Refund of pre-deposit is due for demand set aside, despite appeal against the surviving demand.

The adjudicating authority, by order dated 21 February 2024, confirmed a tax demand of ₹48,96,54,949 against IBM India Pvt. Ltd.

IBM preferred an appeal under Section 107 of the Maharashtra Goods and Services Tax Act, 2017 (“MGST Act”) and had made a statutory pre-deposit of 10% of the disputed demand.

By order dated 17 March 2025, the First Appellate Authority partly allowed the appeal, dropping ₹31,45,84,219—approximately 64% of the original demand—and confirming ₹17,50,70,729.

The Department did not challenge the portion of the appellate order that dropped the demand.

IBM applied for refund of ₹3,14,58,422, being the proportionate pre-deposit attributable to the demand dropped in appeal.

The refund application was rejected on the ground that IBM intended to challenge the adverse portion of the appellate order before the GST Appellate Tribunal and that the appellate proceedings had therefore not attained finality.

IBM challenged the rejection under Article 226 of the Constitution.

Whether refund of the proportionate statutory pre-deposit attributable to the demand set aside in appeal could be denied merely because the assessee intended to further challenge the adverse portion of the appellate order.

Whether the appellate proceedings had attained finality in respect of the demand of ₹31,45,84,219 that was dropped by the First Appellate Authority, notwithstanding the assessee’s proposed appeal against the remaining demand.

Whether IBM was entitled to refund of ₹3,14,58,422 towards the pre-deposit attributable to the demand set aside in appeal.

The Court applied Section 107(6) of the CGST/MGST Acts, under which a 10% pre-deposit is required for filing a first appeal, and Section 107(16), which makes an appellate order binding and requires consequential implementation.

It considered Circular No. 125/44/2019-GST dated 18 November 2019, under which refund of a statutory pre-deposit is ordinarily available when the relevant appellate proceedings attain finality.

The Court held that finality must be assessed with reference to the specific portion of the demand that has been finally set aside, rather than treating the entire appeal as non-final merely because another portion remains disputed.

Relying on Nelco Ltd. v. Union of India, 2002 (144) E.L.T. 56 (Bom.), maintained in 2002 (144) E.L.T. A104 (S.C.), the Court reiterated that an appellate pre-deposit is in the nature of security and not duty, and must be returned when the assessee succeeds, wholly or partly.

Continued retention of the amount after the corresponding demand was set aside was held to be unauthorised and contrary to Article 265 of the Constitution.

The Court also referred to Sections 54 and 115 and Rule 92(3), though the petitioner ultimately did not press its claim for statutory interest.

The Court distinguished between the portion of the appellate order favourable to IBM and the portion adverse to it.

IBM’s proposed further appeal concerned only the confirmed demand of ₹17,50,70,729; it did not affect the First Appellate Authority’s decision to drop the demand of ₹31,45,84,219, against which the Department had filed no appeal.

Accordingly, the proceedings had attained finality to the extent of the dropped demand.

Since the pre-deposit was calculated as 10% of that demand, IBM acquired a statutory entitlement to refund ₹3,14,58,422.

The refund authority’s view that the entire matter remained non-final solely because IBM intended to appeal the adverse portion incorrectly treated the proceedings as indivisible and imposed an unwarranted bar on refund.

The Court therefore held that Circular No. 125/44/2019-GST supported, rather than defeated, IBM’s claim in respect of the finally settled portion.

The rejection order dated 26 August 2025 was quashed and set aside, and the respondents were directed to process and refund the amount within six weeks from communication of the judgment.

IBM did not press its claim for statutory interest.