Jharkhand HC: Rejection of GST Refund Claim for Statutory Pre-Deposit on Limitation Grounds is Invalid

In a ruling, the Jharkhand High Court determined that denying a claim for a refund of a regulatory pre-deposit made under Section 107(6)(b) of the GST Act is not legally sustainable if the claim was submitted after the two-year limitation period outlined in Section 54(1).

The Division Bench comprising Chief Justice M.S. Ramachandra Rao and Justice Deepak Roshan mentioned that, “There is no dispute to the effect that once refund is by way of statutory exercise, the same cannot be retained neither by the State, nor by the Centre, that too by taking aid of a provision which on the face of it is directory, inasmuch as, the language couched in Section 54 is ‘may make an application before the expiry of 2 years from the relevant date.'”

The court mentioned that, “In terms of the interpretation extended by the Hon’ble Apex Court, as also, taking into consideration that the refund of statutory pre-deposit is a right vested on an assessee after an appeal is allowed in its favour, we have no reason to say that the pre-deposit made by an assessee cannot be forfeited taking aid of section 54 of the Act and the same cannot be the intent of the Act of 2017.”

In this case, the applicant, who is a registered dealer under the Goods & Services Tax Act and is engaged in the business of loading, unloading Coal, and transportation of coal loaded into a tipper.

In January 2021, alleging a mismatch in GSTR-1 and GSTR-3B for September 2019, a SCN u/s 74 of the JGST Act, 2017 was issued, and ex- parte order was passed vide order dated 31.08.2021, charging obligation of Rs. 16,90,442/-, which inter alia included tax, interest, and penalty.

The applicant, dissatisfied with it, filed an appeal within the same time, making a regulatory pre-deposit of 10% of the disputed tax amount u/s 107(6)(b) of the Act, to uphold the appeal, which was thereafter authorised.

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An application was made by the applicant after that for the refund of the pre-deposit amount, which under a Deficiency Memo was held to be beyond the period specified u/s 54(1) of the Goods & Services Tax Act, and therefore, dissatisfied thereof, the applicant proceeded to the High Court.

A counter-affidavit has been submitted by the respondents defending the department’s measures purportedly as per Section 54 and even directing to Circular issued via the Government of India, Ministry of Finance, GST Policy Wing, treating the application to be restricted to time and furnishing that the Jurisdictional Officer has no authority/discretion to condone the delay.

The Court rejecting the same mentioned that, “It is not even a case that there is any unjust enrichment on the part of the assessee, inasmuch as, the pre-deposit has been made from the own pocket by an assessee and by restricting the refund in reading the word ‘may’ as ‘shall’ would be unreasonable and would otherwise be arbitrary and in conflict with the Limitation Act, 1963.”

The Court concluded, “It is held that the action of the respondents in rejecting the refund application considering it as time barred has no legs to stand in law and accordingly, the rejection order by way of Deficiency Memo dated 06.11.2024, is hereby, quashed and set-aside.”

Therefore, the Jharkhand High Court permitted the writ petition and asked the department to process the refund with the applicable regulatory interest in 6 weeks.