IBM India Pvt Ltd Vs Union of India (Bombay High Court)
Summary: The Bombay High Court allowed IBM India Pvt. Ltd.’s writ petition challenging the rejection of its refund application for the statutory pre-deposit attributable to the portion of GST demand dropped in appeal.
The petitioner had been assessed to tax of Rs.48,96,54,949/- by the Adjudicating Authority under an Order dated 21st February, 2024. The petitioner challenged the order before the First Appellate Authority under Section 112 of the Maharashtra Goods and Services Tax Act, 2017. By Order in Appeal dated 17th March, 2025, the appeal was partly allowed and 64% of the adjudicated demand was dropped. The demand finally confirmed in the appellate order was Rs.17,50,70,729/-, while the demand dropped was Rs.31,45,84,219/-.
IBM India thereafter filed Form GST RFD-01 on 9th July, 2025 seeking refund of Rs.3,14,58,422/-, representing 10% of the demand of Rs.31,45,84,219/- that had been dropped. The refund application was filed in respect of the pre-deposit made when the first appeal was filed under Section 107 of the MGST Act.
A show cause notice dated 22nd July, 2025 proposed rejection of the refund on the ground that the appellate proceedings had not attained finality because IBM India had expressed an intention to challenge the portion of the appellate order adverse to it before the GST Appellate Tribunal under Section 112 of the MGST Act.
In its response, IBM India contended that its refund claim related only to the portion of the demand that had been dropped and not to the disputed portion that it proposed to challenge. The petitioner relied upon the Circular dated 16th September, 2014 and the decisions in Brij Mohan Mangla Vs. Union of India, 2023 (3) TMI 327 Delhi High Court, M/s. G. S. Industries Vs. Commissioner of CGST, Delhi West & Anr., 2023 (4) TMI 404 Delhi High Court and M/s. BLA Infrastructure Pvt. Ltd. Vs. The State of Jharkhand, Commissioner, State Goods & Services Tax & Ors., 2025 (2) TMI 352 Jharkhand High Court.
The Deputy Commissioner of State Tax rejected the refund claim. The authority noted that the appellate order had dropped demand of approximately Rs.31.45 crores and confirmed demand of Rs.17.50 crores, against which the taxpayer intended to appeal further. It relied upon Circular No. 125/44/2019-GST dated 18th November, 2019 and took the view that refund of pre-deposit under Section 107(6) was admissible only when appellate proceedings attained finality, namely, when no further appeal was pending or contemplated.
The authority also distinguished the decisions cited by IBM India on the ground that, according to it, those cases involved appellate proceedings that had attained finality and no further appeal was pending or contemplated by the Department. In the present case, IBM India itself had expressed an intention to challenge the adverse portion of the appellate order and had made the further pre-deposit required under Section 112(8) of the MGST Act.
The Bombay High Court, however, rejected this reasoning. It noted that the gross tax demand confirmed at adjudication was Rs.48,96,54,949/- and that the First Appellate Authority had confirmed Rs.17,50,70,729/-, thereby dropping the demand by 64%. The petitioner sought refund only of 10% of the pre-deposit corresponding to the demand of Rs.31,45,84,219/- that had been dropped.
The Court particularly noted that the Department had not filed any appeal against the dropping of the demand to the extent of Rs.31,45,84,219/-. Consequently, according to the Court, to the extent the petitioner had succeeded in appeal, it was entitled to proportionate refund of the pre-deposit, namely 10% of Rs.31,45,84,219/-.
The Court held that the impugned order proceeded on an erroneous footing by treating the entire appellate proceeding as lacking finality merely because the petitioner proposed to challenge the portion of the appellate order that had gone against it. The Court observed that the proposed challenge related only to the demand of Rs.17,50,70,729/-, whereas the appellate proceedings concerning the dropped demand of Rs.31,45,84,219/- had attained finality.
The Court further held that the petitioner was covered by the Circular dated 18th November, 2019 because the appellate proceedings, to the extent of Rs.31,45,84,219/-, had attained finality. The petitioner would therefore be entitled to refund of the pre-deposit attributable to that successful portion. In respect of the remaining confirmed demand of Rs.17,50,70,729/-, the petitioner would have to make the prescribed 10% pre-deposit if it preferred an appeal against that portion.
