The Karnataka High Court ordered State tax authorities to refund GST collected from Divyasree Tarbus Builders Private Limited, retaining only the mandatory deposit under Section 112 CGST Act, granting relief under Circular No. 224/18/2024-GST pending GST Appellate Tribunal constitution.
KARNATAKA: The Karnataka High Court has directed the State tax authorities to return the GST amount collected from Divyasree Tarbus Builders Private Limited, retaining only the mandatory deposit as stipulated by Section 112 of the Central Goods and Services Tax (CGST) Act, 2017.
A panel headed by Justice S. Sunil Dutt Yadav concluded that, given the particular circumstances of this case, the applicant qualifies for benefits specified in a particular government circular. Circular No. 224/18/2024-GST offers protection to taxpayers who indicate their intention to appeal before a GST Appellate Tribunal that has yet to be established.
The writ petition, filed under Article 226 of the Constitution, sought a writ of mandamus to instruct the Deputy Commissioner of Commercial Taxes (Audit-4.1) to approve the refund of the recovered amount based on the demand summary.
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The applicant company had challenged a decision from the appellate authority and intended to file a regulatory appeal under Section 112 of the CGST Act. However, due to the GST Appellate Tribunal not being constituted, the appeal process was not in effect.
Relying on Circular No. 224/18/2024-GST, the applicant argued that recovery actions should not have commenced once they provided an undertaking or declaration to file an appeal. According to paragraph 6 of the circular, if a taxpayer submits an undertaking to appeal and meets the pre-deposit condition, recovery proceedings should not be initiated.
Despite this, the department proceeded with recovery actions based on the demand summary (Annexure-C), prompting the applicant to request a refund of the recovered amount along with any consequential interest.
The State countered the writ petition, claiming that the advantages of the circular came with conditions. Taxpayers were expected to deposit the regulatory pre-deposit as per Section 112 of the CGST Act and to provide a formal undertaking to the appropriate officer.
According to the department, the applicant had not fulfilled these mandatory preconditions, making the recovery process valid. The High Court Government Pleader noted that the issue of refund with interest did not arise without compliance with paragraph 6 of the circular.
The Court pointed out that the applicant had failed to notify the appellate authority (Annexure-D) within 7 days of receiving the summary of demand, indicating its intention to file an appeal.
While the Revenue insisted that the undertaking should have been made to the proper officer, the applicant expressed its willingness to accept the retention of the statutory pre-deposit and did not demand interest on the refunded amount, without prejudice to its legal rights.
Recognizing these submissions and the intent of the GST circular to prevent coercive recovery during the period before the Tribunal’s constitution, the Court adopted a practical approach.
Justice Yadav stated that, under these circumstances, the intimation provided by the applicant could be deemed sufficient compliance with paragraph 6 of the circular.
The High Court resolved the writ petition with several directives. The authorities are required to refund the amount collected based on the summary of demand (Annexure-C), after retaining the specified pre-deposit under Section 112 of the CGST Act. This refund must occur within 4 weeks of receiving a certified copy of the order.
The Court noted that the applicant had chosen not to claim interest on the refunded amount.
It emphasized that this order was given under specific circumstances and should not be interpreted as a binding precedent regarding paragraph 6 of the circular. All regulatory claims remain open.
Case Title: M/S Divyasree Tarbus Builders Private Limited Vs Deputy Commissioner of Commercial Taxes
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