Facts of the Case

The Petitioner, engaged in wholesale trade and export of FMCGs, filed a refund claim under the CGST Act for the tax paid on exports. Initially, the Adjudicating Authority rejected the refund claim on the ground that the suppliers’ licenses were cancelled.

Aggrieved by this rejection, the Petitioner filed an appeal. The Appellate Authority allowed the appeal and held that the refund claim was valid and satisfied the conditions under Section 16(2) of the CGST Act.

Despite the favorable appellate order, the refund was not processed. Instead, the Department issued a review order and subsequently passed an order under Section 54(11) of the CGST Act withholding the refund on the ground that granting it may adversely affect revenue, as the Department intended to challenge the appellate order.

The Petitioner approached the High Court challenging the withholding of refund.

Issues Involved

  1. Whether refund can be withheld under Section 54(11) of the CGST Act in the absence of any pending appeal or proceeding.
  2. Whether mere intention of the Department to file an appeal is sufficient to deny refund.
  3. Whether an appellate order granting refund can be ignored without being stayed or set aside.

Petitioner’s Arguments

  • The Appellate Authority’s order allowing refund is valid and binding as it has not been stayed or set aside.
  • No appeal or proceeding is pending against the appellate order; hence Section 54(11) cannot be invoked.
  • The Department’s opinion under Section 54(11) is invalid in absence of pending proceedings.
  • Reliance was placed on G.S. Industries v. Commissioner CGST Delhi West & Ors., where refund could not be withheld merely due to proposed appeal.

Respondent’s Arguments

  • The Department intends to file an appeal against the appellate order.
  • Due to non-constitution of the GST Appellate Tribunal, the appeal has not yet been filed.
  • The Commissioner is empowered under Section 54(11) to withhold refund to safeguard revenue interests.
  • The present case is distinguishable from earlier precedents as an opinion under Section 54(11) has been formed.

Court’s Findings / Order

  • Section 54(11) requires two mandatory conditions:
    1. The refund order must be subject to a pending appeal or proceeding.
    2. The Commissioner must form an opinion that refund would adversely affect revenue.
  • The Court held that:
    • In the absence of any pending appeal or proceeding, Section 54(11) cannot be invoked.
    • A mere intention to file an appeal is not sufficient to withhold refund.
    • The appellate order remains binding unless stayed or set aside by a competent authority.
  • The Court relied on earlier judgments including:
    • G.S. Industries v. Commissioner CGST Delhi West & Ors.
    • Brij Mohan Mangla vs Union of India & Ors.
  • Final Order:
    • The refund must be processed along with interest under Section 56 of the CGST Act.
    • Refund to be granted within two months.
    • Processing of refund shall remain subject to the outcome of any future appeal filed by the Department.

Important Clarifications

  • Refund cannot be withheld merely on the basis of a review order or proposed appeal.
  • Existence of actual pending proceedings is mandatory for invoking Section 54(11).
  • Department retains the right to recover the refund if it succeeds in future litigation.
  • Withholding refund may actually harm revenue due to statutory liability of interest.

Link to download the order -  https://delhihighcourt.nic.in/app/showFileJudgment/PMS03042025CW38242025_115124.pdf 

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