GST Refund Can Be Withheld During Pending Anti-Evasion Investigation Without Separate Court Stay: Delhi High Court

The Court was hearing a writ petition seeking implementation of an appellate order granting five refund claims and challenging the Commissioner’s subsequent order withholding the refund under Section 54(11) of the CGST Act.

A Division Bench of Justice Anil Kshetrapal and Justice Shail Jain observed: “Notably, the width of the expression ‘any other proceedings under this Act is pending’ is deliberate. It is not confined to a formally instituted appeal; it takes within its fold any proceeding, of whatever nature, arising under the Act of 2017, that has a bearing on the correctness or finality of the order from which the refund flows. Thus, Section 54(11) is a self-contained, statutorily engrafted safeguard for protection of revenue, operating independently of, and not contingent upon, any separate stay granted by a court or tribunal.”

Senior Advocate Sunil Dalal appeared for the petitioner. Central Government Standing Counsel Raj Kumar and Senior Standing Counsel Aditya Singla appeared for the respondents.

Background

The petitioner exported electronic goods on payment of Integrated Goods and Services Tax and submitted five refund applications aggregating to approximately ₹3.15 crore. The original authority rejected the claims primarily on the ground that complete supporting documents had not been furnished.

The Appellate Authority subsequently allowed the petitioner’s appeals after considering its submissions and the documents uploaded on the GST portal. The competent authority reviewed that order and decided to challenge it before the Goods and Services Tax Appellate Tribunal once the Tribunal became functional.

After the petitioner submitted a consolidated refund claim, the Commissioner afforded it opportunities for a personal hearing and passed an order under Section 54(11), withholding the refund.

The petitioner argued that no appeal or other proceeding was pending when the refund was withheld and that a contemplated appeal could not place the appellate order in abeyance. It further contended that an investigation did not constitute a pending proceeding, the subsequent show-cause notice did not exist on the relevant date, and no court or tribunal had stayed the appellate order.

The Revenue submitted that an Anti-Evasion Wing investigation concerning the petitioner and its suppliers was already underway. It contended that the Commissioner had formed an opinion from the available material that granting the refund could adversely affect revenue because of alleged fraud or malfeasance.

Court’s Observations

Section 54(11) Contains Two Cumulative Requirements

The Court held that Section 54(11) is founded upon two distinct and cumulative ingredients.

First, the Court explained, the order giving rise to the refund must be the subject of an appeal, further proceedings or any other pending proceeding under the CGST Act. Second, the Commissioner must independently conclude, after providing an opportunity of hearing, that granting the refund at that stage is likely to prejudice revenue because of malfeasance or fraud.

The Court observed: “A plain reading of the provision discloses that the said provision is founded on two distinct, cumulative ingredients: first, the Order giving rise to the refund must be the subject matter of (a) an appeal, or (b) further proceedings, or (c) any other proceedings under the Act of 2017 which are pending.”

The Court added that the Commissioner’s opinion under the second requirement cannot be presumed merely from the existence of a pending proceeding. It must be independently formed after hearing the taxpayer.

Pending Proceedings Are Not Confined To A Formally Instituted Appeal

The Court held that the expression “any other proceedings under this Act is pending” was deliberately framed broadly. It includes proceedings arising under the CGST Act that bear upon the correctness or finality of the order from which the refund flows.

The Court consequently rejected the proposition that Section 54(11) could operate only after a formal appeal had been instituted. It clarified that the provision itself authorises the Commissioner to withhold the refund upon satisfaction of its requirements.

The Court held that a separate judicial or tribunal stay was therefore unnecessary because Section 54(11) independently operates as a statutory safeguard for protecting revenue.

Contemplated Appeal Alone Cannot Justify Withholding Refund

The Court considered the petitioner’s reliance on Mandy Enterprises v. Deputy Commissioner (2024), Alex Tour & Travel v. Assistant Commissioner, CGST and Truth Fashion.

The Court noted that these decisions held that the Revenue cannot withhold a refund sanctioned by an appellate authority merely because it proposes or intends to file an appeal, without obtaining a stay.

The Court, however, distinguished those decisions because the Revenue’s case there rested only upon a proposed appeal. No independent material concerning fraud or malfeasance had been placed before the Court to support the Commissioner’s opinion under the second requirement of Section 54(11).

