No Limitation Period U/S 54(1) of CGST Act on Tax Collected Over Nil GST Authority of Law

Hon’ble Delhi High Court for the case of Delhi Metro Rail Corporation Limited vs. The Additional Commissioner, Central Goods and Services Tax Appeals and Others [W.P. (C) 6793/2023 dated September 18, 2023] ruled that the limitation duration of two years under Section 54(1) of the Central Goods and Service Tax Act, 2017 (“the CGST Act”) for filing an application for a refund of tax, could not be invoked when the Revenue Department collected the tax without any authority of law. Therefore the Writ Petition was permitted, and the Revenue Department was instructed to process the claim for Petitioners refund.

Details:

The Delhi Metro Rail Corporation referred to as “the Petitioner,” was commissioned by the Surat Municipal Corporation, referred to as “the Service Recipient,” to prepare a Project Report, referred to as “the Report,” for the development of the Metro Rail Project in Surat, Gujarat. The Petitioner provided their services for the preparation of the Report and issued an invoice on August 11, 2017, amounting to Rs. 19,04,520/-, which included Goods and Service Tax (GST) of Rs. 2,90,520/-.

The Service Recipient made a payment of Rs. 16,14,000/- to the Petitioner, excluding GST. Subsequently, the Petitioner deposited the GST amount of Rs. 2,90,520/- to fulfil the compliance requirements under Form GSTR-3B. Later, the Service Recipient, citing Notification No.12/2017 – Central Tax (Rate) dated June 28, 2017, informed the Petitioner that they were not obligated to levy GST on the services provided.

The Petitioner submitted a refund application (in form GST RFD-01) on May 2, 2022, to the Revenue Department, referred to as “the Respondent,” to claim a refund. However, the application was rejected through a Refund Rejection Order, referred to as “the Rejection Order,” dated July 4, 2022. The reason cited for rejection was that the refund application was filed after the expiration of two years from the relevant date, rendering it ineligible due to the limitation period.

Disagreed from that the applicant filed a petition against the rejection order to the Respondent for claiming the GST refund. But, the Respondent, vide Order-in-Appeal No.241/2022-2023 dated February 24, 2023 (“the Impugned Order”) denied the Petitioner’s appeal for the claim of the refund.

The Petitioner dissatisfied with the impugned order filed a writ petition to the Hon’ble Delhi High Court.

Issue:

Can the Limitation Period be Applied Under Section 54(1) of the CGST Act When Tax is Collected Without Legal Authority?

Had:

The Hon’ble Delhi High Court in W.P. (C) 6793/2023 held as under:

• In my opinion, the Respondent cannot retain the tax amount deposited by the Petitioner under the mistaken belief that the Petitioner is required to deposit tax with the Respondent without any legal basis. Such collection of tax would not be considered valid, and as a result, the conditions stipulated in Section 54 of the CGST Act would not be applicable in this particular case.
• Drawing attention to a relevant judgment from the Hon’ble Gujarat High Court in the case of M/s. Cosmol Energy Private Limited vs. State of Gujarat (R/Special Civil Application No. 11905/2020). In this case, the Court ordered the refund of GST paid in error, even though the application for a refund was submitted after the expiration of the 2-year limitation period.
• I conclude that the limitation period specified in Section 54 of the CGST Act should not be enforced in situations where Goods and Services Tax (GST) should not have been levied in the first place, and it is evident that the payment was made in error due to a misinterpretation of the law.
• I hereby direct the Respondent to process the Petitioner’s refund application, even though it was submitted after the 2-year time period had elapsed, by overturning the Impugned and Rejection Orders.

Applicable Condition Under GST Section 54(1) of CGST Act

In accordance with GST Section 54(1) of the tax refund, any person who wants to claim a tax refund and interest paid on it or any other amount paid by him can do so within two years of the appropriate date.