Delhi HC Rules: Tax Dept Can't Hold Your GST Refund Just Because They 'Plan' to Appeal

The Hon'ble High Court of Delhi in Truth Fashion v. Commissioner of DGST Delhi (W.P.(C) 486 of 2025, decided on February 10, 2025) held that the mere decision to prefer an appeal does not automatically stay the implementation of an appellate authority's order under Section 54(11) of the CGST Act, 2017. Consequently, statutory authorities cannot refuse compliance with appellate orders on the ground of a proposed appeal. The Court directed immediate disbursement of the refund with applicable statutory interest.

Facts of the Case

The Petitioner, Truth Fashion, had approached the Hon'ble High Court seeking direction to the Respondent, Commissioner of DGST Delhi, to comply with an order dated May 10, 2024, passed by the Objection Hearing Authority (OHA). The appellate order had allowed the Petitioner's objections and set aside the original order that had rejected the claim for refund amounting to Rs. 18,33,000/-.

Prior to filing the present petition, the Petitioner had previously approached the High Court through W.P.(C) 15886/2024, which was disposed of on November 18, 2024. In that order, the Court had directed the Respondent to ensure that the claim for refund would be disposed of expeditiously, preferably within three weeks. This direction was subject to any orders that might be obtained by the Respondents on any statutory appeal they might choose to prefer.

Despite the Court's earlier directions, the Respondent failed to take appropriate steps to release the refund as claimed. This inaction compelled the Petitioner to approach the Court again through the present writ petition.

The Respondent's primary contention was based on Section 54(11) of the CGST Act, 2017.

The Respondent argued that since the Commissioner had taken a decision to prefer an appeal against the order dated May 10, 2024, they were justified in not effecting the refund as claimed. They interpreted Section 54(11) to mean that the mere decision to file an appeal would entitle them to withhold the refund.

Issue

Whether the mere decision to prefer an appeal against an appellate order under Section 54(11) of the CGST Act, 2017, automatically stays the implementation of such order and justifies withholding a refund?

Held by the Court

The Hon'ble High Court of Delhi in W.P.(C) 486 of 2025 held that:

1. The Court found itself unable to accept the Respondent's submission, considering the plain language of Section 54(11) of the CGST Act, which refers to a contingency where an order giving rise to a refund "is the subject matter of an appeal." The Court explicitly stated: "In our considered opinion, the mere decision to prefer or institute an appeal would not qualify Section 54(11)."

2. The Court held that a decision taken by the Commissioner to assail an order cannot ipso facto or automatically result in the principal order being placed in abeyance. This reasoning aligns with the principle that an order remains valid and enforceable until it is stayed or set aside by a competent authority.

3. The Court relied on the Division Bench's observations in Alex Tour & Travel (P) Ltd. v. Commr. (CGST), 2023 SCC OnLine Del 2709, which established that the Revenue cannot refuse to comply with appellate orders on the ground that it proposes to appeal the said order. The Division Bench in that case had emphasized that without a stay order from a competent court, the Revenue must comply with the appellate authority's directions.

4. Accordingly, the Court allowed the instant writ petition and directed the Respondent to effect the refund to the Petitioner forthwith, together with statutory interest as payable.

Analysis and Implications

This judgment has significant implications for the administration of GST refunds and the interpretation of Section 54(11) of the CGST Act:

1. Narrow Interpretation of Section 54(11): The Court has adopted a narrow and literal interpretation of Section 54(11), emphasizing that the provision becomes applicable only when an order is actually "the subject matter of an appeal" and not merely when there is an intention to file an appeal. This interpretation restricts the discretionary power of the Commissioner to withhold refunds.

2. Procedural Safeguards for Taxpayers: The judgment reinforces procedural safeguards for taxpayers seeking refunds. Tax authorities cannot indefinitely delay refund payments by merely indicating an intention to appeal against an order granting the refund. This prevents administrative delays and ensures timely disbursement of refunds.

3. Need for Stay Orders: The judgment clarifies that if tax authorities wish to withhold refunds despite an appellate order, they must actively seek and obtain stay orders from the appropriate forum. The mere filing of an appeal or the intention to appeal does not automatically stay the operation of the appellate order.

4. Interest Liability: By directing payment of statutory interest along with the refund amount, the Court has emphasized that delayed compliance with refund orders carries financial consequences for the tax department. This serves as a deterrent against unjustified delays in processing refunds.

5. Burden on Tax Authorities: The judgment places the onus on tax authorities to promptly comply with appellate orders or to obtain stay orders if they believe compliance would adversely affect revenue interests. This shifts the procedural burden from the taxpayer to the tax authorities.

6. Efficiency in Refund Processing: The judgment promotes efficiency in the refund process by preventing unnecessary delays based on speculative grounds such as a proposed appeal. It encourages tax authorities to process refunds promptly unless there are legitimate grounds supported by judicial orders to withhold them.

Relevant Sections

"Section 54(11) of Central Goods and Services Tax Act, 2017" - "Where an order giving rise to a refund is the subject matter of an appeal or further proceedings or where any other proceedings under this Act is pending and the Commissioner is of the opinion that grant of such refund is likely to adversely affect the revenue in the said appeal or other proceedings on account of malfeasance or fraud committed, he may, after giving the taxable person an opportunity of being heard, withhold the refund till such time as he may determine."

"Section 56 of Central Goods and Services Tax Act, 2017" - "If any tax ordered to be refunded under sub-section (5) of section 54 to any applicant is not refunded within sixty days from the date of receipt of application under sub-section (1) of that section, interest at such rate not exceeding six per cent as may be specified in the notification issued by the Government on the recommendations of the Council shall be payable in respect of such refund from the date immediately after the expiry of sixty days from the date of receipt of application under the said sub-section till the date of refund of such tax."

Pari Materia / Cases Referred

1. Alex Tour & Travel (P) Ltd. v. Commr. (CGST), 2023 SCC OnLine Del 2709 - The Court relied on this precedent which established that Revenue cannot refuse to comply with appellate orders on the ground that it proposes to appeal the said order. The Division Bench in that case had emphasized that without a stay order from a competent court, the Revenue must comply with the appellate authority's directions.

____________________________________________________

DISCLAIMER: The views expressed are strictly of the author and NLF Tax and Legal Advisory. The contents of this article are solely for informational purposes and for the reader’s personal non-commercial use. It does not constitute professional advice or a recommendation of the firm. Neither the author nor the firm and its affiliates accept any liabilities for any loss or damage of any kind arising out of any information in this article nor for any actions taken in reliance thereon. Further, no portion of our article or newsletter should be used for any purpose(s) unless authorized in writing, and we reserve the legal right for any infringement on usage of our article or newsletter without prior permission