Facts of the Case:

In this case, the petitioner, IBM India Pvt. Ltd., challenged the order dated 26.08.2025 rejecting its refund claim of ₹3,14,58,422, representing 10% of the demand that had been set aside by the First Appellate Authority. The adjudicating authority had originally confirmed a tax demand of ₹48,96,54,949. On appeal, the First Appellate Authority partly allowed the appeal on 17.03.2025 and dropped 64% of the demand, amounting to ₹31,45,84,219, while confirming ₹17,50,70,729. The petitioner accordingly sought refund of the proportionate pre-deposit attributable to the demand that had been dropped. The refund was rejected on the ground that the petitioner had itself expressed an intention to challenge the adverse portion of the appellate order before the GST Appellate Tribunal and, therefore, the proceedings had allegedly not attained finality.

Issue: Whether the petitioner was entitled to refund of the proportionate pre-deposit relatable to the demand that had been dropped by the First Appellate Authority, despite its intention to further appeal against the portion of the appellate order which remained adverse to it.

Held That: 

The High Court allowed the writ petition and quashed the rejection order. It held that the Revenue had wrongly treated the entire appellate proceeding as lacking finality merely because the petitioner proposed to challenge the portion of the appellate order that was adverse to it. The Court emphasised that the petitioner had succeeded to the extent of ₹31,45,84,219, against which the Department had not preferred any appeal; therefore, proceedings had attained finality to that extent. Consequently, the petitioner was entitled to proportionate refund of the pre-deposit, i.e. ₹3,14,58,422 (10% of ₹31,45,84,219).

The Court further observed that a statutory pre-deposit made as a condition for maintaining an appeal is in the nature of a security deposit and not duty, and once the corresponding demand is set aside, a statutory right to its refund accrues to the assessee. Continued retention of such amount was held to be unauthorised and contrary to Article 265 of the Constitution. The appellate order, to the extent it set aside the demand, was binding upon the Revenue, which could not refuse the consequential refund merely because another part of the order remained under challenge.

Accordingly, the Court directed the Revenue to process and refund ₹3,14,58,422 within six weeks from communication of the order. The petitioner did not press its claim for statutory interest.

Key Takeaway: Finality of an appellate order is to be considered with reference to the portion of the demand that has been finally set aside. An assessee’s decision to challenge the surviving demand cannot justify withholding the refund of pre-deposit attributable to the demand already deleted by the appellate authority, particularly where the Department has not challenged that relief.

Case name: IBM INDIA PVT. LTD. v. UNION OF INDIA & ORS. dated 28.08.2026

Citation No. 2026 Taxo.online 2599