The Hon’ble Karnataka High Court in the case of Flipkart India Private Limited v. Assistant Commissioner of Commercial Taxes & Ors. [Writ Petition No. 7277 Of 2025 (T-Res), order dated July 16, 2025] held that refund of pre-deposit made under the KVAT regime, whether through cash or by utilization of Input Tax Credit (ITC) balance in the Electronic Credit Ledger, must be paid entirely in cash in terms of Sections 142(7)(b) and 142(8)(b) of the Karnataka GST Act, 2017. The Court ruled that the Revenue, having accepted the pre-deposit through ITC, is estopped from denying a cash refund based on departmental circulars, and directed the refund with interest from the date of deposit till the date of payment.
Facts:
Flipkart India Private Limited (“the Petitioner”), a registered dealer engaged in B2B trading of goods, faced reassessment demands under the erstwhile Karnataka Value Added Tax Act, 2003, for tax periods from 2011–12 to 2014–15, treating mobile phone chargers as a separate taxable commodity.
The Petitioner, to maintain appeals, deposited 30% of the demand (Rs. 6.90 crore) in cash under Section 62 of the KVAT Act and 70% (Rs. 16.11 crore) through utilization of ITC in its Electronic Credit Ledger (ECL).
The Karnataka Appellate Tribunal (KAT) allowed the Petitioner’s appeals on March 31, 2022, and the Department’s revisions before the High Court were dismissed on August 29, 2023, and October 31, 2023.
However, while the Department refunded only the 30% cash component, it refused cash refund of the 70% paid from ITC, citing Circular No. GST-03/2018-19 dated April 16, 2018. The circular required refund of ITC payments to be re-credited to the credit ledger and not refunded in cash.
The Petitioner contended that Section 142(7)(b) and 142(8)(b) of the KGST Act expressly used the words “refunded in cash” and contain no distinction between amounts paid in cash or through ITC. Since the Department had accepted payment through ITC without objection at the time of appeal, the same must also be refunded in cash.
The Respondent contended that refund in cash was not permissible as the pre-deposit through ITC was voluntary, and only arrears of tax, interest, or penalty can be recovered or refunded in cash. It was further argued that Rule 92(1A) of the KGST Rules, inserted from March 23, 2020 mandates that if tax was paid through ECL, refund must be re-credited to the ECL and not paid in cash.
Issue:
Whether the refund of pre-deposit made under the KVAT Act partly through ITC in the Electronic Credit Ledger and partly in cash, upon successful litigation, should be refunded entirely in cash under the transitional provisions of Section 142 of the KGST Act, 2017?
Held:
The Hon’ble Karnataka High Court in Writ Petition No. 7277 Of 2025 (T-Res) held as under:
- Observed that, Sections 142(3), (5), (6)(a), (7)(b), and (8)(b) of the KGST Act contain explicit usage of the words “refund in cash”, signifying the legislative intent that any amount found refundable under proceedings of appeal, review, or assessment under the existing law shall be refunded in cash.
- Held that, there is no distinction in Section 142 between amounts paid or recovered in cash and those made through ITC. Once an amount becomes refundable under the law, it must be refunded in cash, irrespective of the mode by which it was initially deposited.
- Noted that, the Respondents had accepted without objection the 70% deposit through ITC during the appeal stage. Having accepted the payment, the Department is estopped from contending that refund cannot be issued in cash under the 2018 circular.
- Held that, Rule 92(1A) of the KGST Rules, inserted only on March 23, 2020 cannot apply retrospectively to transactions prior to its insertion. Hence, it does not govern payments made through ITC in July 2019.
- Observed that, the proviso to Sections 142(7)(b) and 142(8)(b) of the KGST Act clearly mandates refund “in cash,” without drawing any distinction between deposits made through ITC or cash balances.
- Held that, since the Petitioner has consistently sought refund in cash and not re-credit of ITC, refund of the entire 100% pre-deposit, including 70% made through ITC, must be made in cash in accordance with Section 142(7)(b) and Section 142(8)(b).
