ITC Refund Can’t Be Denied Just Because Supplier Paid 90% of Tax via ITC Instead of Cash: Delhi High Court

The Delhi High Court has recently ruled that the purchaser cannot be denied an ITC refund just because the supplier did not remit the tax through cash. With this ruling, the Court directed the GST department to release a refund of Rs 25,16,760, along with applicable interest, to the petitioner company, Phoenix Impex.

The company had filed a refund application for unutilised ITC, but even after strict timelines under section 54 of the CGST Act, the refund was not processed. Therefore, the company approached the Court. After the company filed the writ petition, the GST department issued a show cause notice questioning the refund only because the supplier did not pay the tax through cash and utilised ITC over 90% to pay the due date liability during the period. The company was asked to submit supporting documents, including Bills, E-way Bills, Payment Proof to the supplier, proof of movement of goods, etc.

The main argument of the petitioner was that using more than 90% ITC is not prohibited under Rule 86B of the CGST Rules.

The court, in its order dated 29 August 2025, directed the GST department to give the petitioner a personal hearing and pass a reasoned order. The refund order was passed on September 19, 2025, sanctioning the refund. However, the Court’s order did not mention anything regarding the interest.

Therefore, the court ordered the GST department to release the refund amount to the petitioner along with the applicable interest within one month.