LIMITATION FOR REFUNDS UNDER TAX LAWS

The Indian Tax laws require the assessee to assess the tax self and pay the amount to the credit of the Central Government. If the tax is paid in excess or in the adjudication/appeal process it is found that the tax is paid then the assessee is eligible for filing refund as per the procedure prescribed in the respective and law and the rules made thereunder.

The refund is allowed under the provisions of Income Tax Act,Goods and Services Tax Act, Customs Act and Central Excise Act. The timely refund mechanism is essential in tax administration, as it facilitates trade through the release of blocked funds for working capital, expansion and modernisation of existing business. The provisions pertaining to refund aim to streamline and standardise the refund procedures under GST regime. There is a standardized form for making any claim for refunds. The claim and sanctioning procedure is completely online and time bound.

Refund under Income tax Act, 1961

Section 237 of the Income Tax Act, 1961 provides that with Income Tax refund of excess tax paid by the assessee. If any person or assessee satisfies the assessing officer that the amount of the tax paid by him or paid by any person on his behalf during any previous assessment year exceeds the amount with which he is properly chargeable under the act for that year, he is entitled to refund of excess amount paid.

The limitation under the Income Tax Act to claim refund is depending upon the stage of claim-

• Refund through a regular Income-tax Return - The refund should ordinarily be claimed by filing the return within the time prescribed under Sections 139(1) or 139(4) of the Income-tax Act.
• If the time for filing the return has expired-
  • The assessee may seek condonation of delay under Section 119(2)(b) of the Income-tax Act.
  • As per CBDT Circular No. 11/2024, a condonation application for a refund claim will not be entertained after 5 years from the end of the relevant Assessment Year. The delay must be due to a genuine hardship, and the competent authority must be satisfied before condoning it.

Example-

• Assessment Year (AY): 2021–22
• End of the AY: 31 March 2022
• Last date to file a condonation application for a refund: 31 March 2027.

Refund under GST law

A GST refund claim is to be made under Section 54 of the CGST Act, 2017. The limitation period for claiming the refund is as detailed below-

• A refund application must be filed within 2 years from the relevant date. The 'relevant date' is defined differently depending on the nature of the refund (exports, excess tax paid, deemed exports, appellate order, etc.
• Balance in the Electronic Cash Ledger - Refund can be claimed without the two-year limitation in accordance with the applicable provisions and procedure.
• Refund pursuant to appellate or court orders - The relevant date is generally the date of communication of the order, from which the limitation is computed.

Condonation of delay: Unlike appeals, Section 54 does not contain a provisionempowering the GST authorities to condone delay in filing a refund application. However, courts have, in certain circumstances, granted relief where the facts justified it.

Refund under Customs Act

The limitation period for filing a refund claim under the Customs is governed by Section 27 of the Customs Act, 1962.

• A refund claim must be filed within one year from the date of payment of customs duty or interest.
• The one-year limitation does not apply where the duty or interest was paid under protest.
• The one-year period is computed from the date of the judgment, decree, order or direction.
• Where duty was paid provisionally, the limitation is counted from the date of adjustment after final assessment.

A refund is also subject to the doctrine of unjust enrichment. The claimant must establish that the incidence of the duty has not been passed on to any other person; otherwise, the refund is ordinarily credited to the Consumer Welfare Fund instead of being paid to the claimant.

If refundof customs duty under the Customs Act, 1962, the applicable limitation depends on the nature of the refund as detailed below-

• General refund under Section 27 - 1 year from the date of payment of duty or interest.

• Duty paid under protest - No limitation period applies.
• Refund arising from an appellate authority, CESTAT or Court order - 1 year from the date of the judgment, decree or order.
• Provisional assessment under Section 18 - 1 year from the date of adjustment after final assessment.
• Drawback on re-export of imported goods (Section 74) - Governed by the Customs and Drawback Rules, which prescribe separate time limits and procedures rather than the general limitation under Section 27.

Refund under Central Excise Act, 1944

The refund claim is generally to be filed within 1 year from the relevant date, subject to statutory exceptions. The 'Relevant Date' Varies depending on the scenario (e.g., date of payment of duty in normal cases, date of final assessment, or date of export for rebate. The one-year limitation period does not apply if the duty and interest were paid under protest. Courts have occasionally held that strict limitation does not apply if amounts were collected or paid purely by mistake under a non-existent law or an unconstitutional levy outside the authority of the act, though department authorities strictly enforce Section 11B limits