Orissa High Court Clarifies Limits on Withholding GST Refunds Under Section 54(11)

The Orissa High Court in M/s. Rashmi Agency v. Deputy Commissioner CT & GST & Ors. has delivered a significant ruling on the narrow scope of powers available to the Department for withholding refunds under Section 54(11) of the CGST Act read with Rule 92(2) of the CGST Rules. The Court held that a refund arising out of an appellate order cannot be withheld solely because the Department is considering filing an appeal under Section 112. Unless an appeal or other proceeding is actually pending on the relevant date and the statutory preconditions are satisfied, the power to withhold refund cannot be invoked.

This decision reinforces the principle that once an appellate authority has ordered refund and no higher forum has stayed or taken up the matter, the refund becomes a vested entitlement which must be processed in accordance with law.

Background and Factual Matrix

Parties and registration

  • M/s. Rashmi Agency (“the Petitioner/assessee”) is registered under the GST law in the State of Odisha.
  • The proceedings arose out of a search related not to the Petitioner directly, but to Hotel Rashmi Plaza.

Search and recovery during investigation

A search was undertaken by the Directorate General of Goods and Services Tax Intelligence (DGGI) under Section 67 of the CGST Act in relation to the affairs of **Hotel Rashmi Plaza`. During this exercise:

  • On August 10, 2023, an amount of Rs. 33,00,000/- was recovered.
  • This amount was deposited via Form GST DRC-03.
  • The Petitioner asserted that this payment was made under protest.
  • Due to a mistake, the payment was booked under the GSTIN of M/s. Rashmi Agency, even though the investigation pertained to Hotel Rashmi Plaza.

Initial rejection of refund and appellate success

After the amount had been recovered and deposited, the Petitioner sought refund of the said Rs. 33,00,000/-. The sequence was as follows:

  1. The refund claim was rejected by an order dated October 19, 2023 in Form GST RFD-06.
  2. The Petitioner preferred an appeal under Section 107 of the CGST Act.
  3. The Additional Commissioner of State Tax (Appeal), by order dated February 27, 2026 (“the Appellate Order”):
    • Allowed the appeal in entirety.
    • Held that the collection during inspection was contrary to CBIC Instruction No. 01/2022-23 dated May 25, 2022 as well as settled judicial principles.
    • Directed refund of the excess payment to the Petitioner as per law.

Thus, the appellate proceedings culminated in a clear direction that the Petitioner was entitled to refund of the recovered sum.

Fresh refund application after appellate order

Based on the Appellate Order:

  • The Petitioner filed a refund application in Form GST RFD-01 on March 05, 2026, claiming refund of Rs. 33,00,000/-.
  • The Deputy Commissioner CT & GST, Cuttack-I Circle (“the Respondent”) issued a Show Cause Notice dated April 24, 2026.
  • The Petitioner responded with a detailed reply on April 29, 2026.

Impugned order declining to process refund

Thereafter, by order dated May 02, 2026 in Form GST RFD-06 (“the Impugned Order”), the Respondent declined to proceed with the refund claim. The reasoning was:

  • Under Section 112(3) of the CGST Act, the State had six months (up to August 26, 2026) to challenge the Appellate Order before the GST Appellate Tribunal.
  • Since that limitation period had not expired, the Appellate Order was treated as not attaining finality.
  • According to the Respondent, granting refund at this juncture would be premature and might prejudice the interests of Revenue if an appeal were to be filed.

Writ petition and subsequent appeal by the State

  • Aggrieved, the Petitioner approached the Orissa High Court by filing **W.P.(C) No.