GST Refund Cannot Be Denied Just Because Department Plans to Appeal

Telangana High Court explains when a taxpayer can claim consequential refund

The Telangana High Court, in ADV Industrial Services Pvt. Ltd. v. Union of India (2026) 46 Centax 189 (Telangana), decided on 8 September 2026, dealt with an important GST refund issue.

The taxpayer had faced a GST demand of around ₹19.33 crore relating to disputed Input Tax Credit (ITC). The amount had already been paid/reversed through DRC-03.

Later, the taxpayer succeeded in appeal and the original demand was set aside by the appellate authority. The taxpayer then applied for a refund of the amount paid/reversed.

However, the refund was rejected because the Department had reviewed the appellate order and planned to challenge it before the GSTAT. At the time of the refund rejection, no such appeal had actually been filed.

What did the Court say?

The High Court held that an appellate order remains operative and binding unless it is stayed, modified or set aside by a competent authority.

Therefore, simply saying that the Department intends to file an appeal does not automatically stop the appellate order from operating.

The Court also observed that when a GST demand is set aside in appeal, the taxpayer can seek a consequential refund, subject to the requirements of the GST refund provisions. The refund authority cannot use the refund proceedings to reopen the substantive issue that has already been decided by the appellate authority.

What about withholding the refund?

The Court highlighted Section 54(11) of the CGST Act, which provides a specific mechanism for withholding a refund in certain circumstances.

The required statutory conditions must be followed, including the prescribed conditions relating to pending proceedings and the opportunity of hearing.

What happened finally?

The High Court quashed the refund rejection order and directed the Department to reconsider the refund application in accordance with law.

The Court further directed that if the Department seeks to withhold the refund because of further proceedings, it must follow the requirements of Section 54(11).

Key takeaway

If your GST demand has been set aside in appeal and you have already paid or reversed the disputed amount, you may have a claim for consequential refund.

However, every refund case depends on its own facts and the applicable statutory requirements. The appellate order, DRC-03 payments, refund application and reasons for rejection should be examined carefully.

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