Phoenix Impex Vs Sales Tax Officer
Date: December 5, 2025
Subject Matter
Delayed ITC Refund Applications Mandatorily Attract Statutory Interest Under Section 54(7)
Summary
The petition sought a refund of unutilized Input Tax Credit (ITC). The refund was initially held up by authorities citing the supplier's high ITC utilization (over 90%) for tax payment. The High Court allowed the petition, directing the sanction of the full refund amount along with statutory interest, emphasizing the mandatory nature of timelines under Section 54(7) of the CGST Act.
Summary of Facts and Dispute:
- Impugned Action: Authorities delayed processing a refund application for unutilized Input Tax Credit (ITC) of Rs. 25,16,760/- filed on January 15, 2024, for the tax period of November 2023, and subsequently issued a Show Cause Notice on August 21, 2025, after the writ petition was filed.
- Petitioner's Argument: The petitioner argued that the timelines under Section 54(7) of the Central Goods and Service Tax Act, 2017, are mandatory and that there is no bar under Rule 86(B) of the Central Goods Service and Tax Rules, 2017, for a supplier to utilize over 90% ITC for tax liability.
- Core Question of Law: Whether the GST authorities can delay an ITC refund application on the ground that the supplier utilized over 90% ITC for tax liability, and whether such delayed refunds mandatorily attract statutory interest under Section 54(7) of the CGST Act.
Key Legal Issues & Findings:
Timelines for Refund Processing and Statutory Interest
The Court relied on Suraj Mangar vs. Assistant Commissioner of West Bengal State Tax
to emphasize the mandatory nature of refund processing timelines and the entitlement to statutory interest for delays. *
Mandatory Timelines:Section 54(7) of the CGST Act imposes strict, mandatory timelines for processing refund applications, and failure to adhere to these timelines entitles the applicant to interest. *
Supplier's ITC Utilization:The utilization of over 90% ITC by a supplier for payment of tax liability is not a valid ground to unilaterally hold up a refund, as there is no specific bar under Rule 86(B) of the 2017 Rules prohibiting such utilization. *
Statutory Interest: Delays in sanctioning a refund beyond the statutory period automatically trigger the right to statutory interest on the refund amount, ensuring timely compensation for the applicant.Ruling:
- Outcome: The refund application for Rs. 25,16,760/- was sanctioned and ordered to be credited to the petitioner.
- Directions: The refund amount, along with statutory applicable interest, must be paid to the Petitioner within a period of one month from the date of the order.
- Liberty: No specific liberty explicitly granted to Revenue in this order beyond compliance with the refund directions.
FULL TEXT OF THE JUDGMENT/ORDER OF DELHI HIGH COURT
1. This hearing has been done through hybrid mode.
2. The present petition has been filed, inter alia, seeking refund claim of the sum of Rs.25,16,760/- filed by the Petitioner vide application bearing ARN No. AA0701240394778 dated 15th January, 2024.
3. The Petitioner had filed the said refund application for the unutilised Input Tax Credit (hereinafter “ITC”) on 15th January, 2024 for the month of November, 2023. The grievance of the Petitioner is that the same has not been processed and granted to the Petitioner despite the strict timelines under Section 54 of the Central Goods and Service Tax Act, 2017 (hereinafter, ‘CGST Act’), including Section 54(7) of the CGST Act.
4. Mr. Siddhanth Sarwal, ld. Counsel for the Petitioner relies upon the decision of the Calcutta High Court in Suraj Mangar vs. Assistant Commissioner of West Bengal State Tax, (2025) 33 Centax 70 (Cal.) to argue that the said timelines are mandatory.
5. It is also brought to the notice of the Court that after filing of the present writ and the listing of the matter on 19th August, 2025, on 21st August, 2025, a Show Cause Notice (hereinafter, ‘SCN’) had been issued along with the acknowledgement for the refund application in the following terms:
“This has reference to your above mentioned application for refund on account of Export of Goods & Services without payment of Integrated Tax claiming refund amounting to Rs. 2516760/- for the tax period November, 2023.
In order to examine the refund application, Taxpayer to provide following Clarification in respect of claim refund:
| Sl. No. |
Description | Inadmissible Amount in Rs. |
| 1. | -As per the GSTR-2A of M/s GARD ENTERPRISES (07CKDPK5377H1ZX), the supplier has not adequately remitted payment of tax through cash and has utilized ITC over 90% for the payment of due tax liability during the period. Therefore your are hereby directed to provide relevant supporting document such as Bills, E-way bills, Payment proof to the supplier and proof of movement of goods for the purchase made from GARG Enterprises, etc. |
25,16,760/- |
| 2. | -Any other documents in support of your claim of refund. | |
| Total | 25,16,760/- |
In view of the above mentioned facts, you are hereby directed to show cause, why your above mentioned refund Applicant vide ARN no. AA0701240394778 dated: 15.01.2024 should not be rejected on the ground mentioned above.
You are hereby directed to furnish a reply to this notice within fifteen days from the date of service of this notice. You are directed to appear before the undersigned on 26/08/25 at 11 AM.
If you fail to furnish a reply within the stipulated date or fail to appear for personal hearing on the appointed date and time, the case will be decided ex parte on the basis of available records and on merits.”
6. It is clear from the above that the main reason why the refund has been held up is on the ground that the supplier has not remitted the amount of tax through cash. Secondly, the supplier has utilised over 90% ITC for the payment of tax liability.
7. Ld. Counsel for the Petitioner submits that there is no bar in utilising 90% of ITC for the payment of due tax liability in terms of Rule 86(B) of the Central Goods Service and Tax Rules, 2017 (hereinafter “2017 Rules”).
8. Notice was issued on 29th August, 2025 and the following directions were issued:
“10. Let the GST Department file a reply on this legal issue as also on the timelines explaining the position.
11. Let the Petitioner be given a personal hearing as the reply to the SCN has already been filed. Thereafter, let the order be passed after considering all the contentions of the Petitioner including legal issues raised in accordance with law.
12. Let the copy of the said order be placed on record. The order shall be subject to the outcome of this writ petition.”
9. The refund order has been passed in this matter on 19th September, 2025, sanctioning a refund of Rs.25,16,760/-. However, insofar as interest component is concerned, the said order is absolutely silent.
10. In view of the fact that the refund has now been sanctioned, let the refund amount be credited to the Petitioner, along with the statutory applicable interest, in accordance with law.
11. The payment shall be made within a period of one month.
12. The petition is disposed of in these terms. All pending applications, if any, are also disposed of.