Refund of Tax Paid Twice by Mistake Cannot Be Denied on Ground of Limitation under Section 54 of the GST Act

The Hon’ble Orissa High Court in the case of Rajendra Narayan Mohanty Versus Joint Commissioner of State Tax, CT & GST Circle, Cuttack, CT & GST Officer, Cuttack I East Circle. - 2026 (2) TMI 1101 - ORISSA HIGH COURT held that refund claimed in respect of tax paid erroneously or under mistaken notion cannot be denied solely on the ground of limitation stipulated in Section 54 of the CGST/OGST Act, as the matter falls within the ambit of Article 265 of the Constitution of India, which mandates that no tax shall be levied or collected except by authority of law. The Court held that where tax has been deposited twice under a mistake, the limitation prescribed under Section 54 of the GST Act is inapplicable, and the State cannot retain such amount.

Facts:

Rajendra Narayan Mohanty (“the Petitioner”), a registered taxpayer under GST, had discharged the tax liability relating to the financial year 2019–20 by depositing tax of ₹6,01,645 each towards CGST and OGST through Form GST DRC-03 dated February 8, 2021, utilising the Credit Ledger.

The Joint Commissioner of State Tax (“the Respondent”), during scrutiny proceedings initiated under Section 74 of the CGST/OGST Act, issued notices regarding discrepancies in the petitioner’s GST returns. Subsequently, the authority accepted the petitioner’s compliance and dropped the proceedings by order dated November 8, 2024.

The Petitioner contended that due to mistaken advice, he again deposited ₹6,01,645 each under CGST and OGST on September 18, 2022 through Cash Ledger via Form GST DRC-03, resulting in double payment of tax for the same transaction. Upon discovering the mistake, he filed an application for refund in Form GST RFD-01 dated August 23, 2025, claiming refund of ₹12,03,290.

The Respondent contended that the refund application was barred by limitation under Section 54(1) of the CGST/OGST Act read with Explanation (2)(h), since it was filed beyond two years from the relevant date, and therefore rejected the refund claim through Order dated October 22, 2025 in Form GST RFD-06.

Aggrieved by the rejection of the refund application solely on the ground of limitation despite admitted double payment of tax, the Petitioner approached the Hon’ble Orissa High Court by filing a writ petition seeking quashing of the rejection order and grant of refund of the excess tax paid.

Issue:

Whether refund of tax paid twice under a mistaken notion can be denied solely on the ground of limitation prescribed under Section 54 of the CGST/OGST Act?

Held:

The Hon’ble Orissa High Court in Rajendra Narayan Mohanty Versus Joint Commissioner of State Tax, CT & GST Circle, Cuttack, CT & GST Officer, Cuttack I East Circle. - 2026 (2) TMI 1101 - ORISSA HIGH COURTheld as under:

• Observed that, the record clearly demonstrated that the Petitioner had deposited tax liability twice, first through Credit Ledger on February 8, 2021, and thereafter through Cash Ledger on September 18, 2022, for the same transactions relating to FY 2019-20.
• Noted that, the Proper Officer himself acknowledged in the impugned order that tax liability of ₹6,01,645 each under CGST and OGST had been discharged twice, which established the fact of excess payment.
• Observed that, retention of such excess amount by the State would be contrary to Article 265 of the Constitution of India, which mandates that no tax shall be levied or collected except by authority of law.
• Noted that, the rejection of refund was solely based on Section 54(1) of the GST Act read with Explanation (2)(h), which prescribes a two-year limitation period from the relevant date.
• Observed that, where tax has been paid under a mistaken notion, such payment cannot be treated as tax lawfully collected under the GST Act, and therefore Section 54 would not govern such refund claims.
• Held that, the rejection order dated October 22, 2025 was unsustainable in law and liable to be quashed and directed that, the Petitioner may file a fresh refund application within two weeks, and the authority shall decide the same within seven days, failing which the refund shall carry interest at 6% per annum from the date of the original refund application till payment.

Our Comments:

The Orissa High Court in the present case reaffirmed the constitutional principle under Article 265 of the Constitution of India, which provides that, “No tax shall be levied or collected except by authority of law.”

Further the Delhi High Court in Delhi Metro Rail Corporation Ltd. Versus The Additional Commissioner, Central Goods And Services Tax Appeals II & Ors - 2023 (9) TMI 1177 - DELHI HIGH COURT, held that GST deposited under an erroneous belief cannot be retained by the Revenue when the tax itself was not payable, and therefore the limitation prescribed under Section 54 of the CGST Act would not apply to such cases. The reasoning was that when tax itself is not payable, the payment cannot be characterised as tax under the statute.

The Court also relied upon M/s. Comsol Energy Private Limited Versus State Of Gujarat - 2021 (6) TMI 827 - GUJARAT HIGH COURT, wherein the Gujarat High Court held that amount collected without authority of law must be refunded and such claims fall outside the framework of Section 54 of the CGST Act. The Gujarat High Court further held that Section 17 of the Limitation Act may apply where the payment was made under mistake of law.

Furthermore, in the case of M/s. 3E Infotech Versus Customs, Excise & Service Tax Appellate Tribunal, Commissioner of Central Excise (Appeals-I) - 2018 (7) TMI 276 - MADRAS HIGH COURT the Madras High Court, held that service tax paid under mistake of law must be refunded irrespective of the limitation prescribed under Section 11B of the Central Excise Act, since retention of such tax would violate Article 265 of the Constitution.

Relevant Provisions:

Section 54(1) of the CGST Act, 2017

“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:

Provided that a registered person, claiming refund of any balance in the electronic cash ledger in accordance with the provisions of sub-section (6) of section 49, may claim such refund in such form and manner as may be prescribed.

….

Explanation.- For the purposes of this section,-

(1) 'refund' includes refund of tax paid on zero-rated supplies of goods or services or both or on inputs or input services used in making such zero-rated supplies, or refund of tax on the supply of goods regarded as deemed exports, or refund of unutilised input tax credit as provided under sub-section (3).

(2) 'relevant date' means-

(h) in any other case, the date of payment of tax.”

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