The Delhi High Court in the case of M/S. K-NXT LOGISTICX PRIVATE LIMITED VERSUS UNION OF INDIA AND ANR. vide Case No. W. P. (C) 3713/2025 & CMAPPL. 17335/2025 dated 15.05.2025, addresses the principle that administrative authorities are bound by appellate orders unless reversed in higher proceedings. They cannot override or ignore such orders by invoking mere administrative discretion. The Court held that once an appellate order granting refund is passed and is not stayed, taxpayers are entitled to the refund. Department’s internal opinion or intent to appeal cannot delay refund.

Facts of the Case: In this case, the petitioner is engaged in providing freight forwarding services. It incurs input services on which GST is paid, resulting in accumulation of unutilized Input Tax Credit (ITC). The Petitioner filed a writ petition under Article 226 of the Constitution seeking a direction for refund of ₹19,09,038 along with interest under Section 56 of the CGST Act, 2017, in respect of unutilized ITC for January 2023. Although the refund claim was initially rejected, the Appellate Authority allowed the refund on 16.01.2024. Despite repeated representations, the refund was withheld by the department invoking Section 54(11) of the CGST Act on the ground that the grant of refund may adversely affect the revenue.

The department contended that it exercised its power under Section 54(11) to withhold the refund after the appellate order, citing potential loss to revenue due to alleged malfeasance. However, it did not file any appeal or review against the Appellate Authority’s order dated 16 January 2024.

Held that: The Court emphasized that both of the following conditions must be satisfied to invoke Section 54(11):

(i) There must be a pending proceeding or appeal against the refund-granting order.

(ii) The Commissioner must form an opinion that refund may adversely affect revenue due to fraud/malfeasance.

Since no appeal or other proceeding was pending, only second has been satisfied in this case. Therefore, the invocation of Section 54(11) was legally untenable.

The Court held that the department’s opinion under Section 54(11) cannot justify withholding the refund in the absence of any pending appeal or further proceedings against the Appellate Authority’s order. It relied on its earlier decision in Shalender Kumar v. Commissioner CGST Delhi West (W.P.(C) 3824/2025) and reiterated that refund must be granted if not stayed or challenged, subject to the department’s right to file an appeal.

Accordingly, the Court directed the department to process and release the refund along with statutory interest under Section 56 within two months. However, if any appeal is filed, the refund will be subject to the outcome of such appeal.

Legal Provisions – Section 54(11) of the CGST Act, 2017

“Where an order giving rise to a refund is the subject matter of an appeal or further proceedings or where any other proceedings under this Act is pending and the Commissioner is of the opinion that grant of such refund is likely to adversely affect the revenue in the said appeal or other proceedings on account of malfeasance or fraud committed, he may, after giving the taxable person an opportunity of being heard, withhold the refund till such time as he may determine.”