- Held that, the Respondents shall refund Rs. 16.11 crore (being 70% of the pre-deposit made through ITC) to the Petitioner in cash, within six weeks of receipt of the order, and directed the Respondents to also pay interest on the total pre-deposit amount (Rs. 23.01 crore) in cash from the date of deposit until the date of actual payment.
Our Comments:
The judgment interprets the provisions under Section 142 of the KGST Act in their plain meaning, giving effect to the legislative use of “refund in cash” in multiple sub-sections. The High Court emphasized harmonious construction by reading Sections 142(3), 142(6)(a), 142(7)(b), and 142(8)(b) together. The Court rejected the retrospective application of Rule 92(1A), aligning with Thermax Ltd. v. Union of India [2019 (31) GSTK 60 (Guj)] , Rane Brake Lining Ltd. v. CTO [2024 (8) 1394 Mad] and Larsen and Toubro Ltd. v. Deputy Commissioner [2024 (10) TMI 1604 Mad] to reinforce that pre-deposits made using ITC must be refunded in cash once appeals are decided in favour of the taxpayer.
Relevant Provisions:
Section 142(7)(b) of the CGST Act, 2017:
“142. Miscellaneous transitional provisions.-
(7) (a) every proceeding of appeal, review or reference relating to any output duty or tax liability initiated whether before, on or after the appointed day under the existing law, shall be disposed of in accordance with the provisions of the existing law, and if any amount becomes recoverable as a result of such appeal, review or reference, the same shall, unless recovered under the existing law, be recovered as an arrear of duty or tax under this Act and the amount so recovered shall not be admissible as input tax credit under this Act.
(b) every proceeding of appeal, review or reference relating to any output duty or tax liability initiated whether before, on or after the appointed day under the existing law, shall be disposed of in accordance with the provisions of the existing law, and any amount found to be admissible to the claimant shall be refunded to him in cash, notwithstanding anything to the contrary contained under the provisions of existing law other than the provisions of sub-section (2) of section 11B of the Central Excise Act, 1944 (1 of 1944) and the amount rejected, if any, shall not be admissible as input tax credit under this Act.
(8) (a) where in pursuance of an assessment or adjudication proceedings instituted, whether before, on or after the appointed day, under the existing law, any amount of tax, interest, fine or penalty becomes recoverable from the person, the same shall, unless recovered under the existing law, be recovered as an arrear of tax under this Act and the amount so recovered shall not be admissible as input tax credit under this Act;
(b) where in pursuance of an assessment or adjudication proceedings instituted, whether before, on or after the appointed day, under the existing law, any amount of tax, interest, fine or penalty becomes refundable to the taxable person, the same shall be refunded to him in cash under the said law, notwithstanding anything to the contrary contained in the said law other than the provisions of sub-section (2) of section 11B of the Central Excise Act, 1944 (1 of 1944) and the amount rejected, if any, shall not be admissible as input tax credit under this Act.”
Rule 92(1A), KGST Rules Inserted vide Notification no. 16/2020-CT dated March 23, 2020
“92. Order sanctioning refund.-
(1A)Where, upon examination of the application of refund of any amount paid as tax other than the refund of tax paid on zero-rated supplies or deemed export, the proper officer is satisfied that a refund under sub-section (5) of section 54 of the Act is due and payable to the applicant, he shall make an order in FORM RFD-06 sanctioning the amount of refund to be paid, in cash, proportionate to the amount debited in cash against the total amount paid for discharging tax liability for the relevant period, mentioning therein the amount adjusted against any outstanding demand under the Act or under any existing law and the balance amount refundable and for the remaining amount which has been debited from the electronic credit ledger for making payment of such tax, the proper officer shall issue FORM GST PMT-03 recrediting the said amount as Input Tax Credit in electronic credit ledger”
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