Gujarat HC orders refund of Rs 5.41 lakh GST penalty the State held for two years after losing the appeal
A division bench of Justice A.S. Supehia and Justice Vaibhavi D. Nanavati agreed the refund claim was late on the ordinary statutory clock, but refused to let a summary uploaded two years after the appellate order revive a demand that had already been set aside.
A Bhavnagar chemicals company paid ₹5,41,032 in tax and penalty in November 2019 to get a truck released. It won its appeal against that demand in February 2022, with an express direction that the money be refunded. The department never paid. When the company finally filed a refund application in June 2024, the day after the appellate order was uploaded on the GST portal, the same department rejected the claim as time-barred. On 23 October 2026, the Gujarat High Court quashed that rejection and ordered the refund with interest, holding that a procedural deadline cannot be used to bring back a demand the law has already struck down.
The judgment was reserved on 14 October and pronounced on 23 October by a division bench of Justice A.S. Supehia and Justice Vaibhavi D. Nanavati, with Justice Supehia writing for the bench. The petition was allowed and Rule made absolute.
A truck stopped at Nari Gam and a penalty that did not survive appeal
Panila Chem Limited, a public limited company that manufactures and supplies chemicals, bought goods from Dasaldhan Chemicals Private Limited of Bharuch under an invoice dated 25 November 2019. The goods were sent from Bharuch to Bhavnagar in a vehicle bearing registration GJ-12-BV-7880. An e-way bill was generated on 26 November 2019, valid up to 29 November.
At about 8 am on 27 November 2019, the State Tax Officer-2 of the Mobile Squad, Bhavnagar, intercepted the vehicle at Nari Gam. The officer alleged that the e-way bill had been rejected. Proceedings under Section 129 of the Central Goods and Services Tax Act, 2017 followed, ending in an order in Form GST MOV-09 dated 29 November 2019 that imposed tax and penalty totalling ₹5,41,032. The company deposited the amount to secure the release of the truck and the goods.
The company appealed to the Deputy Commissioner of State Tax, Appeal-9, Bhavnagar. On 28 February 2022 the appellate authority allowed the appeal and set aside the demand. It found that the e-way bill was active and had not been rejected, contrary to the allegation on which the whole demand rested, and that the company had no intention to evade tax. It directed the State Tax Officer to refund the ₹5,41,032, subject to verification of the tax liability.
A physical copy of that order was handed to the company's authorised person on 8 March 2022. That date would become the centre of the dispute.
Two years and three months between the order and its summary
Under Rule 113(1) of the CGST Rules, an appellate authority is required to issue, along with its order, a summary in Form GST APL-04 showing the final amount of demand confirmed. In this case the summary, carrying reference number ZD240624004754K, was generated and uploaded on the portal only on 3 June 2024, two years and three months after the order itself.
The company filed its refund application in Form GST RFD-01 the next day, 4 June 2024. On 28 June the Assistant Commissioner of State Tax, Bhavnagar (respondent No. 2) issued a notice in Form GST RFD-08 asking for a copy of the detailed appellate order. The company replied in Form GST RFD-09 on 29 June, attaching the order. On 10 July 2024 the Assistant Commissioner rejected the refund claim in Form GST RFD-06.
The company appealed under Section 107(1) to the Deputy Commissioner of State Tax, Bhavnagar (respondent No. 3). By an order-in-appeal dated 30 January 2025 that appeal was dismissed. The reasoning was simple: the appellate order had been communicated on 8 March 2022, Section 54(1) of the CGST Act gives two years from the relevant date to claim a refund, and the application of 4 June 2024 was outside that window.
The company and its director then moved the High Court under Article 226, seeking to quash both orders and a direction to refund the money with interest.
What the two sides argued
Mr Abhay Desai, appearing for the petitioners with Mr Krutarth Desai, opened with Article 265 of the Constitution: no tax shall be levied or collected except by authority of law. Once the appellate authority had set aside the demand and expressly directed a refund, he argued, the department was bound to pay even without a separate application, and holding on to the money was retention without authority of law.
