Withholding of refund or deduction from refund in certain cases :
If taxable person has defaulted in furnishing of return or payment of taxes or if any tax, interest or penalty is payable by him under GST Act or earlier tax laws (excise, service tax, State Vat etc.), those dues can be adjusted from refund payable to taxable person and only balance amount should be paid to him.
Where any refund is due under sub-section (3) to a registered person who has defaulted in furnishing any return or who is required to pay any tax, interest or penalty, which has not been stayed by any court, Tribunal or Appellate Authority by the specified date (i.e. last date for filing an appeal under CGST Act), the proper officer may—(a) withhold payment of refund due until the said person has furnished the return or paid the tax, interest or penalty, as the case may be (b) deduct from the refund due, any tax, interest, penalty, fee or any other amount which the taxable person is liable to pay but which remains unpaid under this Act or under earlier tax laws – section 54(10) of CGST Act.
If appeal has been filed and pre-deposit as required is paid, then refund cannot be withheld.