The Bombay High Court has held that where an assessee succeeds partly before the GST appellate authority and the corresponding portion of the tax demand attains finality, the assessee becomes entitled to a proportionate refund of the statutory pre-deposit attributable to the demand that has been set aside. The refund cannot be withheld merely because the assessee proposes to pursue a further appeal against the remaining portion of the demand.
The ruling came in IBM India Pvt. Ltd. v. Union of India & Ors., where IBM challenged an order dated 26 August 2025 rejecting its application for refund of ₹3,14,58,422 paid as pre-deposit in relation to the portion of the GST demand that had subsequently been dropped in appeal.
Background of the Dispute
The adjudicating authority had originally confirmed a tax demand of ₹48,96,54,949 against IBM India by an order dated 21 February 2024. The First Appellate Authority, by its order dated 17 March 2025, partly allowed IBM’s appeal and reduced the confirmed demand to ₹17,50,70,729. Consequently, a demand of ₹31,45,84,219, representing approximately 64% of the original demand, stood dropped.
IBM thereafter filed Form GST RFD-01 seeking refund of ₹3,14,58,422, representing the proportionate 10% pre-deposit attributable to the demand that had been set aside.
The Department rejected the refund principally on the ground that IBM intended to challenge the remaining adverse portion of the appellate order before the GST Appellate Tribunal. According to the Department, the appellate proceedings had therefore not attained finality and the refund claim was premature.
Bombay High Court Rejects Department’s View
The High Court found this reasoning erroneous. It observed that IBM proposed to challenge only the portion of the appellate order that continued to operate against it, namely the confirmed demand of ₹17,50,70,729.
In contrast, the Department had not challenged the appellate authority’s decision dropping the demand of ₹31,45,84,219. Therefore, proceedings concerning that portion of the demand had attained finality.
The Court accordingly held that IBM was entitled to the proportionate refund of the pre-deposit corresponding to the demand which had been finally set aside.
Further Appeal Does Not Block Refund of Finalised Portion
An important principle emerging from the judgment is that finality has to be considered with reference to the particular portion of the demand in dispute.
The mere fact that the taxpayer proposes to file a further appeal against the surviving demand does not prevent refund of the pre-deposit attributable to the separate portion of the demand which has already been deleted and is no longer under challenge.
The Court held that the case was covered by Circular No. 125/44/2019-GST dated 18 November 2019 because appellate proceedings concerning the dropped demand of ₹31,45,84,219 had attained finality.
Pre-Deposit Has Character of Security Deposit
The High Court also reiterated an important principle concerning the legal character of an appellate pre-deposit. Referring to Nelco Limited v. Union of India, the Court observed that an amount deposited as a condition precedent for hearing an appeal does not bear the character of tax or duty. It is in the nature of a security deposit.
Such an amount is required to be returned to the appellant when the appellant succeeds, whether wholly or partly.
Continued Retention Offends Article 265
The Court held that once the demand of ₹31,45,84,219 had been set aside, a statutory right accrued in favour of IBM to receive refund of the corresponding pre-deposit of ₹3,14,58,422.
The continued retention of the amount after the relevant tax demand had ceased to survive was held to be unauthorised and contrary to Article 265 of the Constitution, which provides that no tax shall be levied or collected except by authority of law.
The Court further noted that the appellate order, insofar as it set aside the demand, was binding upon the tax authority under Section 107(16) of the CGST Act. Consequently, the authority could not refuse the consequential refund attributable to that portion of the demand.
Interest Claim Not Pressed
IBM had also sought statutory interest. During the proceedings, however, counsel for IBM, on instructions, did not press the claim for interest since the petitioner was satisfied with refund of the principal amount. The High Court expressly recorded and appreciated this gesture.
Final Decision
The Bombay High Court allowed the writ petition and quashed the order rejecting IBM’s refund application.
The authorities were directed to process and refund ₹3,14,58,422 expeditiously and, in any event, within six weeks from communication of the judgment.
The judgment is significant for GST appellate proceedings because it clarifies that a taxpayer’s further challenge to the portion of an appellate order decided against it cannot be used to indefinitely retain a pre-deposit attributable to an entirely separate portion of the demand that has already been finally deleted.
[…] Click to view […]