Without prejudice to that, he took the court to Explanation 2(d) to Section 54, which fixes the relevant date, where tax becomes refundable because of an order of an appellate authority, tribunal or court, as the date of communication of that order. His case was that communication was complete only when the order and its APL-04 summary went on the portal on 3 June 2024, because Section 107(11) read with Rule 113(1) requires the summary to be issued with the order. He relied on CBIC Circular No. 125/44/2019-GST of 18 November 2019, which he said requires a refund application arising from an appellate order to be filed on the GSTN portal by reference to the order reference number generated there, since the system processes the claim on that number. Section 169(1)(d) of the Act, which recognises communication by making an order available on the portal, pointed the same way. The department, he said, could not take advantage of its own delay in uploading the summary. On interest, he submitted the petitioners were entitled to 9 per cent but would restrict themselves to 6 per cent. He cited the Gujarat High Court's decision in COMSOL Energy Pvt. Ltd. v. State of Gujarat.
Mr Raj Tanna, Assistant Government Pleader, answered that Explanation 2(d) speaks of communication of the order itself, not of the uploading of its summary. The order was communicated on 8 March 2022, and APL-04 is a summary meant to facilitate procedural compliance; it cannot extend limitation. Form GST RFD-01, he pointed out, has separate options for a refund based on an order received offline or online. The petitioners had received the order manually, so they could have selected the offline option, entered the order number and attached the order, with no dependence on APL-04 at all. The appellate proceeding had been conducted manually and the order served manually. The summary was uploaded on 3 June 2024 only because the Additional Commissioner (Appeals) issued a letter on 27 May 2024 requiring appellate orders to be uploaded on the portal and discontinuing manual orders, followed by a meeting at which it was decided that earlier manual orders should be uploaded too. That administrative exercise, he said, could not become the date of communication.
On a plain reading, 8 March 2022 was the relevant date
The bench first settled the facts it took as established: the statutory appeal, the order of 28 February 2022 directing refund under Section 129(3) subject to verification, the physical handover on 8 March 2022, the APL-04 upload on 3 June 2024, the refund application on 4 June 2024, the rejection on 10 July 2024 and the dismissal of the appeal on 30 January 2025.
It then set out Section 54(1) and Explanation 2(d). Since the petitioners did not dispute that the order was physically communicated to their authorised person on 8 March 2022, that date, the bench said, would ordinarily be the relevant date.
The argument that communication happened only with the APL-04 summary was rejected as a matter of statutory interpretation. Rule 113 describes APL-04 as a summary of the order indicating the final amount of demand confirmed. What went on the portal on 3 June 2024 was a summary of an order the petitioners had held in their hands since March 2022. The bench then examined Rule 89(1) and Form GST RFD-01. Item 7 of the form, dealing with grounds of the refund claim, has a column (d) for a refund 'on account of order', with sub-clause (iii) covering an appeal, and a further option for 'any other (specify)'. Neither Rule 89 nor the form says a taxpayer must wait for the APL-04 summary before applying. A taxpayer holding a physical copy of an appellate order can file for a refund without waiting for the portal.
The arithmetic followed. Two years from 8 March 2022 expired on 8 March 2024. The application of 4 June 2024 was filed beyond that period, even if it came the day after the summary was uploaded. The contention that 3 June 2024 should be the relevant date simply because the summary appeared that day, the bench said, cannot ordinarily be accepted.
Why the bench refused to let the deadline defeat the refund
Having lost on the first question, the petitioners won on the second. The bench framed it as whether the direction of 28 February 2022 to refund ₹5,41,032 could remain unimplemented, denying both the refund and consequential interest, solely because the application was late.
