Phoenix Impex vs. Sales Tax Officer, AVATO & Another (Delhi
High Court)
(Refund
Cannot Be Withheld Due to Supplier’s ITC Utilisation—Delhi High Court Orders
Release with Statutory Interest)
Introduction:
The
Delhi High Court, in its judgment dated 4 December 2025, addressed a persistent
issue faced by registered taxpayers regarding undue delay in GST refunds. The
case of Phoenix Impex vs. Sales Tax Officer Class II (AVATO) highlights
the extent to which refund processing has often been burdened by irrelevant
objections raised by the department, particularly relating to the manner in
which suppliers discharge their tax liability. The Court made it clear that
refund claims must be processed strictly within the statutory framework of
Section 54 of the CGST Act and that refund cannot be delayed simply because the
supplier utilised a higher proportion of Input Tax Credit (ITC) instead of
paying tax in cash.
Case Details
- Case Title: Phoenix Impex vs.
Sales Tax Officer Class II, AVATO & Another
- Court: High Court of Delhi
- Bench: Justice Prathiba M. Singh
& Justice Shail Jain
- Case Number: W.P.(C) 12424/2025
- Date of Decision: 4 December 2025
- Petitioner: Phoenix Impex
- Respondents:
1. Sales
Tax Officer Class II, AVATO
2. Government
of NCT of Delhi
Case
Background: The petitioner, Phoenix Impex, filed a
refund application on 15 January 2024 relating to the month of November 2023,
seeking refund of unutilised Input Tax Credit amounting to Rs. 25,16,760.
Despite the statutory mandate to process refunds within the timelines specified
under Section 54, the refund application remained pending for several months
without any substantial movement. As a result, the petitioner was compelled to
approach the High Court seeking judicial intervention for the release of the
refund.
During the pendency of
the writ petition, the department issued a Show Cause Notice dated 21 August
2025 alleging that the petitioner’s supplier, M/s Garg Enterprises, had
discharged more than 90 percent of its tax liabilities using ITC and had not
paid much of the tax through cash. Based on this ground alone, the department
proposed rejection of the refund application. The petitioner challenged the
legality of the Show Cause Notice, contending that such grounds were baseless
and not supported by the provisions of the GST law.
Petitioner’s
Contentions: The petitioner argued that the timelines
prescribed under Section 54 of the CGST Act are mandatory and that the
department was obligated to either sanction or reject the refund within the
stipulated period. By failing to do so, the authorities had violated both the
statutory mandate and the petitioner’s vested right to timely refund
processing. The petitioner further submitted that the supplier’s manner of
paying tax was wholly irrelevant because the GST law does not impose any
obligation on the purchaser to ensure that the supplier pays tax in cash.
According to the petitioner, the statute permits the supplier to utilise ITC in
accordance with Rule 86B, which allows use of ITC up to ninety-nine percent in
eligible cases. Therefore, utilisation of ninety percent ITC by the supplier
cannot be used to deny refund to the petitioner.
The petitioner also
pointed out that the Show Cause Notice was issued only after the High Court
intervened and that this delay clearly showed the arbitrary manner in which the
refund was handled. The petitioner emphasised that such conduct defeats the very
purpose of the GST framework, which aims at providing seamless credit and
timely refunds to taxpayers.
Respondents’
Stand: The department submitted that the refund could not be
processed earlier because the matter required verification and that the Show
Cause Notice was issued in accordance with law. It argued that since the
petitioner had already filed a reply to the Show Cause Notice and a personal
hearing had taken place, the department should be allowed to decide the matter
in accordance with law. The department attempted to justify the delay by
indicating that the conduct of the supplier—especially the high utilisation of ITC—was
a factor that required careful scrutiny before the refund could be sanctioned.
Observations
of the Court: The Court examined the Show Cause Notice
as well as the refund order placed before it during the hearing. It observed
that the only basis for withholding the refund was the allegation that the
supplier had utilised more than ninety percent of ITC and had made minimal cash
payments. The Court clarified that such grounds do not find support in the GST
statute. There is no provision requiring suppliers to pay tax in cash for the
purpose of preserving the entitlement of the purchaser to claim refund or ITC.
The Court noted that Rule 86B, which restricts ITC utilisation in certain
cases, still permits utilisation up to ninety-nine percent, and even that
restriction applies only to specified categories of taxpayers. Therefore, the
objection raised by the department had no legal foundation.
The Court also noted that
although the department had eventually passed the refund sanction order dated
19 September 2025 allowing the refund of Rs. 25,16,760, the order failed to
address the issue of interest despite the delay. Under the CGST Act, interest
becomes payable automatically when the refund is not released within the
prescribed timeline. The Court expressed its disapproval of the delay and the
omission in the refund order.
Final
Decision: The Delhi High Court directed the department to
release the refund of Rs. 25,16,760 to the petitioner along with statutory
interest in terms of the CGST Act. The Court fixed a clear deadline and
instructed that the refund amount, along with interest, must be paid within one
month. By issuing these directions, the Court ensured that the petitioner’s
rights were protected and that the department adhered to the statutory
obligations under the GST framework.
Conclusion: The
judgment in Phoenix Impex vs. Sales Tax Officer Class II (AVATO)
reinforces a crucial principle of GST law: refund processing cannot be hindered
on irrelevant grounds such as the supplier’s choice to utilise ITC rather than
cash. The decision upholds the statutory intention behind Section 54, which
mandates timely refund processing and imposes liability for interest when such
timelines are not followed. The ruling also reflects the judiciary’s consistent
approach that legitimate taxpayers must not be penalised for procedural lapses
or internal concerns within the tax administration. This judgment is a
significant milestone ensuring transparency, accountability, and fairness in
GST refund administration.
Disclaimer: All the Information is based on the notification, circular advisory and order issued by the Govt. authority and judgement delivered by the court or the authority information is strictly for educational purposes and on the basis of our best understanding of laws & not binding on anyone.
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