Tax Vista

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Edn. 274 - 9th February 2026

Kasi Viswanathan V

High Court directs refund of amounts recovered in excess of pre-deposit

The ruling deals with recoveries effected during the period when the appellate remedy before the GST Appellate Tribunal remains unavailable, and examines whether amounts recovered beyond the statutory pre-deposit can be retained where the taxpayer has expressed its intention to challenge the first appellate order. The controversy arose in the backdrop of Circular No. 224/18/2024-GST dated 11.07.2024, which seeks to regulate recovery during this transitional phase.

In the present case, recovery was initiated pursuant to the first appellate order, even though the taxpayer had submitted a declaration intimating its intention to file an appeal. The declaration, however, was addressed to the appellate authority and not to the proper officer, as envisaged under paragraph 6 of the circular. In addition, the statutory pre-deposit of ten per cent contemplated under Section 112 of the CGST Act had not been separately paid at that stage. Revenue therefore contended that the mandatory pre-conditions of the circular had not been fulfilled, and that recovery was validly effected. It was also argued that, in any event, the circular does not contemplate grant of interest, and that refund, if any, would necessarily remain subject to retention of the pre-deposit amount.

Before the Court, the taxpayer adopted a limited and pragmatic position. It agreed to forego refund of the amount equivalent to the statutory pre-deposit and also gave up any claim to interest. Revenue, on its part, submitted that any relief, if granted, should be confined to the peculiar facts of the case and should not be construed as an interpretation of paragraph 6 of the circular. Taking note of these submissions, the Court directed refund of the amount recovered in excess of the pre-deposit, treating the declaration filed before the appellate authority as sufficient compliance with the circular.

Two aspects of the ruling merit closer attention. First, while the Court observed that paragraph 6 of the circular "does provide for refund" in a situation where an undertaking is furnished and recovery ought not to have been initiated, this observation does not strictly flow from the text of the circular. The circular proceeds on the premise that recovery itself is impermissible once the declaration is furnished, and therefore does not separately envisage a refund mechanism for amounts already recovered. The Court's observation appears to be fact-driven, shaped by the sequence of events rather than by an interpretative reading of the circular. The decision repeatedly notes that it is confined to the facts of the case.

Second, a key factor was that the intimation of intention to file an appeal was submitted within time and prior to initiation of recovery proceedings. The only deviation on this count was that it was filed before the appellate authority instead of the proper officer. This aspect weighed with the Court. At the same time, the requirement of payment of ten per cent pre-deposit had admittedly not been met. The requirement was not dispensed with; it was met by allowing the amount already recovered to be adjusted towards the pre-deposit, based on the taxpayer's statement that it would not seek refund to that extent. The adjustment was thus a factual accommodation rather than a general permission for post-facto compliance.

In the period when appeals could be 'intended' but not 'filed', the decision offers some comfort but being heavily fact-driven and concession-based, it needs to be relied upon with caution and only in appropriate cases [Re: 2026-VIL-122-KAR]

Net ITC-Relevant period: 'Availment' vs 'Invoices of that Period'

The ruling examines how the expression "relevant period" in the refund formula prescribed under Rule 89(4) of CGST Rules, 2017 is to be interpreted and applied, with specific focus on the NET ITC component. The issue arose in the context of a seasonal exporter who had availed, in March 2025, the input tax credit pertaining to the financial year and included the same in the refund computation for that month. The refund claim was only partially sanctioned, which led to the writ petition.

The Court rejected the petitioner's contention that while March 2025 was the relevant period for turnover, the relevant period for Net ITC could be stretched to cover the entire year because the credit was availed in March 2025. According to the Court, the expression "relevant period" has to be understood and applied across all variables in the formula, viz., Net ITC, turnover of zero-rated supply and adjusted total turnover, therefore only ITC of invoices of March 2025 can be considered as Net ITC in the refund computation. Proceeding on this basis, the Court granted the petitioner an opportunity to make a fresh application and, recognizing the constraints of the portal, permitted a manual filing. The authorities were directed to recompute the refund by applying the formula in the manner explained in the decision and to grant any further amount found payable.

The directions issued in the judgment pursuant to the findings may not materially benefit the parties. The partial refund already sanctioned by the proper officer would appear to correspond to invoices for the March period and is, to that extent, already aligned with the Court's reasoning, leaving little scope for either a fresh manual application or any additional refund.

The difficulty, however, does not lie in applying the "relevant period" uniformly, but in understanding what it means for ITC to be "availed" for purposes of Net ITC. In practice, 'availment' has rarely been a moment frozen in time; it has evolved alongside the return architecture itself. Therefore, the said question cannot be examined in isolation, without reference to the manner in which ITC reporting and availment have evolved under GST.

As early as Circular No. 125/44/2019-GST dated 18.11.2019, the concept of "availed" ITC was explained. It clarified that ITC invoices issued in one month but availed in a subsequent tax period would form part of Net ITC for the latter period. It also recognised that ITC which is reversed cannot be regarded as availed, but if such ITC is subsequently re-availed in a later tax period, it would qualify for refund in that period, subject to statutory restrictions. The reference to Section 16(4) in this context appears somewhat inapt. Be that as it may, the circular proceeds on the premise that availment is linked to the act of taking credit into the electronic credit ledger, or re-taking it where simultaneous reversal has intervened.

This becomes even more significant when one traces the subsequent changes in ITC reporting. In the early years, GSTR-3B was treated as a stop-gap arrangement. Over time, it became the primary return. Circular No. 170/02/2022-GST dated 06.07.2022 required the entire ITC reflected in GSTR-2B to be reported in Table 4 of GSTR-3B, along with simultaneous reversal for credits that did not meet the conditions under section 16 and the relevant rules in the said period. In fact, Circular No. 197/09/2023-GST dated 17.07.2023 expressly contemplates entitlement to refund in respect of invoices of previous tax periods.

Read together, these instructions indicate that ITC is treated as availed when it is credited to the electronic credit ledger without being under reversal. Where reversal has occurred, the relevant availment is when the credit is reclaimed. There is no requirement that ITC must "belong" to the same tax period, so long as the credit is validly taken in accordance with law and guidance.

In view of the above, the petitioner's act of availing credit of the financial year in March 2025 cannot be said to be contrary to the present legal framework. If the credit stands validly availed in March, it constitutes Net ITC for that relevant period.

So long as the credit is taken within the permissible time, the law does not require the taxpayer to justify why it was availed in a particular month. Even Circular No. 170 does not introduce any such requirement. It merely prescribes a mechanism of availment and reversal to ensure correct accountal and settlement of funds between Governments, and has no bearing on the meaning of "availed" for the present purpose.

This becomes relevant where no excess benefit is derived by claiming the entire credit in a single period, especially in a case when no refund has been claimed for earlier tax periods. Even if claims were to be made in the respective periods, such claims would not have encountered any bar of limitation, the periods concerned being April 2024 to February 2025. This aspect assumes added relevance for seasonal industries.

Where the statute enables and provides for a refund, the entitlement cannot be curtailed by reading in restrictions through the mechanics of the formula or its application.

The ruling focused on how the "relevant period" in the formula is to be read and applied consistently, but stopped short of examining the mechanics of availment that actually determine Net ITC. [Re: 2026-VIL-128-MAD]

(The views expressed are personal. The author can be reached for feedback or queries on v.k.vishwa@gmail.com)