Limitation Period u/s 54(1) of the CGST Act cannot be invoked when tax is collected without authority of law

The Hon'ble Delhi High Court in 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] held that the limitation period of two years under Section 54(1) of the Central Goods and Service Tax Act, 2017 ("the CGST Act") for filing an application for refund of tax, cannot be invoked when Revenue Department collected the tax without any authority of law. Hence the Writ Petition was allowed, and the Revenue Department was directed to process the claim for refund of the Petitioner. 

Facts

Delhi Metro Rail Corporation ("the Petitioner") was engaged by Surat Municipal Corporation ("the Service Recipient") to prepare a Project Report ("the Report") on developing the Metro Rail Project in Surat, Gujarat. The Petitioner rendered the service for preparing the Report, and raised an invoice dated August 11, 2017, amounting to Rs.19,04,520/- including Goods and Service Tax ("GST") of Rs. 2,90,520/-.

The Service Recipient paid Rs.16,14,000/- excluding GST to the Petitioner, and the Petitioner deposited GST amount of Rs.2,90,520/- for fulfilling compliance requirements under GSTR-3B. Thereafter, the Service Recipient, relying upon Notification No.12/2017 - Central Tax (Rate) dated June 28, 2017, informed the Petitioner that they are not required to charge GST upon the services provided.

The Petitioner filed a refund application (in form GST RFD-01) dated May 2, 2022 before the Revenue Department ("the Respondent") for claiming the refund.However, the application was rejected vide Refund Rejection Order ("the Rejection order") dated July 4, 2022 stating the reason that the refund application was filed after the expiry of two years from the relevant date. Therefore, the application is barred by limitation. 

Aggrieved by the same, the Petitioner filed an appeal against the Rejection order before the Respondent to claim the refund. However, the Respondent, vide Order-in-Appeal No.241/2022-2023dated February 24, 2023 ("the Impugned Order") rejected the Petitioner's appeal for the refund claim. 

Aggrieved by the Impugned Order, the Petitioner filed a writ petition before the Hon'ble Delhi High Court.

Issue

Whether the Limitation period can be invoked under Section 54(1) of the CGST Act when the tax is collected without any authority of law?

Held

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

• Opined that, the Respondent cannot withhold the amount of tax deposited by the Petitioner under the erroneous belief that the Petitioner is required to deposit the tax collected with the Respondent, without any authority of law, would not be considered as tax collected, therefore the conditions laid out in Section 54 of the CGST Act would not be applicable in this case. 
• Relying upon the judgement of Hon'ble Gujarat High Court in M/s Cosmol Energy Private Limited vs. State of Gujarat (R/Special Civil Application No. 11905/2020), wherein the Court directed the refund of the GST paid under a mistake, even though the application for a refund was submitted after the lapse of 2 years.    
• Held that, the period of limitation for applying for a refund as prescribed under Section 54 of the CGST Act, would not apply in cases where GST is not chargeable and it is established that the payment was made in error due to a misinterpretation of law.
• Directed that, the respondent to process the Petitioner's refund application even after lapses of 2 years' time period by setting aside the Impugned and Rejection Order.

Relevant Provisions

Section 54(1) of the CGST Act

"54. Refund of Tax

(1) Any person claiming refund of any tax and interest, if any, paid on such tax or any other amount paid by him, may make an application before the expiry of two years from the relevant date in such form and manner as may be prescribed:"