Bombay High Court Orders ₹3.14 Cr Pre-Deposit To IBM, Says Pending Appeal Can't Affect Dropped Demand

On 28 August, the Bombay High Court held that a taxpayer cannot be denied refund of the GST pre-deposit corresponding to a tax demand that has already been set aside, merely because it intends to challenge the remaining demand before the GST Appellate Tribunal.

A Division Bench of Justices M.S. Karnik and Sandesh D. Patil allowed IBM India Pvt. Ltd.'s petition challenging the rejection of its claim for refund of Rs. 3.14 crore. The judge held:

“It is pertinent to note that under the erstwhile indirect tax regime, the amount paid as a condition precedent for hearing an appeal, did not bear the character of duty but bears the character only of a security deposit, being a statutory condition precedent for hearing of the appeal. Such an amount needs to be returned to the concerned appellant, whether the appellant succeeds fully or partly.”

The case arose after the tax authorities raised a demand of about Rs. 48.96 crore against IBM India. The company challenged the demand before the appellate authority. In March 2025, the appeal was partly allowed, with around 64% of the demand being set aside. Consequently, about Rs. 31.45 crore of the demand was dropped, while around Rs. 17.50 crore remained payable.

IBM had made a pre-deposit as a condition for pursuing its appeal. Following the partial relief, it sought refund of Rs. 3,14,58,422, representing the pre-deposit corresponding to the Rs. 31.45 crore demand that had been set aside.

The tax authority rejected the refund claim on the ground that IBM intended to approach the GST Appellate Tribunal against the remaining demand and, therefore, the entire dispute had not attained finality.

The High Court disagreed, noting that IBM proposed to challenge only the Rs. 17.50 crore demand that had been confirmed against it. The Department had not challenged the relief granted to IBM in respect of the Rs. 31.45 crore demand. Therefore, the dispute had attained finality to that extent.

It held that IBM's decision to challenge the remaining demand could not be used as a ground to retain the pre-deposit corresponding to the portion of the demand that had already been set aside.

Further, the Bench explained that an amount deposited as a condition for pursuing an appeal does not itself constitute tax or duty but is in the nature of a security deposit. Therefore, when a taxpayer succeeds wholly or partly in an appeal, the corresponding pre-deposit must be returned.

The judges also observed that once the Rs. 31.45 crore demand was set aside, IBM acquired a statutory right to receive the corresponding pre-deposit of Rs. 3.14 crore. Further that continued retention of the amount without authority of law would offend Article 265 of the Constitution, which provides that no tax shall be levied or collected except by authority of law.

IBM had also sought interest on the refund. During the hearing, however, its counsel stated that the company would not press the claim for interest if the principal amount was refunded. The Bench recorded and appreciated the statement.

Accordingly, the High Court quashed the order rejecting IBM's refund application and directed the authorities to process and refund Rs. 3,14,58,422 within six weeks from the date of communication of the order.

For the Petitioner (IBM India Pvt. Ltd.): Mahir Chablani, along with Prathamesh Gargate and Dimpal Jangid, instructed by Mahir Chablani.

For Respondent Nos. 2 & 3/State: Anjali Helekar, Government Pleader, along with Himanshu Takke, AGP.