Introduction
The Hon’ble Delhi High Court, in the matter of M/s Kanika Exports and Anr. v. Union of India (W.P.(C) 12512/2021 and W.P.(C) 17538/2022), decided on 18th April 2026, addressed a critical issue in the context of the Goods and Services Tax (“GST”) regime about the limitation period for claiming refund. The issue before the Court revolved around whether the refund of unutilized Input Tax Credit (“ITC”) can be made subject to any limit by means of retrospective amendment of section 54 of the Central Goods and Services Tax Act, 2017 (“CGST Act”).
The dispute mainly involved the meaning and effect of Explanation 2 to Section 54, especially regarding the amendment to Explanation 2(e), which took place w.e.f. 1st February, 2019, making changes in “relevant date” in cases where the unutilized ITC refund is claimed.
Facts of the Case
This conflict was brought forth through two individual petitions that were initiated by exporters and manufacturers, who sought refunds for unutilised ITC under the provisions of the GST law. In one case, M/s Kanika Exports, a garment exporting firm, made an application for the refund of unutilised ITC that had been generated in the Financial Year 2017-18. This petition was related to the refund of the ITC generated in relation to inputs utilized for the purpose of exporting the goods produced in the mentioned financial year. In another case, M/s Malik Seasoning and Spices Pvt. Ltd., a manufacturing firm, had made petitions for the refund of unutilised ITC for the Financial Year 2017-18 and 2018-19.
(M/s Kanika Exports and M/s Malik Seasoning and Spices Pvt. Ltd. collectively referred to as the “Petitioners”.)
Both petitioners’ claims for refunds were rejected by the GST authorities (hereinafter referred to as the “Respondents”) on the basis that they were filed beyond the prescribed limitation period of two years under Section 54 of the CGST Act. The authorities calculated the limitation either from the date of export (under Explanation 2(a)) or from the amended “relevant date” under Explanation 2(e) introduced from 1 February 2019.
The petitioners challenged these rejection orders before the Delhi High Court.
Issues Before The Hon’ble High Court
- Whether the limitation period under Section 54 of claiming a refund of unutilized ITC was to be counted from the date of export, the due date of submission of returns, or the end of the financial year in which the ITC had been credited?
- Whether the amendment to Explanation 2(e) of Section 54 regarding “relevant date”, made effective from 1st February 2019, could be applied retrospectively for those claims of refund of unutilized ITC raised after 1st February 2019 but made in respect of periods prior to the said amendment?
- Whether the claim of a refund of unutilized ITC is a vested right and whether the same can be withdrawn on account of a subsequent amendment relating to the limitation period?
Contentions Of The Petitioners
The petitioners contended that the right to seek a refund of unclaimed input tax credit under Section 54(3) of the CGST Act is a statutory right that vests on account of its accumulation as unutilized ITC. Further, according to their interpretation of Explanation 2(e) in its unamended form, the point of limitation with respect to claims for refunds is very clearly specified as the end of the financial year in which the claim is made.
Their argument was that their applications were made within a period of two years of the financial years concerned, thereby falling well within the prescribed limitation period as per law prior to its amendment. It was additionally contended by the petitioners that the amendment made on 1 February 2019 to Section 54(3)(e), wherein the relevant date was changed to “the due date of filing of returns” under Section 39, was prospective in effect.
This was because the application of the amended version retrospectively could result in curtailing the vested rights of taxpayers, something that is not permissible in the absence of an express provision making the statutory law applicable retrospectively. Finally, it was contended that refund provisions have to be liberally construed.
Contentions Of The Respondents
The respondents, however, justified the rejection of refund claims on the ground that the applications had been rightly deemed as time-barred.
It was held that as far as exports were concerned, the date of departure of goods from India as provided for in Explanation 2(a) of Section 54 was relevant. Otherwise, in the case of unutilised Input Tax Credit claims, Explanation 2(e), as amended, applied because it was applicable when the refund applications were made.
Further, the respondents contended that limitation was procedural, and hence, the amended provision was validly applicable even for refund claims made before the amendment. Moreover, they held that the amendment was clarificatory and aimed only at simplifying the refund process.
The respondents contended that since the refund applications had been made subsequent to the amendment, they were rightly rejected on the grounds of time-bar.
Decision And Reasoning Of The Court
The decision in favour of the petitioners was delivered by the Delhi High Court, whereby both the writ petitions were granted, and the orders of rejection passed by the respondents were set aside.
Firstly, it was laid down by the Hon’ble court that whether in the case of refunds, the “relevant date” would be determined in accordance with Section 54, would depend on the character of the refund. The court stated that the refund relating to export would be in relation to Explanation 2(a). While the refunds concerning any unutilized Input Tax Credit would fall within Explanation 2(e).
Further, the effect of the amendment dated 1 February 2019 was decided by the Court. The court held that the amendment to Explanation 2(e) would obviously be a prospective one and could not apply to any transaction which took place before the amendment was brought into force. It was pointed out by the court that, unless expressly provided for by the legislature, no statutory amendment affecting rights could be applied retrospectively.
One of the main arguments observation of the Hon’ble Court was that retrospective application of the limitation rule amendment would give rise to numerous legal and practical inconsistencies. This would happen due to the possibility that taxpayers’ right to claim refunds would be curtailed even before they can make any such claim, which would contradict the very spirit of the GST law.
Moreover, the Court reiterated that the nature of the refund claimed by the taxpayer. Once the taxpayers have been entitled to claim a refund according to the statutory provisions existing at the time of the occurrence of the entitlement, such entitlement cannot be deprived of subsequently unless provided for explicitly by the statute.
Therefore, the Court ruled that the correct way of calculating the limitation period was according to the Explanation 2(e), which had not yet been amended. Since both petitioners made their respective refund claims during the limitation period thus calculated, the refund rejection orders were found to be without legal basis.
AMLEGALS Remarks
In this regard, the judgment has served to reassert important concepts of tax law, including the concept of vested rights and the prospective application of amendments made to the statutes. As held by the High Court of Delhi, the right to get back the unutilized credit is a substantial right and cannot be regarded as just another procedure under the GST regime.
The judgment will help taxpayers ensure that they cannot be denied refunds due to later amendments that have implications for limitation periods. In practical terms, it is a win for the exporters and businesses because their refund applications can now be evaluated in accordance with the existing law when the claim arose.
For any queries or feedback, feel free to connect with Dhwani.tandon@amlegals or Hiteashi.desai@amlegals.com