GST UPDATE

Question before Hon’ble Court:

Whether the claim for interest on delayed refund can be rejected merely because the disputed tax demand was originally deposited through the Electronic Credit Ledger and subsequently restored through FORM GST PMT-03.

Hon’ble Authority:	GSTAT, Agra
Case Title	MS Om Textiles Mills v. Commissioner of State Tax (U.P.)
Appeal No. & Citation	APL/177/AGR/2026
Date of Order	30.10.2026
Outcome	Appeal Allowed

Brief Facts of the Case

M/s Om Textiles Mills was subjected to demand of tax under Section 73 which was deposited by the taxpayer through its Electronic Credit Ledger. Being aggrieved by the adjudication order, the taxpayer preferred an appeal before the First Appellate Authority, which allowed the appeal and set aside the entire tax demand. Consequent upon the appellate order, the taxpayer filed an online application seeking refund or re-credit of the amount deposited against the disputed demand. The adjudicating authority sanctioned the refund however no interest was granted on the same, despite the delay in processing the refund application. Aggrieved by the denial of interest, the taxpayer preferred an appeal before the First Appellate Authority which denied the taxpayer's claim for interest. Being dissatisfied with the rejection of its claim, the taxpayer preferred the present second appeal before the GST Appellate Tribunal, Agra Bench.

Brief Arguments by Appellant

Entire Disputed Demand Subsequently Became Refundable

It was submitted that the additional tax demand had been deposited by the taxpayer through the Electronic Credit Ledger. Subsequently, the First Appellate Authority set aside the entire demand, thereby making the amount deposited by the taxpayer refundable.
Accordingly, once the underlying demand stood set aside, the amount deposited against such demand became refundable in accordance with the provisions of the Act. The taxpayer was therefore entitled to claim statutory interest on the delayed refund.

Statutory Pre-deposit Requirement Cannot Restrict the Right to Claim Interest

Since the First Appellate Authority set aside the entire demand, thereby making the amount deposited by the taxpayer refundable. It was contended that the statutory requirement of depositing a specified percentage of the disputed tax as pre-deposit for filing an appeal cannot be interpreted to mean that an appellant who deposits the entire disputed tax demand loses the right to claim interest on a refund subsequently found due under the law. It was submitted that the statutory pre-deposit is merely a condition for availing the appellate remedy and obtaining the statutory protection against recovery of the balance disputed demand during the pendency of the appeal. The said requirement does not relieve a taxpayer of the statutory liability to pay tax and applicable interest where the demand is ultimately upheld. Conversely, where the demand is set aside and the amount deposited becomes refundable, the mere fact that the taxpayer had deposited the entire demand cannot operate as a legal bar to a claim for interest under the applicable provisions.

No Distinction Between Electronic Cash Ledger and Electronic Credit Ledger

The taxpayer further submitted that no distinction could be drawn merely on the ground that the disputed tax had been deposited through the Electronic Credit Ledger rather than the Electronic Cash Ledger. It was contended that the amount had been debited from the taxpayer's available input tax credit and remained unavailable for utilisation until it was restored through the refund/re-credit process. The mere fact that the amount was restored through re-credit rather than being refunded in cash could not be a valid ground for denying statutory interest.

Entitlement to Interest on Delayed Refund

Since the amount had become refundable upon the setting aside of the demand and the refund was not sanctioned within the prescribed period, the taxpayer was entitled to interest in accordance with Section 56 of the Act.

Brief Arguments by Respondent

Deposit of Entire Disputed Demand Instead of Statutory Pre-deposit

It was submitted that the taxpayer was required to deposit only the prescribed statutory pre-deposit for filing the appeal but had voluntarily deposited the entire disputed tax demand. Accordingly, the taxpayer could not claim interest on the entire amount merely because it had chosen to deposit an amount exceeding the statutory requirement for filing the appeal.

Refund Granted Through FORM GST PMT-03

The Department further contended that the refund/re-credit had already been granted through FORM GST PMT-03 and that no liability to pay interest arose on the amount so re-credited.

