Orissa High Court Clarifies Refund of Pre-Deposit Not Barred by Pending SFIO Investigation or Section 54 CGST Act Limitation

In a significant ruling, the Orissa High Court addressed the legal framework governing the refund of pre-deposit amounts made as a condition precedent for maintaining an appeal under the Central Goods and Services Tax Act, 2017 (CGST Act). The Court examined whether such refunds could be withheld on the basis of a pending investigation by the Serious Fraud Investigation Office (SFIO) or on the ground of limitation under Section 54 of the CGST Act.

The petitioner’s application for refund of the pre-deposit was rejected by the authorities solely due to a communication from the SFIO, which had advised that no refund should be processed in light of an alleged ongoing investigation. Upon judicial scrutiny, the Court found that, as per a subsequent letter from the SFIO dated 23rd November 2025, there was in fact no investigation initiated, pending, or completed against the petitioner. This factual development undermined the sole basis for the authorities’ rejection of the refund application.

During the proceedings, the Department argued that the rejection was also justified on the ground of limitation under Section 54(1) of the CGST Act and referenced Rule 89 of the CGST Rules, which prescribes the procedure for refund applications. The Department further contended that interest liability under Section 56 would only arise if the refund application was not disposed of within two months.

The High Court, however, referred to a recent Supreme Court judgment in State of Jharkhand v. M/s. BLA Infrastructure Private Limited, which clarified that if the refund pertains to Section 107(6) (pre-deposit for appeal), recourse should not be taken under Section 54. The Court emphasized that Section 54, which deals with refund of tax, does not govern refunds of pre-deposit amounts, as such amounts do not partake the character of tax in the strict sense. Instead, these refunds fall within the scope of ‘any other amount’ as contemplated under Rule 89 of the CGST Rules.

The Court found the Department’s reliance on Section 56 and Rule 89 misplaced in the context of pre-deposit refunds. It held that the statutory limitation under Section 54 does not apply to refunds of pre-deposit amounts made for the purpose of maintaining an appeal. The Court further noted that, with the SFIO confirming the absence of any pending investigation, the original ground for withholding the refund no longer existed.

Accordingly, the Orissa High Court set aside the impugned order rejecting the refund application and directed the competent authority to release the pre-deposit amount within four weeks from the date of communication of the order. The Court also directed that, if any interest is payable due to unjust enrichment, it should be paid at the prescribed rate.

This decision clarifies the legal position that refunds of pre-deposit amounts are not subject to the limitation period under Section 54 of the CGST Act and cannot be withheld on the mere basis of an unsubstantiated or non-existent investigation by the SFIO. The ruling reinforces the principle that statutory pre-deposits for appeals are to be treated distinctly from tax refunds and are governed by the broader provisions of Rule 89.