Refund cannot be withheld during appeal without a specific Section 54(11) order after hearing.

The petitioner, a works contractor registered with the Munger Circle of the Commercial Taxes Department, applied on 15 December 2023 for refund of ₹1,75,00,000 lying in its Electronic Cash Ledger. The refund application was rejected on 31 May 2024 on the ground that the petitioner had allegedly availed ineligible input tax credit of ₹24,13,37,314 for 2022–23, based on inward e-way bills, GSTR-3B and GSTR-2A data.

The Appellate Authority set aside the rejection order on 31 December 2024. The Revenue thereafter filed a revision application under Section 108 of the CGST/BGST Act, 2017, and subsequently filed an appeal before the GST Appellate Tribunal on 30 June 2026. The petitioner filed a fresh refund application on 5 February 2025. The proper officer issued a deficiency memo in Form GST RFD-03 on 1 March 2025, stating that the refund was inadmissible under Section 54 of the CGST/BGST Act read with Rule 90 of the CGST/BGST Rules because of allegedly undischarged assessed tax liability for previous years.

Whether the deficiency memo issued in Form GST RFD-03 under Rule 90(3) could operate as a basis for withholding the petitioner’s refund during the pendency of the Revenue’s appeal before the GST Appellate Tribunal?

Whether the Commissioner was required to pass a specific order under Section 54(11) of the CGST/BGST Act, after issuing notice and granting the petitioner an opportunity of hearing, before withholding the refund?

Whether the petitioner’s writ application was premature because the proceedings pursuant to the deficiency memo had not yet culminated in a final order?

The Court applied Section 54(11) of the CGST/BGST Act, 2017, which permits the Commissioner to withhold a refund during the pendency of an appeal where, in the Commissioner’s opinion, payment of the refund is likely to adversely affect the revenue; such withholding requires notice, an opportunity of hearing, and a specific order.

The Court also applied Rule 90(3) of the CGST/BGST Rules, 2017, under which deficiencies in a refund application are to be communicated in Form GST RFD-03, requiring the applicant to submit a fresh application after rectifying the deficiencies.

The Court held that Form GST RFD-03 issued under Rule 90(3) was a deficiency communication requiring rectification and submission of a fresh refund application; it was not, by itself, a valid order authorizing withholding of the refund.

Although the Revenue had challenged the Appellate Authority’s order and had filed proceedings before the GST Appellate Tribunal, the record did not show that the Commissioner had undertaken the statutory exercise contemplated by Section 54(11). Since withholding the refund during the pendency of the appeal required the Commissioner to form the requisite opinion and pass a specific order after hearing the petitioner, the Revenue could not retain the amount merely on the basis of the pending appeal or the deficiency memo.

The writ petition was disposed of with a direction to the Commissioner to issue a fresh show-cause notice to the petitioner within one week, duly serving it through the common portal, SMS and email. The petitioner was granted one week from receipt of the notice to submit its reply. Thereafter, the Commissioner was required to fix a date for personal hearing and pass a reasoned order concerning payment or withholding of the refund within one month from the close of the hearing.