The Court also referred to the character of a statutory pre-deposit under the erstwhile indirect tax regime. It observed that such payment, made as a condition precedent for hearing an appeal, did not bear the character of duty but constituted a security deposit. The Court referred to Nelco Limited Vs. UoI, 2002 (144) E.L.T. 56 (Bom.), maintained in 2002 (144) E.L.T. A104 (S.C.), in support of this proposition.
The Court went on to hold that once the demand of Rs.31,45,84,219/- stood set aside, a statutory right accrued in favour of the petitioner to receive refund of the amount paid towards pre-deposit, namely Rs.3,14,58,422/-, along with interest. The continued retention of that amount was held to be wholly unauthorized and offending Article 265 of the Constitution.
The Court further observed that the Order in Appeal dated 17th March, 2025, to the extent that it set aside the demand of Rs.31,45,84,219/-, was binding on Respondent No.3 under Section 107(16) of the CGST Act. Respondent No.3 therefore could not refuse consequential refund of the pre-deposit attributable to the demand so set aside.
Although the petitioner sought statutory interest under Section 115 of the CGST Act, the Court requested counsel to consider giving up the interest claim. Counsel, on instructions, submitted that IBM India was satisfied with refund of the principal amount and did not press the claim for interest. The Court appreciated the gesture.
Accordingly, the Bombay High Court allowed the writ petition, quashed and set aside the impugned order, and directed that the refund application to the extent of Rs.3,14,58,422/- be processed expeditiously and the amount be refunded to the petitioner within six weeks from communication of the Order.
Cases Discussed
- Brij Mohan Mangla Vs. Union of India, 2023 (3) TMI 327 Delhi High Court — relied upon by the petitioner in support of its contention concerning withholding of refund despite an appellate order.
- M/s. G. S. Industries Vs. Commissioner of CGST, Delhi West & Anr., 2023 (4) TMI 404 Delhi High Court — relied upon by the petitioner in support of refund following an appellate order despite the proposed further challenge.
- M/s. BLA Infrastructure Pvt. Ltd. Vs. The State of Jharkhand, Commissioner, State Goods & Services Tax & Ors., 2025 (2) TMI 352 Jharkhand High Court — relied upon by the petitioner concerning refund of a statutory pre-deposit.
- Nelco Limited Vs. UoI, 2002 (144) E.L.T. 56 (Bom.) — referred to by the Court for the proposition that an amount paid as a condition precedent for hearing an appeal bears the character of a security deposit rather than duty.
FULL TEXT OF THE JUDGMENT/ORDER OF BOMBAY HIGH COURT
1. Heard learned counsel for the parties.
2. The challenge in this petition under Article 226 of the Constitution of India is to the impugned order dated 26th August, 2025 rejecting the application for refund of pre-deposit paid under Form GST RFD-01. Thus, the issue that arises in the present writ petition concerns the denial of refund of the pre-deposit despite partial allowance of the petitioner’s appeal.
3. The Adjudicating Authority by the Order dated 21st February, 2024 assessed the tax that is required by the petitioner to be paid to the tune of Rs.48,96,54,949/-. The order of the Adjudicating Authority was challenged before the First Appellate Authority (Joint Commissioner of State Tax (Appeal-1), Mumbai) under Section 112 of the Maharashtra Goods and Services Tax Act, 2017 (‘MGST Act’ for short). The First Appellate Authority partly allowed the appeal on 17th March, 2025 and dropped 64% of the demand as held by the Adjudicating Authority.
4. The petitioner M/s. IBM India Pvt. Ltd. therefore filed a refund application under Form GST RFD-01 on 9th July, 2025 seeking refund of Rs.3,14,58,422/- towards the pre-deposit paid at the time of filing First Appeal under Section 107 of the MGST Act, 2017, to the extent of demand dropped vide Order in Appeal dated 17th March, 2025. In pursuance of the said refund application, a show cause notice dated 22nd July, 2025 was issued to the petitioner proposing rejection of the refund claim on the ground that the said appellate proceedings have not attained finality and the petitioner has declared its intention to challenge the same before the GST Appellate Tribunal under Section 112 of the MGST Act, 2017.
