TaxTMI 
TaxTMI 
2026 (9) TMI 1277
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....ng the actions of Respondent No. 7 is passing the Refund Rejection Order dated 12.01.2026 in Form GST-RFD-06 bearing ARN number AA361025043086J as being illegal, arbitrary, unconstitutional and without jurisdiction and in contravention to the provisions of the Central Goods and Services Act, 2017 and consequently; Direct the Respondent No.7 to sanction the refund application of the Petitioner for Rs. 19,33,34,320/- paid/reversed by the Petitioner vide DRC-03, by setting aside the Refund Rejection Order dated 12.01.2026 in Form GST-RFD-06 bearing ARN number AA361025043086J; and pass such other order or orders as this Court may deem fit and proper in the circumstances of the case." Factual Matrix 3. The petitioner is a private limited Company engaged in the business of renting and leasing pre-fabricated warehouse buildings to its clients/customers. The petitioner is duly registered under the Central Goods and Services Tax Act, 2017 (for short 'CGST Act') and has been regularly filing its GST returns for the relevant periods, including from 2017-18 to 2021-22. 4. The genesis of the present dispute lies in an investigation initiated by the Directorate General of GST Intelligen....
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....der-in-Appeal No. HYD-GST-RRC-APP141-2025-26, dated 16.09.2025 (for short 'Order-in-Appeal'), allowing the appeal and setting aside the Order-in-Original. 10. In the Order-in-Appeal dated 16.09.2025, the appellate authority undertook a detailed examination of the applicability of Section 17(5)(c) and (d) of the CGST Act and recorded, inter alia, the following findings: a) The restriction contemplated under Section 17(5)(c) was held to operate in the context of works contract services and the relevant statutory scheme and the appellate authority found that the provision could not sustain the demand against the petitioner in the facts of the present case. b) In respect of Section 17(5)(d), the appellate authority examined whether the relevant goods and services had been received for construction of an immovable property on the taxpayer's "own account". c) Relying upon the judgment of the Hon'ble Supreme Court in Chief Commissioner of Central Goods and Service Tax and others v. Safari Retreats Private Limited and others [(2025) 2 SCC 523] the appellate authority held that construction intended to be sold or given on lease or licence could not be r....
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....s for proposed rejection. The petitioner submitted a detailed reply dated 29.12.2025 dealing with and refuting the grounds raised therein. Respondent No.7 thereafter passed the impugned Refund Rejection Order dated 12.01.2026 in Form GST-RFD-06, rejecting the petitioner's refund claim in its entirety. Submissions on behalf of the petitioner 14. The learned Senior Counsel for the petitioner advanced the following submissions: i) That Section 107(16) of the CGST Act, 2017 provides that subject to Sections 108, 113, 117 and 118 of the CGST Act, an order passed by the appellate authority under Section 107 shall be final and binding on the parties. Section 107(16) reads: "Subject to the provisions of section 108 or section 113 or section 117 or section 118, an order passed by the Appellate Authority under this section shall be final and binding on the parties." ii) That, as on the date of the impugned order dated 12.01.2026, no order had been passed under Sections 108, 113, 117 or 118 of the CGST Act modifying, staying or setting aside the Order-in-Appeal dated 16.09.2025. Therefore, the Order-in-Appeal remained operative and binding upon the parties....
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....t direct refund" is misconceived. The absence of an express direction for refund in the Order-in-Appeal does not, by itself, authorize a subordinate refund authority to disregard the appellate findings or to reopen the substantive question of admissibility of the ITC which stood adjudicated by the appellate authority. vii) That the impugned order discloses that the decision-making process was materially influenced by the review section and the opinion of the "competent authority". Paragraph 11.3 of the impugned order records that the refund processing officer communicated with the review section and that the competent authority had opined that the refund could not be granted and that the Department had decided to file an appeal against the Order-in-Appeal. viii) That while respondent No.7 was required to independently adjudicate the refund application on the basis of the material placed before it, the impugned order indicates that the decision was materially guided by the Department's proposed challenge to the Order-in-Appeal. The petitioner had specifically submitted replies dated 10.12.2025 and 29.12.2025 to the notices dated 05.12.2025 and 24.12.2025 respective....
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....cise of jurisdiction under Article 226 of the Constitution, particularly where the impugned action allegedly suffers from jurisdictional error, violation of principles of natural justice, or failure to exercise jurisdiction in accordance with law. xv) That the present case raises a jurisdictional and public-law issue concerning the authority of respondent No.7 to disregard the operative Order-in-Appeal and to rely upon the Department's proposed challenge to that order as a ground for refusing the refund. The grievance is not merely against an erroneous appreciation of facts but against the manner in which the refund jurisdiction has been exercised. Submissions on behalf of the respondents 15. The learned Standing Counsel appearing for the respondents has advanced the following submissions: i) That the present Writ Petition ought not to be entertained, as the petitioner has an efficacious statutory remedy of appeal under Section 107 of the CGST Act against the impugned order. It is contended that the petitioner cannot bypass the statutory appellate mechanism and directly invoke the writ jurisdiction of this Court. ii) By placing reliance upon the jud....
