The Hon’ble Delhi High Court in Harbhajan Singh Thukral v. Government of NCT of Delhi, Department of Trade and Taxes, W.P. (C) No. 3967 of 2025, decided on 20.08.2025, held that where the refund amount lying in a taxpayer’s electronic cash ledger is erroneously adjusted against a liability that has been subsequently cancelled, the taxpayer remains entitled to refund of the amount along with statutory interest under the Goods and Services Tax (hereinafter referred to as “GST”) enactments.
The Court reaffirmed that technical or administrative lapses, such as non-reflection of cancellation orders on the GST portal, cannot curtail the substantive right of a taxpayer to claim refund. The ruling further clarifies that interest on delayed refund is a statutory entitlement under Sections 54 and 56 of the Central Goods and Services Tax Act, 2017 (hereinafter referred to as “CGST Act”), and accrues automatically once the prescribed period for refund processing expires.
FACTS
Mr. Harbhajan Singh Thukral (hereinafter referred to as “the Petitioner”), is a trader engaged in the business of motor parts and mobile phones. The Petitioner filed an application for refund of the excess balance lying in his electronic cash ledger under the provisions of the GST laws.
On 12.04.2023, the refund application was accepted by the jurisdictional officer. However, instead of being released to the Petitioner, the refund amount was adjusted against an outstanding liability of ₹10,71,941, as reflected on the Automated Integrated Online (AIO) system maintained by the Department.
Subsequently, the said outstanding demand was cancelled through an order dated 24.07.2023 issued in Form GST DRC-8A. The cancellation, however, was not uploaded on the AIO portal. As a result, the system continued to show the earlier demand as active, leading to an erroneous adjustment of the sanctioned refund.
Aggrieved by the Government of NCT of Delhi, Department of Trade and Taxes’s (hereinafter referred to as “the Respondent”) inaction and non-refund of the amount, the Petitioner approached the Hon’ble Delhi High Court seeking directions to refund ₹9,09,727/- along with statutory interest, contending that the adjustment was made against a liability which no longer existed.
ISSUES
- Whether the Petitioner is entitled to refund of the amount wrongly adjusted against an outstanding liability which was subsequently cancelled?
- Whether the Petitioner is entitled to statutory interest on the delayed refund under the GST enactments?
CONTENTIONS OF THE PARTIES
The Petitioner contended that the refund amount was wrongly adjusted against a demand that had already been cancelled and that such adjustment was contrary to Section 54 of the CGST Act. It was argued that administrative or system-level delays, including failure to upload the cancellation order, cannot extinguish the Petitioner’s statutory right to refund.
It was further submitted that when a demand ceases to exist in law, any adjustment of refund against such demand is void and without authority, and the taxpayer must be restored to the position he would have been in had the error not occurred.
On the contrary, the Respondent contended that the refund was appropriated based on the data reflected in the electronic system at the time of processing. Since the system displayed an existing liability, the adjustment was made accordingly. The Respondent maintained that there was no deliberate error, and that any inaccuracy arose from the technical non-reflection of the cancellation order on the AIO portal.
DECISION AND FINDINGS
The Hon’ble Delhi High Court allowed the writ petition and held that the Petitioner was entitled to the refund of ₹9,09,727/- along with statutory interest.
The Court observed that although ₹7,71,000 had been sanctioned as refund, the same had been adjusted against the demand of ₹10,71,941. However, it was undisputed that the said demand had been cancelled on 24.07.2023 through a formal order issued in Form GST DRC-8A. The cancellation had not been reflected on the online system, resulting in wrongful appropriation.
The Court held that technical lapses or portal level non-reflection cannot curtail substantive rights of taxpayers under the GST law. The authorities were duty-bound to ensure that cancellation orders were uploaded promptly and systems were updated to avoid unlawful adjustments.
Referring to Sections 54 and 56 of the CGST Act, the Court held that interest on delayed refunds is a statutory right, accruing automatically upon expiry of the 60-day period prescribed for processing refund claims. The liability to pay such interest arises irrespective of whether the delay was bona fide or due to administrative error.
Accordingly, the Respondent Department was directed to process and release the refund amount along with applicable interest within two months from the date of the judgment.
AMLEGALS REMARKS
The decision of the Hon’ble Delhi High Court reiterates that administrative or system based errors cannot prejudice the statutory entitlements of taxpayers. The judgment strengthens the jurisprudence that refund claims and their timely disbursal are matters of right, not of administrative discretion.
It also highlights the need for seamless integration and prompt updating of GST systems to prevent erroneous adjustments of sanctioned refunds. By directing payment of statutory interest, the Court reaffirmed that fiscal authorities are obligated to act diligently and in accordance with the timelines stipulated under the CGST Act.
This ruling will serve as a benchmark for taxpayers facing refund blockages caused by outdated or incorrect system data, reinforcing that the law protects substance over technicality, and that the right to refund and interest is integral to fair tax administration.
For any query, feel free to reach out to hiteashi.desai@amlegals.com