Three constitutional provisions anchored the answer. Article 300A provides that no person shall be deprived of property save by authority of law, and the bench said the refund amount qualifies as property. Article 265 bars collection of tax without authority of law. Article 19(1)(g) guarantees the right to carry on trade or business, and a denial of the refund would touch that right too. Against those stood the fact that refund processing is governed by statute, including the two-year limit in Section 54(1). The question, as the bench put it, was whether a procedural requirement about computing the relevant date should defeat a refund that an appellate order had already granted.
The bench drew on the Supreme Court's observation in Sambhaji v. Gangabai that “Procedural law is not to be a tyrant but a servant”, a procedural prescription being the handmaid and not the mistress, “a lubricant, not a resistant in the administration of justice”. Here, the refund was directed on 28 February 2022, the summary was uploaded on 3 June 2024, and the petitioners applied the very next day.
In those circumstances, and so that the claim was not defeated solely by the delay in uploading the summary, the bench held that 3 June 2024 may be treated as the relevant date for the limited purpose of this refund application. It added a caution on the text of Section 54(1): the word 'may' in the phrase 'may make an application before the expiry of two years' does not make the limitation period optional. But a rigid reading of the provision cannot be invoked to validate an illegal action either.
The bench then said something directed at the department rather than the petitioners. The State, which collects revenue from taxpayers, is under a constitutional obligation to act fairly, transparently and according to law, and must not retain amounts no longer supported by a subsisting demand. Where an appellate authority has set aside a demand and directed a refund, the authorities are expected to take steps to implement that order in time, which may include telling the taxpayer to use the statutory refund process. Where a refund application is needed to give effect to such an order, the authorities should facilitate it rather than put procedural obstacles in the way. Retaining the amount, the bench said, would indirectly revive the order of 29 November 2019 that imposed the tax and penalty, and the statutory provisions cannot be allowed to operate so as to produce “the revival of an illegal action”.
The bench noted that the record indicated the upload took place following departmental instructions issued on 27 May 2024 and 10 July 2024, and observed that the precise sequence and effect of those instructions would need to be considered in the context of the record. It held that 3 June 2024, the date APL-04 was uploaded, shall be treated as the relevant date for considering the refund. The application of 4 June 2024 was within two years of that date, and the petitioners were entitled to the ₹5,41,032 in terms of the appellate order, subject to the law on consequential interest.
Interest: 6 per cent from 15 August 2024
Section 56 of the CGST Act provides interest at a rate not exceeding 6 per cent if a refund ordered under Section 54(5) is not paid within sixty days of the application. Its proviso provides for interest not exceeding 9 per cent where the refund arises from an order of an adjudicating authority, appellate authority, tribunal or court that has attained finality and is not paid within sixty days of an application filed consequent to that order. The bench read the proviso as covering a case like the petitioners', but noted that it too turns on an application being made, within two years, consequent to the order.
The petitioners had neither claimed a particular rate nor specified a start date in their writ prayers, and Mr Desai had said they would be satisfied with 6 per cent. The bench held that because the petitioners should have applied on receiving the physical copy of the appellate order and did not, they would get no interest from the date of that order. Taking 4 June 2024 as the application date, the sixty-day period under the proviso ended on 3 August 2024, after which 9 per cent would ordinarily run. To balance the equities, and since the petitioners were not pressing for 9 per cent, the bench awarded interest at 6 per cent on ₹5,41,032 from 15 August 2024 until actual payment.
Order
The writ petition was allowed. The refund rejection order of 10 July 2024 and the order-in-appeal of 30 January 2025 were quashed and set aside. The respondents were directed to process the refund application dated 4 June 2024; if the portal does not allow that application to be filed or processed, the petitioners may file a fresh offline application, which the respondents must process. The refund is to be paid with interest at 6 per cent calculated from 15 August 2024. The directions are to be implemented within twelve weeks, failing which the petitioners will be entitled to interest at 9 per cent per annum on the refund amount after the twelve weeks. Rule was made absolute. Mr Neel P. Lakhani appeared for respondents Nos. 2 and 3.