Goods & Services Tax (GST) in IndiaLimitation Period for filing of refund application inapplicable where the GST is not chargeable

The Delhi High Court in the case of Delhi Metro Rail Corporation Ltd.. v. The Additional Commissioner, Central Goods and Service Tax Appeals II & Ors. [Civil Writ Petition No.-6793/2023 decided on 18.09.2023], held that the period of limitation would not apply for filing of the refund application, where tax is not chargeable and it is established that the amount has been deposited under a mistake of law.

FACTS

Delhi Metro Rail Corporation (hereinafter referred to as “the Petitioner”) was engaged by the Surat Municipal Corporation (hereinafter referred to as “the Respondent No.3”) to prepare a project report for the development of Surat Metro Rail Project in the city of Surat, Gujarat.

The Petitioner rendered services for the preparation of aforementioned Detailed Project Report  and on 11.08.2017, the petitioner raised an amount of Rs.19,04,520/- (Rupees Nineteen Lakhs Four Thousand Five Hundred Twenty Only) for the services rendered.  The Petitioner raised a final invoice of Rs. Rs. 2,90,520/- (Rupees Two Lakhs Ninety Thousand Five Hundred Twenty Only) inclusive of the  18% Goods and Services Tax (GST)

The Respondent No. 3 paid an amount of Rs. 16,14,000/- (Rupees Sixteen Lakhs Fourteen Thousand Only) against the invoice, but er, Respondent No.3 did not pay the amount of GST which was included in the amount asked by the petitioner.  In order to ensure that there was no failure in complying with its statutory provisions, the Petitioner deposited a sum of ₹2,90,520/- (Rupees Two Lakhs Ninety Thousand Five Hundred Twenty Only) with the GST Authorities under Form GSTR-3B for the month of August, 2017

Thereafter, the Petitioner was informed by the Respondent No-3 that in pursuance to the  Notification No.12/2017 – Central Tax (Rate) dated 28.06.2017, issued by the Ministry of Finance, Government of India,  , the services billed under the invoice provided by the Petitioner were not chargeable under GST.

Consequently on 02.05.2022, the Petitioner filed an application for refund before Respondent No-2 for the period of August, 2017. However, the application was rejected by an order dated 04.07.2022 on the grounds that application for refund was filed after the expiry of two years from the relevant date. (hereinafter referred to as the “Rejection Order”)

The Petitioner preferred an appeal against the rejection order before the Additional Commissioner, Central Goods and Services Tax Appeals II (hereinafter referred to as “Respondent No.1”). The appeal was rejected by the Respondent No.1 vide order dated 24.02.2023 (hereinafter referred to as the “Impugned Order”)

Hence, being aggrieved by the Impugned Order, the Petitioner has filed the present Petition.

ISSUES BEFORE THE DELHI HIGH COURT

1. Whether the amount deposited by the Petitioner under mistake, retained by Respondent no.3 would amount to violation of Art 265 of Constitution of India?

2. Whether the limitation period prescribed under Section 54 of the CGST Act will apply where GST is not chargeable?

3. Whether the Respondents are liable to refund the amount claimed by the Petitioner?

CONTENTIONS OF THE PARTIES

The Petitioner contended that retaining  the amount paid under a mistake would amount to collection of tax without the authority of law and thus, it was violative of  Article 265 of the Constitution of India, 1949 (hereinafter referred to as the “Constitution of India”).

The Petitioner relied upon State of Madhya Pradesh & Anr. v. Bhailal Bhai [ AIR 1964 SC 1006] and M/S Cosmol Energy Private Limited v. State of Gujarat: [R/Special Civil Application No. 11905/2020, decided on 22.12.2020] and argued that refund can be granted irrespective of the limitation when an amount is deposited as tax under mistake.

The Respondents contended that the refund  application was filed after 2 years and hence, was time barred under the provisions of law and hence, it could not be processed.

DECISION AND FINDINGS

The Delhi High Court observed that Article 265 of the Constitution of India prescribes any levy or collection of tax except by authority of law. It was further observed that the GST was  not payable for the services rendered by the Petitioner, and the amount paid by the Petitioner in respect of GST was based on an enormous belief, and the same cannot be retained by the Respondents.

The Delhi High Court relied upon M/s. Cosmol Energy Private Limited (supra) and held that the period of limitation for applying for refund as prescribed under Section 54 of the Central Goods and Services Tax Act, 2017 (hereinafter referred to as the “CGST Act”) would not apply where the GST was not chargeable at the first place; and also when it is established that the amount has been deposited under a mistake of law.

The Delhi High set aside the Impugned Order and Rejection Order  and, directed the Respondents to process the Petitioner’s claim for refund of Rs.2,90,520/- (Rupees Two Lakhs Ninety Thousand Five Hundred Twenty Only) .

AMLEGALS REMARKS

The Delhi High Court discussed the scope of  Section 54 of the CGST Act regarding the limitation period for filing of  refund application as prescribed under the law.

However, when an amount is deposited by mistake by the taxpayer, such limitation period would not apply while filing the refund application as the tax was not payable by the taxpayer at the first place. Moreover, an amount deposited which is not payable as tax is in contravention to Article 265 of the Constitution of India and hence, should not be held by the Department. Therefore, directed for the refund of the amount.

Since, the tax is paid by the citizens in adherence of law, it is equally important for the authorities to fulfill their duty and address the situation of the taxpayer and do the needful like in the present case where the tax was paid when it was not chargeable as under the CGST Act. Retaining such amount by the department would lead to injustice to the tax payer who in good faith make timely payments.

– Team AMLEGALS assisted by Ms. Yagya Moolchandani