In Meghaariika Enterprises Private Limited & Anr. v. State of Gujarat & Anr. (R/Special Civil Application No. 15713 of 2025, decided on 18 December 2025), the Gujarat High Court examined the legality of a deficiency memo issued in FORM GST RFD-03 rejecting, at the threshold, a refund application seeking refund of interest paid under protest on a disputed GST demand.
The ruling addresses a recurring administrative issue under GST, misuse of Rule 90(3) to deny refund claims without adjudication, particularly where payments are made under protest during investigation or enforcement proceedings.
2. Factual Matrix: Assignment of GIDC Leasehold Rights
The Petitioners were originally allotted an industrial plot by the Gujarat Industrial Development Corporation (GIDC) on a long-term lease basis. Subsequently:
- The Petitioners assigned/ transferred the leasehold rights in the GIDC plot to M/s Tatva Chintan Pharma Chem Ltd.
- The transfer was effected through a registered assignment deed dated 22 December 2021.
The transaction was treated by the Petitioners as transfer of an interest in immovable property, contending that it fell outside the scope of “supply” under the CGST Act.
3. Departmental Proceedings and Demand of Interest
The Department initiated inquiry by issuing summons under Section 70(1) of the CGST Act, 2017 on multiple occasions, calling for documents and statements relating to the leasehold assignment. Based on the information furnished:
- The Assistant Commissioner (Enforcement) issued a calculation sheet dated 17 April 2023,
- Demanding GST on the assignment of leasehold rights, along with
- Interest at 18% per annum, computed from the due date of GSTR-3B till the date of payment.
4. Payment of Interest “Under Protest” via DRC-03
Crucially, the Petitioners disputed the very levy of GST on assignment of leasehold rights. However, to avoid coercive action:
- They paid only the interest component,
- Through four challans in FORM GST DRC-03,
- By debiting the electronic cash ledger, and
- Expressly under protest.
The tax itself continued to remain disputed.
5. Refund Application under Section 54: Procedural Compliance
Thereafter, relying on binding judicial precedent holding such transactions to be non-taxable, the Petitioners:
- Filed a refund application on 14 July 2025,
- In FORM GST RFD-01,
- Under the category “Any Other”,
- Invoking Section 54(1) read with Section 54(8) of the CGST Act,
- Seeking refund of interest paid under protest, along with all supporting documents.
6. Mechanical Rejection through Deficiency Memo (Rule 90(3))
Instead of processing the refund on merits, the Proper Officer issued a deficiency memo dated 15 July 2025 in FORM GST RFD-03, citing only one reason:
“There is no notification or circular published by the GST Council regarding refund of such interest.”
On this basis alone, the refund application was rejected at the scrutiny stage itself.
7. Core Legal Issue Before the High Court
Whether a refund application filed under Section 54 for interest paid under protest can be rejected at the threshold by invoking Rule 90(3), merely on the ground that no specific GST notification or circular permits such refund?
8. Judicial Analysis: Limits of Rule 90(3)
The High Court noted that the Petitioners’ claim was founded on an earlier decision of the same Court holding that:
- Assignment/ transfer of GIDC leasehold rights amounts to transfer of immovable property,
- Such transaction does not qualify as “supply” under Section 7(1)(a),
- Read with Schedule II (para 5(b)) and Schedule III (para 5),
- And therefore no GST is leviable under Section 9.
Against this legal backdrop, the Court held that:
- Rule 90(3) is confined to pointing out procedural or curable deficiencies,
- It does not empower the officer to decide eligibility or reject claims on merits,
- Refund rights under Section 54 are statutory, and
- Absence of a circular or notification cannot override the Act or binding judicial precedent.
9. Operative Directions of the Court
The Court accordingly ordered that:
- The deficiency memo dated 15 July 2025 is quashed and set aside;
- The refund application dated 14 July 2025 stands revived;
- The Department shall process the refund application and pass a reasoned order within three weeks, strictly in accordance with law.
10. Legal Significance and Practical Takeaways
This judgment is significant for GST jurisprudence because it:
- Reaffirms that interest paid under protest is refundable, where the underlying levy is unsustainable;
- Draws a sharp line between refund scrutiny and refund adjudication;
- Curtails the administrative practice of using FORM GST RFD-03 as a tool of rejection, rather than facilitation;
- Emphasizes that executive instructions cannot defeat statutory refund entitlements.
For taxpayers involved in leasehold land transfers, industrial plot assignments, or investigation-stage payments, this ruling offers strong protection against arbitrary denial of refunds.
11. Relevant Statutory Provision
Rule 90(3), CGST Rules, 2017
“Where any deficiencies are noticed, the proper officer shall communicate the deficiencies to the applicant in FORM GST RFD-03… requiring him to file a fresh refund application after rectification of such deficiencies.”
The provision does not contemplate rejection on legal eligibility.
Conclusion
The Gujarat High Court has reinforced that refund administration under GST must remain faithful to the statute and judicial discipline. Payments made under protest, especially pursuant to demands later found unsustainable, cannot be retained by the State through procedural shortcuts.
This decision will have persuasive value in refund disputes across jurisdictions where interest or tax is deposited during investigation without admission of liability.
Source:
Gujarat HC Judgement dated 18/12/2025: Meghaariika Enterprises Private Limited & Anr. v. State of Gujarat & Anr. (R/Special Civil Application No. 15713 of 2025)