Revenue vs. M/s Merck Life Science Pvt. Ltd. [TU-IDT-04-HC-2026]
Background of the Case
The dispute arose from a refund claim filed by the Respondent which is engaged in providing intermediary services to foreign entities and earning commission income. The Respondent initially treated certain services as “export of services” and accordingly paid Integrated GST (IGST) while filing the GSTR-3B return for October 2017. Subsequently, the Respondent reconsidered the nature of the transaction and treated the supply as an intra-State transaction, leading to the payment of Central GST (CGST) and State GST (SGST). As a result, the Respondent effectively paid tax twice on the same transaction. Seeking rectification, the Respondent filed an application under Section 54 of the CGST Act for refund of the IGST amount. However, the refund application dated 30.03.2024 was rejected by the authorities on the ground that it was filed beyond the statutory limitation period of two years.
The learned Single Judge of the Karnataka High Court allowed the writ petition and held that the limitation under Section 54 was directory in nature, directing the authorities to process the refund claim.
Arguments by the Appellant (Revenue)
The Revenue authorities contended that Section 54 of the CGST Act clearly prescribes a limitation period of two years from the relevant date for filing refund claims, and the provision must be interpreted strictly as a mandatory requirement. It was argued that the learned Single Judge erred in treating the limitation period as directory, as doing so would effectively rewrite the statutory provision and undermine the scheme of the GST law. The Revenue further submitted that Rule 89(1A), introduced in 2021, provided a specific window allowing taxpayers to file refund claims within two years from the date of its introduction. Since the Respondent’s application was filed on 30.03.2024, it was beyond even the extended timeline and therefore rightly rejected.
The Revenue emphasized that GST legislation is a time-bound statutory framework where strict adherence to prescribed timelines ensures certainty and finality in tax administration.
Respondent’s Response (Assessee)
The Respondent contended that the refund claim arose due to the inadvertent payment of tax twice on the same transaction. It was submitted that the initial payment of IGST was made treating the services as exports, whereas the subsequent payment of CGST and SGST was made after realizing that the transaction constituted an intra-State supply. The Respondent further argued that the procedural framework for claiming refund under Rule 89(1A) of the CGST Rules was introduced only through Notification No. 35/2021 dated 24.09.2021, long after the original tax payments were made in 2017. Therefore, the strict application of the two-year limitation period would cause undue hardship and unjust enrichment of the Revenue.
It was also argued that when tax is collected without authority of law, the same must be refunded as mandated under Article 265 of the Constitution of India. According to the Respondent, the limitation prescribed under Section 54 should be treated as directory rather than mandatory in cases where tax has been paid mistakenly or twice.
Court Findings and Decision
The High Court of Karnataka examined the statutory scheme of the CGST Act and held that the two-year limitation prescribed under Section 54 for filing refund claims is mandatory and cannot be treated as merely directory. The Court observed that the GST law operates through a structured timeline framework, and relaxing such timelines without statutory backing could disrupt related provisions, particularly proceedings under Sections 73 and 74 relating to tax recovery and adjudication. However, the Court also recognized that the CGST Act does not provide any mechanism for condonation of delay in refund applications. In such circumstances, the Court held that taxpayers may invoke the writ jurisdiction of the High Court under Article 226 of the Constitution in cases of genuine hardship.
Considering that the entitlement to refund was undisputed and the delay was only about six months, the Court condoned the delay and directed the authorities to process the refund claim in accordance with law. The writ appeals were thus partly allowed, clarifying that while statutory limitation under Section 54 remains mandatory, the High Court retains constitutional power to grant relief in appropriate cases.
To download official order, Click Here
“The site is for information purposes only and does not provide legal advice of any sort. Viewing this site, receipt of information contained on this site, or the transmission of information from or to this site does not constitute an attorney-client relationship. The information on this site is not intended to be a substitute for professional advice.”