5. In response to the said show cause notice, the petitioner has filed a reply dated 5th August, 2025 along with supporting documents. The petitioner contended that the refund claim pertains only to the portion of demand dropped and not the portion under dispute. The petitioner relied upon the Circular dated 16th September, 2014 as well as the decisions in Brij Mohan Mangla Vs. Union of India, 2023 (3) TMI 327 Delhi High Court, M/s. G. S. Industries Vs. Commissioner of CGST, Delhi West & Anr. 2023 (4) TMI 404 Delhi High Court as well as M/s. Bla Infrastructure Pvt. Ltd. Vs. The State of Jharkhand, Commissioner, State Goods & Services Tax & Ors. 2025 (2) TMI 352 Jharkhand High Court.
6. The application for refund was rejected by the Deputy Commissioner of State Tax for the following reasons, the relevant portion which reproduced reads thus:-
“4. I have gone through the contentions putforth by the taxpayer in support of the refund claim. I have also gone through the submissions, documents and records pertaining to the present refund application. On verification of the same, it is found that the Order In Appeal No. ZD2703250747065 dated 17.03.2025 has partially modified the adjudication order and dropped the demand of Rs. 31.45 crores approx. and confirmed the demand of Rs. 17.50 crores, against which the taxpayer intends to file an appeal further.
5. The taxpayer, vide its email dated 03.07.2025 has categorically stated their intent to challenge the Order-in-Appeal before the GST Appellate Tribunal and has accordingly paid a pre-deposit under Section 112(8) of the MGST Act, 2017, on the disputed portion. Further Circular No. 125/44/2019-GST dated 18.11.2019 stipulates that refund of pre-deposit under Section 107(6) shall be allowed only when the appellate proceedings attain finality, i.e., no further appeal is pending or contemplated. Therefore, the Circular No. 984/08/2014-CX dated 16.09.2014 issued by Ministry of Finance, Department of Revenue (Central Board of Excise & Customs) is of no help to the taxpayer.
6. The taxpayer has placed reliance on the decisions of Brij Mohan Mangla vs. Union of India (W.P. (C) No. 14234 of 2022] and M/s. G.S. Industries vs. Commr. of CGST [W. P. (C) 14719/2022], wherein the issue before the Hon’ble High Court was non-implementation of the appellate order and withholding of refund solely on the ground that the Department contemplated filing an appeal against the said order. The Hon’ble High Court, in that context, held that refund cannot be withheld merely on account of the Department’s intention to prefer an appeal.
7. The taxpayer has also relied upon the judgment in case of M/s. Bla Infrastructure Private Limited vs. The State of Jharkhand, Commissioner, & Ors., wherein the Hon’ble High Court observed that once refund is in the nature of statutory pre-deposit, the same cannot be indefinitely retained either by the State or the Centre, and that such pre-deposit refund is a vested right accruing to the assessee upon the appeal being decided in its favour.
8. It is respectfully submitted that both the above decisions are clearly distinguishable on facts and do not advance the case of the taxpayer. In both cases relied upon by the taxpayer, the appellate proceedings had attained finality, and no further appeal was pending or contemplated by the Department. However, in the present case, the taxpayer itself has expressed intention to challenge the Order-in-Appeal before the Hon’ble GST Appellate Tribunal. Accordingly, the appellate proceedings in the present matter have not attained finality.
9. It is further submitted that as per Circular No. 125/44/2019-GST dated 18.11.2019, refund of pre-deposit made under Section 107(6) of the CGST/MGST Act is admissible only once the appellate proceedings have attained finality, i.e., where no further appeal is pending or contemplated. Thus, unless and until the proceedings reach finality, the refund claim of the taxpayer is premature and not maintainable.
10. Therefore, the case laws relied upon by the taxpayer are factually distinguishable and are of no assistance in the present matter. In the present case, the appellate proceedings have not attained finality, as the taxpayer has voluntarily expressed its intention to challenge the Order-in-Appeal before the GST Appellate Tribunal and has accordingly made the pre-deposit as mandated under Section 112(8) of the MGST Act, 2017. This intention is July evidenced by the electronic liability ledger entries and the taxpayer’s communication dated 03.07.2025. Accordingly, the refund claim is premature and not maintainable at this stage.