The Court observed: “However, these decisions turned on the singular fact that the Revenue’s case rested only on the first limb of Section 54(11) of the Act of 2017, a proposed appeal, with no independent material of malfeasance or fraud placed before the Court to justify the Commissioner’s opinion under the second limb.”

The Court found that the withholding order in the present case was not founded solely upon the proposed appeal against the order granting the refund.

Anti-Evasion Investigation Was Already Pending

The Court found that the Anti-Evasion Wing had received the case concerning the petitioner nearly three months before the appellate refund order and approximately six months before the Commissioner withheld the refund.

The Court noted that the investigation was already in progress when the withholding order was passed. It held that the subsequently issued show-cause notice was the culmination of that continuing investigation and did not mark its commencement.

The Court stated: “Thus, even in the absence of a pending appeal on 24.09.2024, an investigation concerning the Petitioner was admittedly underway.”

The Court rejected the petitioner’s contention that the subsequent show-cause notice could not establish the existence of a proceeding on the date of the withholding order. It noted that the order itself referred to the Anti-Evasion Wing investigation as being under process.

Later Verification Material Emerged During The Continuing Investigation

The Court noted that the investigation had commenced before the withholding order and that the Commissioner had examined the status and tier-wise supply chain of the petitioner’s suppliers while exercising power under Section 54(11).

Referring separately to the subsequent show-cause notice, the Court also noted later verification material concerning statements of vehicle owners and the manufacturer’s sales information. The show-cause notice crystallised the allegations developed during the continuing investigation.

The Court did not treat the disputed allegations arising from this later material as conclusively established. It left the petitioner free to contest their correctness before the GSTAT.

Commissioner’s Opinion Was Not Based On Mere Apprehension

The Court found that the Commissioner had not acted upon a mere apprehension. It noted that the withholding order examined different levels of the petitioner’s supply chain, the status of suppliers on the GST portal, physical-verification material and the alleged receipt of goods.

The Court stated that these circumstances were relevant to Section 16(2)(b) of the CGST Act, which requires the recipient to have actually received the goods or services before claiming input tax credit.

The Court observed: “Therefore, the Impugned Order was not founded on a solitary transaction or an isolated supplier. It proceeded upon a cumulative examination of the supply chain, including suppliers at the L1, L2 and L3 levels.”

The Court consequently held that the Commissioner had validly exercised the power to withhold the refund under Section 54(11).

Commissioner’s Withholding Power Is Distinct From Adjudication

The Court rejected the petitioner’s contention that the withholding order was unsustainable because the Commissioner had acted administratively rather than as an “Adjudicating Authority.”

The Court held that Section 54(11) expressly confers the power to withhold a refund upon the Commissioner. It stated that this power is distinct from adjudication under Sections 73 and 74 and the appellate mechanism under Section 107 of the CGST Act.

The Court further clarified that the absence of an appellate remedy under Section 107 against the withholding order did not exclude judicial review under Article 226 of the Constitution.

Merits Of Fraud Allegations Left To GSTAT

The Court noted that an appeal was pending before the GSTAT by the time the writ petition was decided. It therefore declined to determine disputed questions concerning the genuineness of the suppliers, the actual movement of goods and the correctness of the allegations contained in the withholding order and subsequent show-cause notice.

The Court held that the petitioner remained free to raise all such contentions, including its submissions concerning Section 54(11), before the GSTAT. It directed the Tribunal to consider those issues without being influenced by the observations made in the judgment.

Conclusion

The High Court dismissed the writ petition after finding that an Anti-Evasion investigation was already pending when the refund was withheld and that the Commissioner had formed the required opinion concerning fraud or malfeasance from contemporaneous material.

The Court upheld the withholding order under Section 54(11) of the CGST Act but granted the petitioner liberty to raise all remaining issues before the GSTAT. It directed the Tribunal to consider those contentions uninfluenced by the High Court’s observations.

Cause Title: Devi Electronics Private Limited v. Commissioner, CGST Delhi South and Others (Neutral Citation: 2026:DHC:8551-DB)

Appearances

Petitioner: Sunil Dalal, Senior Advocate; Faraz Anees, Kartik Vashisht, Abhimanyu Singh Tomar, Ajay Kumar and Yash, Advocates

Respondents: Raj Kumar, Central Government Standing Counsel; Aditya Singla, Senior Standing Counsel

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