Court Emphasizes Binding Nature of Appellate Orders Under CGST Act and Invalidates Refund Denial Based on Proposed Departmental Appeal
In a significant judgment dated September 8, 2026, the Telangana High Court (Division Bench comprising Chief Justice Aparesh Kumar Singh and Justice G.M. Mohiuddin) set aside the GST refund rejection order passed against M/s ADV Industrial Services Private Limited. The Court held that the refund rejection by the authorities was illegal and arbitrary, as it disregarded an operative appellate order passed by the Commissioner (Appeals) under Section 107 of the Central Goods and Services Tax Act, 2017 (CGST Act).
The dispute arose when the petitioner company, engaged in renting and leasing pre-fabricated warehouse buildings, sought refund of Rs. 19.33 crores paid under protest toward a demand for allegedly availed ineligible Input Tax Credit (ITC). The initial demand was confirmed by the adjudicating authority based on an investigation by the Directorate General of GST Intelligence (DGGI), but the petitioner successfully challenged it in appeal. The Appellate Authority, after a detailed examination of the relevant provisions of Section 17(5)(c) and (d) of the CGST Act and Supreme Court precedents, set aside the entire demand.
Following the appellate decision, the petitioner filed a refund application. However, the refund sanctioning authority rejected it, primarily on the ground that the Department had decided to file a further appeal against the appellate order, which allegedly was not final and binding. The authority also relied on internal reviews and additional documents such as depreciation schedules, effectively reopening the substantive dispute already adjudicated upon.
The High Court disagreed with the respondents' approach and underscored that Section 107(16) of the CGST Act makes appellate orders final and binding unless modified, stayed, or set aside by a competent forum under Sections 108, 113, 117, or 118. Since no such order existed at the time of refund rejection, the appellate order remained operative and was binding on subordinate authorities. The mere contemplation or filing of a further departmental appeal does not suspend the operation of the appellate order.
Further, the Court held that if the Department intended to withhold the refund due to pending proceedings, it was obliged to comply strictly with Section 54(11) of the CGST Act, which requires the Commissioner to be of the opinion that grant of refund may adversely affect revenue due to malfeasance or fraud and mandates giving the taxable person an opportunity of being heard. The impugned refund rejection order failed to comply with these mandatory requirements.
The Court emphasized the principle of judicial discipline, noting that subordinate authorities cannot disregard binding appellate findings merely because they are under challenge or review. It relied on Supreme Court precedents such as Union of India v. Kamalakshi Finance Corporation Ltd. and M/s Godrej Sara Lee Ltd. v. Excise and Taxation Officer to reinforce this principle.
On the maintainability of the writ petition, the Court observed that while alternative statutory remedies are generally preferred, they are not an absolute bar to writ jurisdiction, especially where the impugned order suffers from jurisdictional errors, non-application of mind, or breaches of statutory provisions. Given that the appeal against the refund rejection order would lie before an authority subordinate to the Commissioner who had already expressed an adverse opinion, the statutory remedy was ineffective and illusory in this case.
Accordingly, the Court quashed the refund rejection order and remanded the matter for fresh consideration. The refund sanctioning authority was directed to decide the petitioner's refund claim within four weeks strictly in accordance with law, including Section 54(11), if it intends to withhold the refund.
This judgment reinforces the binding effect of appellate orders under the CGST regime and clarifies procedural safeguards regarding refund claims, providing significant relief to taxpayers facing similar disputes.
Bottom Line:
Goods and Services Tax (GST) refund claims arising from appellate orders must be processed in accordance with the statutory framework, and subordinate authorities cannot disregard binding appellate orders merely due to a proposed departmental appeal.
Statutory provision(s):
Central Goods and Services Tax Act, 2017 Sections 17(5)(c), 17(5)(d), 54, 54(1), 54(8), 54(11), 107(16), 108, 113, 117, 118, 70, 74
