Court affirms Commissioner's power under Section 54(11) of CGST Act to withhold refund amid ongoing anti-evasion investigation, rejecting petitioner's plea for immediate refund despite appellate order
In a significant judgment delivered on October 1, 2026, the Delhi High Court (Division Bench) dismissed the writ petition filed by M/s. Devi Electronics Pvt Ltd challenging the withholding of a GST refund amounting to over Rs. 3.15 crore by the Commissioner of CGST Delhi South. The Court upheld the Commissioner's order passed under Section 54(11) of the Central Goods and Services Tax Act, 2017 (CGST Act), which empowers the tax authorities to withhold refunds where an appeal or any other proceedings are pending and the Commissioner is of the opinion that releasing the refund would adversely affect government revenue due to fraud or malfeasance.
M/s. Devi Electronics, engaged in export of electronic goods, had filed multiple refund claims for IGST paid on exports between November 2023 and January 2024. These claims were initially rejected by the tax authorities on grounds including incomplete documentation. However, the Appellate Authority allowed the petitioner's appeals and directed grant of refund. Subsequently, the Commissioner, invoking Section 54(11), withheld the refund citing ongoing anti-evasion investigations revealing that several suppliers were non-existent or non-functional, and the petitioner's claimed supply chain was questionable.
The petitioner contended that no appeal or proceeding was pending on the date of withholding order and that mere contemplation of appeal could not justify withholding refund. It further argued that the investigation was not a "proceeding" under Section 54(11) and that absence of a judicial stay meant the refund should have been released. It also claimed the withholding order was administrative and not appealable, thus barring judicial review.
The Court, however, observed that Section 54(11) has two cumulative conditions: (1) the order giving rise to refund must be under appeal or any other proceeding under the CGST Act must be pending, and (2) the Commissioner must form an independent opinion that releasing the refund would harm revenue due to fraud or malfeasance. Importantly, the phrase "any other proceedings" was interpreted broadly to include ongoing investigations, not limited to formal appeals.
Evidence on record showed that the anti-evasion investigation by the CGST's Anti-Evasion Wing was initiated well before the appellate order and the withholding order. The investigation revealed multiple irregularities such as bogus suppliers, non-movement of goods despite e-way bills, and the petitioner's exclusion from the manufacturer's supply chain. These findings supported the Commissioner's opinion of malfeasance.
The Court distinguished earlier judgments relied upon by the petitioner which held that mere proposed appeals cannot justify withholding refunds. Those cases lacked independent evidence of fraud. Here, the Commissioner's withholding was justified by contemporaneous material from the ongoing investigation. The Court also clarified that the Commissioner's power under Section 54(11) is distinct from adjudication or appeal mechanisms and that absence of an appeal under Section 107 does not bar judicial review.
While the Court declined to examine disputed factual issues in writ jurisdiction, it granted liberty to the petitioner to raise all contentions, including challenges to the withholding order, before the Goods and Services Tax Appellate Tribunal (GSTAT), where an appeal against the withholding order was already pending.
This decision reaffirms the broad powers of GST authorities to safeguard government revenue against fraudulent claims and clarifies the scope of Section 54(11) in withholding refunds amidst anti-evasion proceedings.
Bottom Line:
GST - Refund - Commissioner can withhold refund under Section 54(11) of the CGST Act, 2017 even in absence of a judicial stay, where an anti-evasion investigation was already pending and the Commissioner formed an opinion on contemporaneous material that grant of refund would adversely affect revenue on account of fraud or malfeasance.
Statutory provision(s):
Central Goods and Services Tax Act, 2017 - Section 54(11), Section 16(2), Section 107, Section 112(3)
