The Bombay High Court ruled that taxpayers are entitled to receive a refund of the proportionate pre-deposit for the portion of the GST demand dropped in an appeal, even if they plan to challenge the remaining disputed demand before the Appellate Tribunal. This decision came in the case of IBM India Pvt. Ltd. versus the Union of India, State of Maharashtra, and Deputy Commissioner of State Tax. Initially, IBM was faced with a tax demand of ₹48,96,54,949, a portion of which was dropped after a First Appeal under Section 107 of the MGST Act.
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IBM sought a refund of ₹3,14,58,422, the amount corresponding to the dropped demand, using Form GST RFD-01. However, the Deputy Commissioner of State Tax denied the refund on the grounds that appellate proceedings were not final, as IBM intended to appeal the remaining demand. IBM challenged this decision, arguing that the portion of the demand dropped had achieved finality since the tax department had not appealed it.
The High Court found the department's reasoning flawed, stating that the dropped demand was indeed final and that IBM was entitled to the refund. The Court emphasized that statutory pre-deposits are akin to security deposits, not tax duties, and must be returned when an appellant succeeds, either fully or partially. The Court concluded that retaining the funds was unauthorized and violated Article 265 of the Constitution. Additionally, the appellate order was binding under Section 107(16) of the CGST Act, precluding the tax officer from refusing the refund due to pending tribunal proceedings.
Order Date - 28th August, 2026
Parties: IBM India Pvt. Ltd. Vs. Union of India, State of Maharashtra & Deputy Commissioner of State Tax
Facts -
- Petitioner IBM India Pvt. Ltd. was originally issued an adjudication order confirming a massive tax demand of ₹48,96,54,949.
- Petitioner filed a First Appeal under Section 107 of the MGST Act after depositing a mandatory 10% statutory pre-deposit, resulting in the First Appellate Authority partly allowing the appeal and dropping 64% (₹31,45,84,219) of the total demand.
- Petitioner subsequently applied for a refund of ₹3,14,58,422, 10% pre-deposit corresponding to the dropped demand under Form GST RFD-01.
- Deputy Commissioner of State Tax rejected the claim on the grounds that appellate proceedings had not attained finality because the Petitioner intended to appeal the remaining confirmed demand before the GST Appellate Tribunal.
- Petitioner challenged this rejection order before the Hon'ble Bombay High Court, asserting that the dropped demand portion had achieved finality as the tax department had not appealed against it.
Issue -
- Whether a taxpayer is entitled to a refund of the pre-deposit corresponding to the demand portion dropped in an appellate order when the taxpayer intends to file a further appeal against the remaining confirmed demand portion.
Order -
- The High Court observed that the department's reasoning was entirely fallacious because the demand portion of ₹31,45,84,219 had achieved absolute finality as the tax authorities did not appeal against it, and the Petitioner was only challenging the remaining confirmed demand of ₹17,50,70,729.
- The Court emphasized that statutory pre-deposits bear the character of security deposits rather than tax duties, which implies that whenever an appellant succeeds fully or partially, the corresponding pre-deposit must be promptly returned.
- Once the demand of ₹31,45,84,219 was set aside, a statutory right accrued in favor of the Petitioner to receive the refund of ₹3,14,58,422, making any continued retention of these funds by tax authorities unauthorized and violative of Article 265 of the Constitution.
- The appellate order setting aside the demand was legally binding on the tax officer under Section 107(16) of the CGST Act, leaving the officer no jurisdiction to refuse consequential pre-deposit refunds under the pretext of pending or contemplated tribunal proceedings
