Merck Life Science Private Limited Vs Union Of India & Ors [ WP 27259 Of 2024], Dated 7 November 2025.

The two-year limitation period prescribed by law for refund claim of tax wrongly paid is merely directory in nature and not mandatory; legitimate refund claim cannot be denied on the ground of limitation.

BRIEF FACTS OF THE CASE

• The Petitioner, engaged in providing intermediary services to foreign entities, had, under a bona fide belief, treated such services as export of services and accordingly discharged IGST through GSTR-3B for the period from July 2017 to December 2017.
• Subsequently, the Petitioner realized that the services rendered did not constitute export of services and were, in fact, intra-State supplies. Consequently, the Petitioner paid CGST and SGST in March 2018.
• Thereafter, on March 30, 2024, the Petitioner filed a refund application before the Central Tax Authorities ('Respondents') seeking refund of IGST wrongly paid, invoking Section 19(1) of the IGST Act, Section 77(1) of the CGST Act, and Rule 89(1A) of the CGST Rules, which specifically allows the refund of tax paid under the wrong head.
• The Respondents issued a refund rejection notice, to which the Petitioner duly submitted a reply. Despite this, the Respondents passed orders rejecting the refund claim solely on the ground that the application was filed beyond the two-year limitation period prescribed under Section 54 of the CGST Act.
• Aggrieved by the rejection orders, the Petitioner has filed a writ petition before the Hon'ble Karnataka High Court seeking to quash and set aside the impugned orders.

KEY OBSERVATIONS OF THE HON'BLE HIGH COURT

• The Court examined the relevant provisions of law that provide the refund of tax paid under the wrong head. Section 77 of the CGST Act provides that if tax is wrongly paid as intra-State and is subsequently held to be inter-State, the taxpayer is entitled to a refund of the tax paid under the wrong head. Similarly, Section 19 of the IGST Act mandates the refund of IGST paid on a supply wrongly treated as inter-State when it is later held to be intra-State. Rule 89(1A) stipulates that the refund claim filed u/s 77 of the CGST Act and u/s 19 of the IGST Act must be filed within two years from the date of payment of the tax under the correct head.
• The Hon'ble High Court placed reliance on the judgment of the Madras High Court in the case of Lenovo (India) Pvt. Ltd. Vs Joint Commissioner of GST (Appeals-1) [W.P. Nos. 23604, 23605 and 23607 of 2022] wherein the court has interpreted the wording of Section 54(1), which says, any person "may" make an application within two years, implying that the prescribed time limit is directory in nature and not mandatory. The Court expressly held that refund applications in 'appropriate cases' may be entertained even beyond two years and that a legitimate refund claim cannot be denied merely on the ground of limitation.
• The Court further observed that Article 265 of the Constitution mandates that no tax can be collected or retained without authority of law. In the present case, the Respondents did not dispute the petitioner's inadvertent excess payment of IGST. Therefore, the Respondents could not retain such IGST amount.
• The Court also referred to the decision of the Andhra Pradesh High Court in M/s. Nspira Management Services Private Limited Vs Assistant/Deputy Commissioner of Central Tax [W.P. Nos. 18287 & 14905 of 2024] and another case of Louis Dreyfus Company Pvt. Ltd. Vs Union of India [W.P. No. 17220/2024] wherein it was held that any levy or collection without authority of law violates Article 265 and the limitation period under Section 54 does not apply to excess tax collected without authority of law.
• Thus, the limitation period cannot defeat a legitimate refund claim arising from a tax admittedly collected without the authority of law. The Court held that the Respondents are required to allow the refund claim by applying the principles of restitution and unjust enrichment.

AURTUS COMMENTS

• The principle that the Government authorities cannot retain monies collected without the authority of law is an established principle; however, its application to each case has been very subjective. Even though the Hon'ble Karnataka High Court in the present case has given the principle a very wide import, the Delhi High Court, in Sethi Sons vs. Assistant Commissioner & Ors., [W.P.(C) 4179/2022], expressed reservations regarding the view taken by the Madras High Court in Lenovo India Pvt. Ltd. Nevertheless, the Delhi High Court allowed the refund claim despite the delay, considering that the taxpayer was prevented from applying in time due to technical issues or reasons attributable to the GST authorities.
• It may reasonably be inferred that bona fide cases could fall within the ambit of "appropriate cases" contemplated by the Madras High Court. However, given the possibility of divergent judicial positions across High Courts, the issue warrants a definitive resolution, especially as many of these cases relate to payments under incorrect heads, where the denial of refunds would lead to dual payment of taxes.

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