Facts of the Case
The petitioner, a registered dealer under the Karnataka Value Added Tax Act, 2003 (KVAT Act), was engaged in B2B trading across multiple product categories, including mobiles, electronics, apparel, and footwear.
For the tax periods 2011–12 to 2014–15, the Department passed reassessment orders raising a total demand of Rs 23,01,70,324, primarily on the ground that mobile chargers were taxable at a higher rate as unscheduled goods.
Challenging these reassessment orders, the petitioner filed appeals before the First Appellate Authority (FAA) and deposited 30% of the demand (Rs 6,90,51,099) in cash as a pre-deposit. The appeals were dismissed, following which the petitioner approached the Karnataka Appellate Tribunal (KAT) and paid the remaining 70% of the pre-deposit (Rs 16,11,19,226) through utilization of Input Tax Credit (ITC) from its Electronic Credit Ledger (ECL).
The KAT eventually allowed the appeals, and the Department’s further revision petitions before the High Court were dismissed, making the Tribunal’s decision final. Consequently, the petitioner became entitled to a refund of the entire pre-deposit amount.
While the Department refunded the 30% cash portion, it refused to refund the 70% pre-deposit made through ITC, despite repeated representations. Hence, the petitioner approached the Karnataka High Court seeking a direction to release the balance refund amount of ?16,11,19,226 along with interest.
Issues Involved
Whether the petitioner is entitled to a cash refund of the pre-deposit made through Input Tax Credit (ITC) under the transitional provisions of the Karnataka Goods and Services Tax Act, 2017 (KGST Act).
Whether such refund can be denied merely because the payment was made through the Electronic Credit Ledger rather than in cash.
Whether Rule 92(1A) of the KGST Rules, introduced in 2020, applies retrospectively to payments made in 2019.
Whether the petitioner is entitled to interest on delayed refund of the pre-deposit amount.
Petitioner’s Arguments
The petitioner contended that under Sections 142(7)(b) and 142(8)(b) of the KGST Act, 2017, any amount refundable pursuant to adjudication or appeal proceedings must be refunded in cash, irrespective of whether it was originally paid through cash or ITC.
The petitioner emphasized that:
The Department had accepted the 70% pre-deposit made through ITC without objection.
Having accepted it as valid, the Department cannot now refuse to refund it in cash.
The transitional provisions under Section 142 clearly provide for refund “in cash” and make no distinction between the mode of payment.
The petitioner relied on several judgments, including:
Union of India vs. Bundl Technologies Pvt. Ltd. (2022 Taxonation 535 – Karnataka)
Rane Brake Lining Ltd. vs. CTO (Madras High Court)
Thermax Ltd. vs. Union of India (Gujarat High Court)
Eicher Motors Ltd. vs. Union of India (1999 106 ELT 3 SC)
These judgments consistently held that pre-deposits and amounts found refundable after adjudication must be refunded in cash, not by re-crediting ITC.
Respondent’s Arguments
The State Revenue Department opposed the petition, arguing that:
As per Circular dated 16.04.2018, only arrears of interest and penalty could be paid in cash, while VAT arrears discharged through ITC could not be refunded in cash.
Since the petitioner voluntarily used ITC to make the 70% pre-deposit, refund in cash was not permissible.
The petitioner did not file a specific application for re-credit of ITC and hence could not claim a cash refund.
The Department also sought to rely on Rule 92(1A) of the KGST Rules, introduced w.e.f. 23.03.2020, which provides that refund of amounts paid through ITC should be made by re-crediting ITC into the Electronic Credit Ledger rather than paying in cash.
Court’s Analysis and Findings
The Karnataka High Court examined the transitional provisions under Section 142 of the KGST Act, 2017 and made the following observations:
Section 142(7)(b) and 142(8)(b) categorically use the expression “refunded in cash”, and the legislature consciously made no distinction between amounts paid through cash or ITC.
The Circular dated 16.04.2018 itself permits payments through both the cash ledger and the Electronic Credit Ledger. Therefore, refunds against such payments must also be processed in cash.
Rule 92(1A) is a prospective provision introduced only in 2020 and cannot apply to transactions or deposits made before that date. The petitioner’s 70% ITC pre-deposit made in July 2019, therefore, remains unaffected by this rule.
The Department had voluntarily accepted the petitioner’s ITC-based pre-deposit and was thus estopped from later denying cash refund on that ground.
The Court further held that refund claims under Section 142 are part of transitional rights and must be interpreted liberally to preserve taxpayers’ vested rights under the earlier tax regime.
Court’s Order
After considering the submissions and precedents, the Court held:
The petitioner is entitled to a cash refund of the 70% pre-deposit made through ITC/ECL, amounting to Rs 16,11,19,226, under Sections 142(7)(b) and 142(8)(b) of the KGST Act.
The respondents are directed to refund the entire 70% pre-deposit amount in cash within six weeks from receipt of the order.
The respondents must also pay applicable interest on the entire pre-deposit amount (Rs 23,01,70,324)—including both cash and ITC portions—from the date of deposit till the date of payment.
GST Case Law Flipkart India Private Limited Company Versus The Assistant Commissioner of Commercial Taxes
Citation-2025 TAXONATION 2716 (KARNATAKA)(Click here to read full case law)
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