Goods & Services Tax (GST) in IndiaGST Refund Cannot Be Credited Through Electronic Ledger for Non-Operational Entities

The Hon’ble Calcutta High Court, in the case of Edelweiss Rural & Corporate Services Limited & Anr. v. Deputy Commissioner of Revenue, Taltala Charge, WBGST & Ors., WPA 3033 of 2025, decided on 05.05.2025, held that refund of GST amounts to a taxpayer who has ceased operations must be credited to the taxpayer’s bank account rather than the Electronic Credit Ledger (hereinafter referred to as “ECL”), especially when the refund pertains to unutilized Input Tax Credit (hereinafter referred to as “ITC”) and the business is no longer operational.

FACTS

M/s. Edelweiss Rural & Corporate Services Ltd. and another party (hereinafter referred to as “the Petitioners”) filed an appeal on 11.02.2022 contesting a refund/rejection order passed against them.

On 15.10.2023, the Appellate Authority decided in favour of the Petitioners by allowing the appeal and setting aside the impugned refund denial, thereby recognising the Petitioners’ entitlement to the refund amount.

Subsequently, the Petitioners submitted a refund application in Form GST RFD-01 for a sum of ₹68,66,238/-. On 29.11.2023, the concerned authority issued a Refund Sanction Order in Form GST RFD-06. The summary portion of the sanction order mentioned that the refund would be credited to the Petitioners’ bank account. However, in contradiction, the detailed portion of the same order stated that the refund would be credited to the Petitioners’ ECL.

It is pertinent to note that on 20.10.2023, the Petitioners had submitted an application for cancellation of their GST registration, as their business had been shut down. Given that their GST registration was already cancelled, the Petitioners contended that crediting the refund amount to the Electronic Credit Ledger would be futile, as the credit could not be utilized.

Aggrieved by this inconsistency in the Refund Sanction Order and the impracticability of receiving the refund in the ECL, the Petitioners filed a writ petition before the Hon’ble High Court, challenging the contradictory directions and seeking appropriate relief.

ISSUES BEFORE THE HIGH COURT

1. Whether a refund due to a taxpayer who has creased business operations and whose GST registration has been cancelled should be credited to tax payer’s bank account or to their Electronic Credit Ledger.
2. Whether a self-contradictory refund sanction order that creates confusion and hardship for the taxpayer can be sustained in Law.

CONTENTIONS OF THE PARTIES

The Petitioners submitted that their company, M/s. Edelweiss Rural & Corporate Services Ltd., had ceased all business operations and had taken necessary steps to formally close its tax obligations, including filing for cancellation of its GST registration.

The Petitioners contended that the refund application, submitted in Form GST RFD-01, explicitly specified that the refund amount of ₹68,66,238/- be transferred to the Petitioners’ designated bank account, considering that the company was no longer engaged in any taxable activity and, therefore, had no use for credits in the ECL.

The Petitioners further contended that the refund claim was approved by the competent authority vide Refund Sanction Order dated 29.11.2023, issued in Form GST RFD-06. While the summary portion of the said order correctly acknowledged the Petitioners’ request and directed that the refund be paid to the Petitioners’ bank account, the detailed portion of the same order instructed that the refund be credited to the Electronic Credit Ledger of the Petitioners.

The Petitioners submitted that such a contradictory instruction within the same sanction order was not only legally untenable but also practically unworkable in light of the fact that the Petitioners’ GST registration had already been revoked and they no longer maintained an active tax profile under GST. The crediting of the refund to the ECL in such a context, would render the refund inaccessible and unusable, thus defeating the very purpose of the refund mechanism.

The Petitioners argued that such a discrepancy in the sanction order amounted to a violation of their substantive right to claim and receive a refund, which had already been upheld by the Appellate Authority on 15.10.2023.

On the contrary, the Deputy Commissioner of Revenue, Taltala Charge, WBGST & Ors. (hereinafter referred to as “the Respondents”) did not refute the core facts submitted by the Petitioners. It was fairly conceded during the course of the hearing that the factual narration relating to the closure of business, the cancellation of GST registration, and the Petitioners’ specific request for a bank account refund was not in serious dispute.

However, the Respondents were unable to provide any cogent or satisfactory explanation for the contradictory directions recorded in the Refund Sanction Order.

Thus, the Petitioners urged the Hon’ble Court to rectify the inconsistency by directing the Respondents to process the refund strictly in accordance with the summary portion of the Refund Sanction Order and ensure that the refund amount is disbursed to the Petitioners’ bank account, as originally claimed and as mandated by the appellate decision.

DECISION AND FINDINGS

The Hon’ble Court, observed that the refund provisions under the CGST Act, 2017 are intended to ensure just and fair relief to taxpayers who are entitled to such refunds. The Court noted that in the present case, the appellate authority had already allowed the refund application of the Petitioners and had set aside the previous order of rejection. In light of the same, the Petitioners had filed a fresh refund application in accordance with the directions of the appellate authority.

The Court held that the refund sanction order issued pursuant to the said application was self-contradictory. While the operative portion of the order directed that the refund be issued to the bank account of the Petitioners, the detailed section of the same order stated that the refund be credited to the ECL. The Court observed that such inconsistency within the same order displayed a lack of application of mind and caused hardship to the Petitioners, particularly in view of the fact that the Petitioners’ business had been shut down, the GST registration had been cancelled, and there existed no outstanding tax liability.

The Court, therefore, directed the proper officer to reconsider the decision with regard to crediting the refund to the Electronic Credit Ledger and to take a fresh decision within six weeks from the date of communication of the order, after affording the Petitioners an opportunity of hearing. Accordingly, the writ petition was disposed of.

Taking into account the facts and circumstances of the case, the Hon’ble High Court concluded that the Petitioners were entitled to relief, and the refund amount should be paid.

AMLEGALS REMARKS

The rights of taxpayers under the GST statute are significantly reaffirmed by this decision. It highlights in particular how important it is to understand the real-world effects of administrative decisions about refunds. Refunding tax credits into the Electronic Credit Ledger after a business has closed and its registration has been terminated is pointless and unjustly prevents the assesse from accessing money that is rightly theirs.

The Hon’ble High Court’s order to re-examine the refund ruling in certain situations establishes a standard for resolving comparable conflicts in other countries. Additionally, GST officers and adjudicating bodies can learn from this ruling to make sure their orders are grounded in good reasoning that is in line with business realities and do not contain internal contradictions.

It further emphasizes that GST procedural requirements shouldn’t be used as a means of unfairly keeping taxpayer funds, particularly in cases when the eligibility and validity of a refund have already been proven. The Court’s determination that government officials behave fairly, openly, and in line with the law’s objective is reflected in the ruling.

In essence, this case illustrates the importance of aligning tax administration with business lifecycle realities and demonstrates that courts remain committed to safeguarding the legitimate entitlements of taxpayers even post-cancellation of registration.

– Team AMLEGALS

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