Excess Pre‑Deposit Must Be Refunded Once Demand Is Reduced: Bombay High Court

The Bombay High Court quashed the rejection of a pharmaceutical firm’s refund claim, holding that a pre-deposit is a security deposit to be returned once the appellate and rectification orders reduce the demand.

An amount paid as pre-deposit for filing a GST appeal is in the nature of a security deposit and must be refunded once the demand is reduced in appeal, the Bombay High Court has held, directing refund of ₹19,61,750 [Mihika Pharmaceuticals v. State of Maharashtra & Ors., 2026-juristway.com-3480-HC(Bombay)-GST].

The Division Bench of Justice M. S. Karnik and Justice Sandesh D. Patil, who wrote the judgment, quashed a refund rejection order of 14 Jul 2026 in Form GST RFD‑06.

An adjudication order of 31 Dec 2024 raised a demand of ₹3,66,03,378 for 2020-21. The firm appealed under Section 107 of the Maharashtra Goods and Services Tax Act, 2017 and made the pre-deposit. On 10 Mar 2026 the first appellate authority reduced the demand to ₹3,81,771 and directed the proper officer to consider the pre-deposit. On 16 Apr 2026, on a rectification application under Section 161, the demand was further reduced to ₹5,648, which the firm paid.

The firm then claimed a refund of the excess. The officer issued a second show cause notice in Form GST RFD‑08 on a new ground: that the appellate and rectification orders did not themselves direct a refund, and the firm had to prove independently that the amount was refundable. The claim was rejected without a personal hearing.

The Court relied on its own judgment of 28 Aug 2026 in IBM India Pvt. Ltd. v. Union of India (Writ Petition (L) 38052 of 2025), which held that an amount paid as a condition for hearing an appeal bears the character of a security deposit, not duty, and must be returned whether the appellant succeeds fully or partly.

The rectification order had attained finality, as it was not challenged, and the pre-deposit was admittedly lying with the Department. The Court allowed the petition and directed the respondents to sanction and disburse ₹19,61,750 within six weeks of communication of the order.

2026-juristway.com-3480-HC(Bombay)-GST