The Orissa High Court ruled that a refund cannot be withheld merely because the department intends to file an appeal, unless statutory conditions are met. This decision came in the case of M/s. Rashmi Agency, which had ₹33 lakh recovered during a DGGI search in August 2023. The amount was mistakenly paid under the petitioner's GSTIN instead of the GSTIN of Hotel Rashmi Plaza, the actual subject of investigation. Although the initial refund claim was rejected, the Additional Commissioner of State Tax (Appeal) later allowed it, directing a refund of the excess amount.
Following the appellate order, the petitioner applied for a refund of ₹33 lakh, but the Deputy Commissioner refused to consider it, citing the department's six-month window to appeal before the GST Appellate Tribunal. The petitioner challenged this refusal in the Orissa High Court, arguing that the Deputy Commissioner lacked jurisdiction to deny the refund based solely on the department's potential appeal.
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The High Court clarified that under Section 54(11), refunds can only be withheld if an appeal is already pending and the Commissioner believes releasing it would harm revenue due to fraud or malfeasance. The Court found the Deputy Commissioner's refusal to process the refund application exceeded his jurisdiction, as no appeal was pending. The Court emphasized compliance with Rule 92(2) and the necessity of issuing an order in Form GST RFD-07 with specific reasons for withholding a refund. Consequently, the Court set aside the decision and directed a reconsideration of the refund application, ensuring the petitioner is heard.
Order Date - 25 June 2026
Parties: M/s. Rashmi Agency Vs Deputy Commissioner, CT & GST Circle, Cuttack-I City & Others
Facts -
- M/s. Rashmi Agency had ₹33 lakh recovered during a DGGI search conducted in August 2023. The amount was deposited under protest due to an inadvertent payment from the petitioner's GSTIN instead of the GSTIN of Hotel Rashmi Plaza, which was under investigation.
- The petitioner's earlier refund claim was rejected. However, the Additional Commissioner of State Tax (Appeal) allowed the appeal on 27.02.2026, holding that the recovery was contrary to CBIC instructions and that the petitioner was not liable to pay the tax. The authority directed that the excess amount be refunded as per law.
- Based on the appellate order, the petitioner filed a fresh refund application for ₹33 lakh. The Deputy Commissioner refused to consider the application on the ground that the department still had six months to file an appeal before the GST Appellate Tribunal and, therefore, the appellate order had not attained finality.
- Aggrieved by the refusal, the petitioner approached the Orissa High Court contending that the Deputy Commissioner had no jurisdiction to deny consideration of the refund merely because the department was contemplating an appeal.
Issue -
- Whether the GST department can refuse or withhold consideration of a refund application solely because the statutory time limit for filing an appeal has not expired?
Order -
- The High Court observed that Section 54(11) permits withholding of refund only when the order granting refund is already the subject matter of an appeal or other pending proceedings and the Commissioner forms an opinion that releasing the refund would adversely affect the revenue due to fraud or malfeasance. A mere possibility of filing an appeal does not satisfy these statutory conditions.
- The Court held that the Deputy Commissioner exceeded his jurisdiction by refusing to consider the refund application despite the appellate authority's order remaining operative. Until the appellate order is stayed, modified or reversed by a competent forum, subordinate officers are bound to implement it and cannot sit in appeal over it.
- The Court further clarified that withholding a refund requires strict compliance with Rule 92(2) and issuance of an order in Form GST RFD-07 containing specific reasons. Merely referring to Section 54(11) without satisfying the mandatory statutory requirements or recording proper reasons is legally unsustainable.
- Since no appeal or other proceedings were pending on 02.05.2026, when the refund application was rejected, the Deputy Commissioner had no authority to invoke Section 54(11). The Court therefore set aside the impugned order and directed the authority to reconsider the refund application afresh after granting the petitioner an opportunity of hearing.
