Facts of the Case

The Petitioner, M/s JVG Technology Private Limited, engaged in the export of mobile phones, filed a writ petition under Articles 226 and 227 of the Constitution of India seeking direction for sanction of refund amounting to ₹5,00,98,287/- along with interest under Section 56 of the CGST Act.

The Petitioner had accumulated unutilized Input Tax Credit (ITC) due to export activities and filed refund applications for September 2022 and October 2022. These claims were initially rejected by the adjudicating authority.

Aggrieved, the Petitioner preferred appeals before the Appellate Authority, which allowed the refund claims and set aside the rejection orders.

Despite the favourable appellate order, the refund was not granted. The Department withheld the refund invoking powers under Section 54(11) of the CGST Act citing potential adverse impact on revenue and alleged malfeasance.

Hence, the present writ petition was filed.

Issues Involved

  1. Whether refund sanctioned by the Appellate Authority can be withheld under Section 54(11) of the CGST Act without any pending appeal or proceedings.
  2. Whether mere departmental opinion regarding possible fraud or revenue impact is sufficient to deny refund.
  3. Whether the Petitioner is entitled to refund along with interest under Section 56 of the CGST Act.

Petitioner’s Arguments

  • The Petitioner contended that the Appellate Authority had already allowed the refund claims and the same had attained finality.
  • It was argued that withholding refund without filing any appeal against the appellate order is illegal and arbitrary.
  • The Petitioner emphasized that Section 54(11) cannot be invoked in absence of any pending proceedings.
  • The Petitioner also claimed statutory interest under Section 56 due to delay in refund.

Respondent’s Arguments

  • The Department argued that it had exercised powers under Section 54(11) to withhold refund.
  • It was contended that refund at this stage may adversely affect revenue.
  • The Department alleged possible malfeasance or fraud as justification for withholding refund.
  • It was also submitted that further appeal proceedings may be initiated against the appellate order.

Court’s Findings / Order

The Delhi High Court held:

  • Section 54(11) permits withholding of refund only when:
    • An order granting refund is under challenge in appeal or other proceedings; and
    • The Commissioner forms an opinion that granting refund would adversely affect revenue.
  • The Court clarified that:
    • Departmental opinion alone is insufficient to withhold refund.
    • Existence of pending appeal or proceedings is mandatory.
  • Since no appeal or challenge was filed against the Appellate Authority’s order, withholding refund was held unjustified.
  • The Court directed:
    • Refund to be released in favour of the Petitioner.
    • Payment of interest under Section 56 of the CGST Act.
    • Refund to be processed within two months.
  • However, it was clarified that:
    • If the Department files an appeal, the refund shall remain subject to the outcome of such appeal.

Important Clarification

  • Section 54(11) cannot be invoked as a standalone provision.
  • Refund cannot be withheld merely on intention to file appeal.
  • Binding appellate orders must be implemented unless stayed or challenged before a competent forum.
  • Delay in refund may increase financial burden on the Department due to interest liability.

Sections Involved

  • Section 54(3), CGST Act, 2017 – Refund of unutilized ITC
  • Section 54(11), CGST Act, 2017 – Power to withhold refund
  • Section 56, CGST Act, 2017 – Interest on delayed refund
  • Articles 226 & 227, Constitution of India

Link to download the order -  https://delhihighcourt.nic.in/app/showFileJudgment/PMS23052025CW57572025_184349.pdf 

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