Goods & Services Tax (GST) in IndiaTaxRefund from GST Cash Ledger Cannot Be Withheld on Suspicion

The Hon’ble Supreme Court, in the case of Union of India & Ors. v. HCC VCCL Joint Venture, Special Leave Petition (Civil) Diary No. 24660/2025, decided on 09.07.2025, upheld that mere suspicion of wrongful Input Tax Credit utilisation cannot justify withholding a refund from the Electronic Cash Ledger under Section 108 of the CGST Act.

FACTS

HCC VCCL Joint Venture (hereinafter referred to as “the Respondent”) is a joint venture engaged in the execution of large-scale construction projects. Its Electronic Cash Ledger under the Central Goods and Services Tax Act, 2017 (hereinafter referred to as “CGST Act”) was credited with amounts deducted at source by the Delhi Metro Rail Corporation under Section 51 of the Act. These deductions were made against payments for the contractual work executed by the Respondent.

On 09 December 2022, the Respondent was sanctioned a refund of Rs. 5,50,00,000/-, comprising Rs. 2,75,00,000/- CGST and Rs. 2,75,00,000/- SGST, from its Electronic Cash Ledger under Rule 92 of the CGST Rules read with Section 54 of the CGST Act. The refund order was duly communicated, and the amount became available for withdrawal.

Subsequently, on 05 July 2023, the Revisional Authority invoked its powers under Section 108 of the CGST Act and issued an order placing the refund sanction order in abeyance. The stay was initially for six months and was later extended to two years by a corrigendum dated 04 December 2023. The Revisional Authority alleged that the refund order was prejudicial to the interest of revenue, relying on intelligence inputs indicating wrongful utilisation of Input Tax Credit (hereinafter referred to as “ITC”). It also pointed to short payments to major suppliers, in violation of Section 16(2) read with Rule 37, and a misclassification in the Respondent’s financial statements, where a tunnel boring machine worth Rs.16 crore was shown as a vehicle instead of plant and machinery.

The Respondent filed a writ petition before the Delhi High Court challenging the revisional order. It argued that no quantified demand or outstanding liability existed against it.

The Hon’ble Delhi High Court, by its judgment, allowed the writ petition. The Delhi High Court quashed the revisional order and the corrigendum extending the stay.

Aggrieved by the Delhi High Court’s decision, the Union of India and its authorities (hereinafter referred to as “the Petitioners”) filed a Special Leave Petition before the Supreme Court.

ISSUES

1. Whether the Revisional Authority validly invoked Section 108 to place the refund order in abeyance?
2. Whether mere suspicion of wrongful ITC or supplier payment issues could justify withholding the refund from the Electronic Cash Ledger?

CONTENTIONS

The Respondent argued that the revisional order was illegal and unsustainable. It submitted that the refund of Rs. 5,50,00,000/- sanctioned from its Electronic Cash Ledger could not be withheld in the absence of any quantified demand or outstanding tax liability.

The Respondent further contended that the allegations of wrongful ITC utilisation, short payments to suppliers, and the misclassification of a tunnel boring machine as a vehicle were irrelevant to the refund from the cash ledger. The Electronic Cash Ledger represents actual tax payments, distinct from ITC, and cannot be withheld on mere suspicion.

The Respondent submitted that Section 108 of the CGST Act, 2017, can only be invoked where there is a prima facie opinion that the order is illegal, improper, or prejudicial to revenue. In the present case, no such opinion was formed, and the impugned order was passed mechanically based only on intelligence inputs.

On the contrary, the Petitioners defended the revisional order, arguing that Section 108 confers broad powers to stay any order, including refund orders, to protect the interest of revenue.

The Petitioners further submitted that data analysis and intelligence inputs revealed serious irregularities. They contended that the Respondent had wrongfully utilised ITC, made short payments to major suppliers, and misclassified a tunnel boring machine worth ₹16 crore as a vehicle to claim ineligible ITC. In their view, these findings justified placing the refund order in abeyance until a full inquiry was completed.

The Petitioners argued that the Hon’ble Delhi High Court should not have interfered at this stage. They maintained that the stay under Section 108 was temporary and that revisional proceedings were ongoing, with all rights and contentions preserved until the final decision.

DECISION AND FINDINGS

The Hon’ble Supreme Court dismissed the Special Leave Petition filed by the Petitioners against the Delhi High Court judgment. It observed that there was no reason to interfere in the exercise of jurisdiction under Article 136 of the Constitution of India and kept the question of law open, granting liberty to the authorities to proceed in accordance with law if necessary.

The Delhi High Court, whose judgment was under challenge, had quashed the revisional order and the corrigendum, which had placed in abeyance the refund of Rs. 5,50,00,000/- sanctioned from the Electronic Cash Ledger.

The Delhi High Court held that the Revisional Authority failed to form the mandatory prima facie opinion that the refund order was illegal, improper, or prejudicial to revenue. Such an opinion is a precondition for invoking Section 108, and its absence rendered the revisional stay order unsustainable in law. Further, the Court observed that the allegations of wrongful ITC utilisation, short supplier payments, and misclassification of the tunnel boring machine were mere suspicions..

The Delhi High Court allowed the writ petition, quashed the revisional order and corrigendum, and granted liberty to the authorities to initiate fresh proceedings if warranted.

By dismissing the Special Leave Petition, the Supreme Court upheld these findings, confirming that refunds from the Electronic Cash Ledger cannot be withheld on mere suspicion and that Section 108 powers must be exercised strictly in accordance with law.

AMLEGALS REMARKS

This judgment highlights that the power under Section 108 of the CGST Act must be exercised cautiously and in strict compliance with statutory requirements.

The Delhi High Court rightly distinguished suspicion from statutory satisfaction, holding that alleged ITC irregularities or short supplier payments cannot justify withholding a cash ledger refund.

The Electronic Cash Ledger represents actual tax paid, unlike ITC refunds, and withholding its refund without a quantified demand or clear illegality unfairly restricts taxpayer liquidity.

By quashing the revisional order, the Delhi High Court reinforced that revenue protection powers are not unfettered. The Supreme Court’s dismissal of the Special Leave Petition confirms the validity of this approach and ensures that procedural safeguards under GST law are respected.

–Team AMLEGALS assisted by Ms. Tanisha Khandelwal (Intern)

For any queries or feedback, feel free to reach out to laksha.bhavnani@amlegals.com or hiteashi.desai@amlegals.com