11. In view of the above, the refund claim of Rs. 3,14,58,422/- filed by M/s. IBM India Pvt. Ltd. under ARN: AA270725043170G is liable to be rejected. In exercise of the powers conferred under Section 54 of the MGST Act, 2017 read with Rule 92(3) of the MGST Rules, 2017, I hereby reject the refund claim of Rs. 3,14,58,422/- filed by M/s. IBM India Pvt. Ltd. under ARN: AA270725043170G.”
7. Suffice it to observe that the gross tax demand at the stage of adjudication confirmed as per Order in original dated 21st February, 2024 was Rs.48,96,54,949/-. The amount of tax demand confirmed in the order in appeal dated 17th March, 2025 by the First Appellate Authority is Rs.17,50,70,729/-. Therefore, the Appeal came to be partly allowed by dropping the demand to the extent 64%.
8. What the petitioner wanted was a refund of 10% of the pre-deposit made as against the demand of Rs.31,45,84,219/- that was dropped. It is pertinent to note that the department did not file any appeal against the dropping of the demand to the extent of Rs.31,45,84,219/-. Hence, according to us, to the extent the petitioner has succeeded in appeal, the petitioner would be entitled to the proportionate refund of the pre-deposit made i.e. to the extent of 10% of Rs.31,45,84,219/-.
9. The reasoning in the impugned order is that there is no finality to the proceedings as the petitioner has expressed an intention to challenge the appellate order before the GST Appellate Tribunal and hence till the proceedings attained finality, the petitioner’s refund application cannot be entertained. This is where the impugned order proceeds on an erroneous footing. The authority ought to have kept in mind that what the petitioner proposes to challenge was only that part of the order which has gone against it in appeal and to the extent of Rs.17,50,70,729/-. To the extent of Rs.31,45,84,219/- the proceedings have attained finality. The reasoning of the authority that the proceedings have not attained the finality only because the petitioner proposes to challenge that part of the order which has gone against it is fallacious.
10. The petitioner would be squarely covered by Circular dated 18th November, 2019 in as much as the refund of pre-deposit made under Section 107(6) of the MGST Act is admissible in the present case as the appellate proceedings to the extent of Rs.31,45,84,219/- has attained finality. To the extent of Rs.17,50,70,729/- the petitioner obviously will have to pay the pre-deposit of 10% of the amount in the event of an appeal is preferred against that part of the order of the Appellate Authority in respect of which the petitioner is aggrieved.
11. It is pertinent to note that under the erstwhile indirect tax regime, the amount paid as a condition precedent for hearing an appeal, did not bear the character of duty but bears the character only of a security deposit, being a statutory condition precedent for hearing of the appeal. Such an amount needs to be returned to the concerned appellant, whether the appellant succeeds fully or partly. If any authority is needed in support of this proposition, we may refer to Nelco Limited Vs. UoI (2002 (144) E.L.T. 56 (Bom.)] maintained in 2002 (144) E.L.T. A104 (S.C.)].
12. Once the demand of INR 31,45,84,219/- stood set aside, a statutory right accrued in favour of the Petitioner to receive a refund of the amount paid towards pre-deposit i.e. INR 3,14,58,422/- along with interest. The continued retention of such an amount is wholly unauthorized and offends Article 265 of the Constitution.
13. The Order in Appeal dated 17.03.2025, to the extent it set aside the demand of INR 31,45,84,219/-, was binding on the Respondent No.3 under Section 107(16) of the CGST Act. Therefore, the Respondent No.3 could not refuse consequential refund of the pre-deposit attributable to the demand so set aside.
14. A request is made by the learned counsel for the petitioner for payment of statutory interest under Section 115 of the CGST Act. However, we had requested the learned counsel for the petitioner in the facts of the present case, if the petitioner could give up the claim for amount of interest. Learned counsel for the petitioner on instructions graciously submitted that since the petitioner is satisfied with the principal amount being refunded, the petitioner does not press for interest. We appreciate the gesture on the part of the petitioner.
15. Hence, the following Order:-
(i) The writ petition is allowed.
(ii) The impugned Order is quashed and set aside.
(iii) The application for refund to the extent of Rs.3,14,58,422/- Crores be processed expeditiously and accordingly be refunded to the petitioner in any case within a period of six weeks from the date of communication of this Order.