Findings and Judgement

Statutory Framework Governing Interest on Delayed Refunds – Section 56

The Tribunal first examined Section 56 of the CGST Act, which provides for payment of interest where any tax ordered to be refunded under Section 54(5) is not refunded within sixty days from the date of receipt of the refund application. The Tribunal also took note of the Explanation to Section 56, which provides that an order passed by an Appellate Authority, Appellate Tribunal or Court against an order of the proper officer under Section 54(5) shall be deemed to be an order passed under the said provision.

Delay in Sanctioning Refund Attributable to the Department

The Tribunal noted that the taxpayer had filed an application in FORM GST RFD-01 seeking refund/re-credit of the amount deposited against the disputed demand. However, the re-credit of the amount through FORM GST PMT-03 was sanctioned subsequently. It was further observed that the adjudicating authority had admitted that the delay had occurred due to excessive workload in the office. In view of the admitted delay in sanctioning the refund, the Tribunal held that the provisions of Section 56 were applicable and taxpayer was entitled to refund.

Mode of Payment Cannot Be the Sole Ground for Denying Interest

The Tribunal observed that Section 49 of the Act recognises electronic ledgers as statutory mechanisms for recording and discharging tax liabilities, subject to the conditions prescribed under the Act. The Tribunal further observed that input tax credit represents an amount available for utilisation in accordance with the statutory scheme. Once such credit is debited towards a tax demand and the underlying demand is subsequently set aside, the consequential restoration of the amount must be examined in accordance with the applicable provisions governing refund and re-credit. Therefore, the mode of payment, by itself, cannot be treated as a conclusive ground for denying interest.
The Tribunal further observed that the Department had failed to highlight any statutory provision which conferred upon it the right to deny interest on delayed sanction of refund merely because the demand had been paid through the Electronic Credit Ledger.It was also observed that irrespective of whether the demand was discharged through the Electronic Cash Ledger or the Electronic Credit Ledger, the amount was received by the Government and the taxpayer was deprived of its utilisation. Accordingly, the Tribunal held that the taxpayer's claim for interest could not be rejected merely because the disputed tax had originally been deposited through the Electronic Credit Ledger.

Statutory Pre-deposit Is Not a Ceiling on the Amount That May Be Deposited

Tribunal examined Section 107(6) which prescribes the statutory pre-deposit required for filing an appeal before the First Appellate Authority. Section 107(7) provides that upon compliance with the conditions specified under Section 107(6), recovery of the balance amount of disputed tax shall be deemed to be stayed till disposal of the appeal.
On a conjoint reading of these provisions, the Tribunal specifically observed that the statutory provision does not prohibit an appellant from depositing the entire disputed tax demand. It further held that there is no provision under the Act which provides that where an appellant deposits an amount exceeding the prescribed pre-deposit, such excess deposit shall be treated as a voluntary relinquishment of any right to refund or interest that may otherwise arise under the Act. Where the demand is ultimately confirmed, the amount payable must be determined in accordance with the order and the applicable provisions concerning tax, interest and penalty. Where the amount has not been paid within the prescribed period, interest may continue to accrue in accordance with Section 50, as applicable. Therefore, a taxpayer may reasonably choose to deposit the entire disputed demand rather than confine the deposit to the statutory pre-deposit, particularly where the taxpayer seeks to avoid further consequences arising from the continued non-payment of an amount that may ultimately be held payable.
The Tribunal also highlighted that the statutory provisions cannot be interpreted in a manner which confers an advantage upon an appellant who deposits only the prescribed pre-deposit while depriving another appellant of the right to claim statutory interest merely because the latter deposits the entire disputed demand.
In view of the above it was held that:
1. A taxpayer does not lose the entitlement to claim statutory interest merely because the entire disputed tax demand was deposited instead of only the prescribed statutory pre-deposit.
2. The claim for interest cannot be rejected merely because the disputed amount was deposited through the Electronic Credit Ledger and subsequently restored through FORM GST PMT-03.

CA Pradeep Jain_

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GST update /2026-27/0113

GST UPDATE

Question before Hon’ble Court:

Brief Facts of the Case

Brief Arguments by Appellant

Brief Arguments by Respondent

Findings and Judgement

Opinion

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