The Jharkhand High Court ruled that denying a refund claim for a statutory pre-deposit under the GST Act based on the statute of limitations violates Article 265, emphasizing that the refund is a right vested in the assessee.

Introduction

In a recent ruling, the Jharkhand High Court ruled that it is legally untenable to deny a refund claim for a statutory pre-deposit made under Section 107(6)(b) of the GST Act on the grounds that it was submitted after the two-year statute of limitations under Section 54(1) of the GST Act.

The Division Bench comprising Chief Justice M.S. Ramachandra Rao and Justice Deepak Roshan stated, “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.’”

Background of the Case

The petitioner, M/s. BLA Infrastructure Private Limited, is a registered dealer under the Goods & Services Tax Act and engages in the loading, unloading, and transportation of coal into tippers. A Show Cause Notice under Section 74 of the JGST Act, 2017 was issued in January 2021, claiming a discrepancy between GSTR-1 and GSTR-3B for the month of September 2019. An ex-parte order was issued on August 31, 2021, imposing a liability of Rs. 16,90,442/-, which included tax, interest, and penalty, among other things.

To maintain the appeal, which was later granted, the petitioner, who was offended, filed an appeal within the allotted time and made a statutory pre-deposit of 10% of the contested tax amount under Section 107(6)(b) of the Act.

The petitioner then requested a refund of the pre-deposit amount, which was determined to have exceeded the time frame specified in section 54(1) of the Goods & Services Tax Act due to a Deficiency Memo. Disappointed, the petitioner then filed a case in the High Court.

Court’s Observations and Verdict

In their counter-affidavit, the respondents defended the Department’s actions allegedly in accordance with Section 54 and cited a circular from the Government of India’s Ministry of Finance, GST Policy Wing, which declared the application to be time-barred and further stated that the Jurisdictional Officer lacked the authority or discretion to excuse the delay.

Rejecting the same, the Court stated, “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.”

As a result, the Court granted the writ petition and instructed the Department to process the refund within six weeks, including any applicable statutory interest.