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....sing the refund claim, the proper officer examined the petitioner's financial statements and depreciation schedules and observed that the value of the goods, services and works contract services stated to have been used in the construction of the warehouse buildings appeared to have been capitalized as immovable property in the petitioner's books of account, with depreciation being claimed thereon under the Income Tax Act. ix) That the aforesaid accounting treatment and claim of depreciation constituted a relevant circumstance for examining the petitioner's entitlement to refund and that the said aspect had not been examined by the appellate authority. It is therefore submitted that the refund sanctioning authority was entitled to examine the petitioner's refund claim with reference to the material available on record, including the financial statements and depreciation schedules. x) That the impugned order does not amount to sitting in appeal over the Order-in-Appeal and does not violate the principles of judicial discipline. According to the respondents, the refund sanctioning authority did not seek to reopen the adjudication of the original demand, but merely e....
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.... iv) The Department's appeal before the GSTAT was filed only subsequently, on 25.03.2026. The filing of such appeal is recorded in the proceedings before this Court. In these circumstances, the Order-in-Appeal dated 16.09.2025 remained operative and binding upon the parties as on 12.01.2026. The subsequent filing of an appeal before the GSTAT, does not retrospectively render the Order-in-Appeal inoperative as on the date when the impugned order was passed. In the absence of any order staying, modifying or setting aside the Order-in-Appeal, the respondents were required to give due effect to the appellate decision in accordance with law. 20. It is pertinent to note that the observation contained in para 11.4 of the impugned order that the Order-in-Appeal "has not attained the finality" cannot, therefore, justify the rejection of the petitioner's refund claim. Even assuming that the Department was entitled to pursue the statutory remedy against the Order-in-Appeal, the mere decision to challenge the appellate order, or the subsequent filing of an appeal, did not amount to a stay or suspension of the operation of the Order-in-Appeal. The said para 11.4 is extracted hereunder for....
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....e statutory appellate/revisional mechanism and not in disregarding the operative appellate order at the stage of processing the refund. iii) The respondent No.7 further declined to sanction the refund on the ground that the refund claim was premature and that the Order-in-Appeal had "not attained the finality". As submitted hereinabove, the Order-in-Appeal remained operative as on 12.01.2026 and had not been stayed, modified or set aside by any competent forum. The subsequent filing of the Department's appeal before the GSTAT on 25.03.2026 could not retrospectively affect the legal position prevailing on the date of the impugned order. 22. The aforesaid course of action is contrary to the principle of judicial discipline. A subordinate or implementing authority cannot, while exercising a distinct statutory function, disregard the operative findings of a superior appellate authority merely because the Department considers those findings to be incorrect or proposes to challenge them. The statutory remedy of appeal is available to the Department precisely for the purpose of challenging an appellate order. Until such order is modified, stayed or set aside by the competent f....
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....consequential refund of the amounts paid and appropriated towards the said demand, subject to the statutory procedure prescribed under Section 54 of the CGST Act. The fact that the Order-in-Appeal did not separately direct payment of refund does not alter the nature of the relief claimed, since the refund arises as a consequence of the demand itself having been set aside by the appellate authority. 27. The observation of respondent No.7 in paragraph 11.6 of the impugned order that the Order-in-Appeal "does not direct refund nor adjudicate refund eligibility under Section 54" is misplaced. The absence of an express direction to grant refund in the Order-in-Appeal does not extinguish the petitioner's right to seek consequential refund. The appellate authority allowed the appeal in its entirety and set aside the Order-in-Original; the petitioner thereafter invoked the statutory refund mechanism under Section 54 for obtaining the consequential monetary relief arising from the appellate decision. Thus, the question before the refund authority was whether the petitioner satisfied the statutory requirements for processing the consequential refund claim, and not whether the substantive ....
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....s to be noted that Section 54(11) contemplates, inter alia, that if the order giving rise to the refund is the subject matter of an appeal or further proceeding, or that other proceedings under the Act are pending; and the Commissioner is of the opinion that grant of the refund is likely to adversely affect the revenue in such appeal or proceedings on account of malfeasance or fraud; an opportunity of being heard has to be afforded to the person concerned, before the refund is withheld. 32. In the present case, the statutory requirements under Section 54(11) were not satisfied as on the date of the impugned order dated 12.01.2026, for the following reasons: i) No appeal was pending against the Order-in-Appeal as on 12.01.2026. The respondents admittedly filed an appeal before the GSTAT only on 25.03.2026, i.e., subsequent to the passing of the impugned order. ii) The impugned order does not record any finding or opinion of the Commissioner that grant of the refund was likely to adversely affect the revenue on account of any malfeasance or fraud on the part of the petitioner. iii) The petitioner was not afforded an opportunity of being heard before the ....
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....tantive findings rendered by the appellate authority in the Order-in-Appeal. ii) Failure to independently apply mind: The impugned order itself records that the refund processing officer had communicated with the Review Section and that the competent authority had opined that the refund could not be granted in view of the proposed challenge to the Order-in-Appeal. The decision-making process was thus materially influenced by the Review Section, rather than being confined to an independent consideration of the petitioner's refund claim and its reply. iii) Arbitrariness and legal infirmity: The impugned order rejects the petitioner's refund claim on the basis that the Order-in-Appeal had not attained finality and that the Department proposed to challenge the same, without demonstrating any statutory basis for withholding the refund on such ground. The impugned order also seeks to rely upon issues concerning capitalization and depreciation which, as pleaded by the respondents themselves, were being relied upon to question the petitioner's substantive entitlement to ITC, notwithstanding the setting aside of the underlying demand by the appellate authority. 38. In M....