Telangana HC Rules: Internal Departmental Review Cannot Block GST Refund Arising from Appellate Order
Background and Overview
The Telangana High Court, in ADV Industrial Services Private Limited Vs Union of India, delivered a significant ruling in Writ Petition No.3663 of 2026, dated 08.09.2026, addressing a critical question in GST administration: whether a refund officer can deny a consequential refund merely because the department internally disagrees with an appellate order and plans to challenge it. The Court answered firmly in the negative, quashing the rejection order and remanding the matter for fresh adjudication.
The case arose from a refund claim of ₹19,33,34,320/-, which ADV Industrial Services Private Limited had paid or reversed during a GST intelligence investigation. When the appellate authority subsequently set aside the underlying demand, the assessee sought return of these amounts — only to be refused by the refund officer on grounds that the Court ultimately found legally untenable.
Who Is the Assessee and What Was the Dispute?
ADV Industrial Services Private Limited is a company engaged in renting and leasing prefabricated warehouse buildings to its clients. It is duly registered under the Central Goods and Services Tax Act, 2017 (CGST Act) and had been filing GST returns for the periods 2017-18 through 2021-22.
The dispute originated when the Directorate General of GST Intelligence (DGGI), Hyderabad Zonal Unit, issued a summons on 16.09.2022 under Section 70 of the CGST Act, initiating an inquiry into alleged availment of ineligible Input Tax Credit (ITC). The department's contention was that the assessee had wrongly availed ITC on works contract services used in constructing the warehouses — expenditure allegedly blocked under Section 17(5) of the CGST Act.
During the investigation and under protest, the assessee was compelled to discharge the alleged liability as follows:
- ₹15,99,60,570/- reversed from the unutilized ITC balance through Form GST DRC-03
- ₹3,33,73,750/- paid in cash through Form GST DRC-03 in instalments
The total amount paid or reversed thus came to ₹19,33,34,320/-.
Chronology of Proceedings
Show-Cause Notice and Adjudication Order
Following the investigation, a show-cause notice dated 15.12.2023 was issued under Section 74 of the CGST Act, proposing recovery of the disputed amount along with interest and penalty. The assessee filed a reply and participated in personal hearings. Despite this, the adjudicating authority passed Order-in-Original No.75/2024-25-Adjn(ADC)-GST dated 13.09.2024, confirming the demand of ₹19,33,34,320/- with applicable interest and penalty, and appropriating the entire amount already paid or reversed by the assessee.
Appellate Order Setting Aside the Demand
Challenging this, the assessee filed Appeal No.80/2024-RR-GST-Comm before the first appellate authority. On 16.09.2025, the appellate authority passed Order-in-Appeal No. HYD-GST-RRC-APP1-41-2025-26, allowing the appeal in full and setting aside the Order-in-Original. The appellate authority undertook a detailed examination of the relevant provisions, including:
Section 17(5)(c)andSection 17(5)(d)of the CGST Act- The nature of the warehouses — whether they constituted immovable property constructed on the assessee's "own account"
- The movable or immovable character of specific structural components
The appellate authority relied on the Hon'ble Supreme Court's ruling in Chief Commissioner of Central Goods and Service Tax and others v. Safari Retreats Private Limited and others (2025) 2 SCC 523, holding that construction intended to be given on lease or licence cannot be regarded as construction on the assessee's "own account" within the meaning of Section 17(5)(d). Applying the tests from Bharati Airtel Limited v. Commissioner of Central Excise, Pune 2025 (391) ELT.3 (S.C.) on annexation, intention, functionality, and permanency, the appellate authority concluded that the superstructure and Kirby steel components constituted movable property. It further held that electrical installations, fire hydrants, sprinklers, and painting fell outside the restriction in Section 17(5)(d).
Even for components treated as immovable property — including the sub-structure, 1.5 meter wall, dock area, flooring, and apron — the restriction was held inapplicable since the construction was intended for leasing and not undertaken on the assessee's "own account." The operative portion of the Order-in-Appeal read:
"The appeal is allowed and the impugned order is set aside."
Refund Application and Rejection
Following the Order-in-Appeal, the assessee filed a refund application in Form GST-RFD-01 on 28.10.2025, claiming ₹19,33,34,320/-. The department acknowledged receipt via Form GST-RFD-02 on 11.11.2025.