and W.M.P.(MD).No.8772 of 2026
Coram: Justice D. Bharatha Chakravarthy
Date of Order: 21.04.2026

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