2021 (6) TMI 827 - HC - GST

Court quashes deficiency memo, orders refund claim processing for IGST paid under reverse charge

The court ruled in favor of the petitioner, quashing the deficiency memo issued by the respondent. The court directed the respondent to process the ... Refund of tax collected without authority of law - Article 265 of the Constitution of India - mistake of law - Section 54 of the CGST Act not applicable to refunds of amounts collected without authority of law - limitation for refund claims under Section 17 of the Limitation Act (relief from consequences of a mistake) - quashing of deficiency memo in Form RFD-03 and processing of refund claim in Form RFD-01 - direction to grant interest on refundSection 54 of the CGST Act not applicable to refunds of amounts collected without authority of law - limitation for refund claims under Section 17 of the Limitation Act (relief from consequences of a mistake) - mistake of law - Whether refund of IGST collected pursuant to the struck-down notifications is governed by Section 54 of the CGST Act or is a claim arising from payment under a mistake of law governed by the Limitation Act - HELD THAT: - The Court held that where an amount was collected without authority of law (here IGST levied under Notifications declared ultra vires), such amount cannot be regarded as tax paid under the CGST Act and therefore Section 54 is not the appropriate statutory provision for the refund claim. The Court applied the established principle that payments made under a mistake of law are claims for relief from the consequences of a mistake and fall within the scope of Section 17 of the Limitation Act; limitation commences when the mistake is discovered or could with reasonable diligence have been discovered. Reliance was placed on earlier decisions of this Court and other High Courts which held that refunds of amounts collected without authority of law are not to be confined by the special limitation of the taxing statute and are subject to the Limitation Act. [Paras 7, 8, 9]Section 54 of the CGST Act does not apply; refund claims of IGST collected without authority of law are claims for relief from a mistake of law and governed by Section 17 of the Limitation Act.Quashing of deficiency memo in Form RFD-03 and processing of refund claim in Form RFD-01 - refund of tax collected without authority of law - direction to grant interest on refund - Whether the deficiency memos issued by the revenue should be quashed and the refund application for February 2018 and March 2018 be processed with interest - HELD THAT: - Applying the legal conclusions that the IGST levy under the struck-down notifications lacked legislative competence and that refunds of amounts collected without authority of law are not to be defeated by technical objections, the Court quashed the Deficiency Memos issued in Form RFD-03. The Court directed the revenue to process the refund application filed in Form RFD-01 for the months of February 2018 and March 2018 and ordered payment of the refund with simple interest at 6% per annum. The Court directed completion of the exercise within the specified timeline, noting precedent where authorities were instructed not to raise technical objections in similar circumstances. [Paras 13, 14, 15]The deficiency memos are quashed and the respondent is directed to process and sanction the refund claim for February 2018 and March 2018 with simple interest at 6% per annum within the timeline fixed by the Court.Final Conclusion: Writ petition allowed: deficiency memos in Form RFD-03 quashed; respondent directed to process and sanction the refund claim for February 2018 and March 2018 filed in Form RFD-01 and pay the refund with simple interest at 6% per annum within the timeline directed by the Court. Issues Involved:1. Legality of the Deficiency Memo issued by the Respondent.2. Entitlement of the Petitioner to a refund of IGST paid under reverse charge mechanism.3. Applicability of Section 54 of the CGST Act versus Section 17 of the Limitation Act for claiming refunds.4. Jurisdiction and authority of the court under Article 226 of the Constitution to order refunds.Issue-wise Detailed Analysis:1. Legality of the Deficiency Memo issued by the Respondent:The petitioner challenged the Deficiency Memo issued by the respondent on the grounds that it was based on an erroneous premise. The memo claimed that the refund applications were not filed within the statutory time limit as provided under Section 54 of the CGST Act. The court found that the deficiency memo was wrongly issued because the amount collected was without authority of law, and thus, the statutory time limit under Section 54 was inapplicable.2. Entitlement of the Petitioner to a refund of IGST paid under reverse charge mechanism:The petitioner sought a refund of the IGST paid on ocean freight under the reverse charge mechanism. The court referenced its earlier judgment in the case of Mohit Minerals Pvt. Ltd., where it declared Notification No. 8/2017 and Entry No. 10 of Notification No. 10/2017 as unconstitutional. Consequently, the court held that the petitioner was entitled to a refund since the tax was collected without legislative competence.3. Applicability of Section 54 of the CGST Act versus Section 17 of the Limitation Act for claiming refunds:The court examined whether the refund claims should fall under Section 54 of the CGST Act or Section 17 of the Limitation Act. It concluded that Section 54 is applicable only for refunds of tax paid under the CGST Act. Since the amount collected was without authority of law, it did not qualify as tax under the CGST Act, making Section 54 inapplicable. Instead, Section 17 of the Limitation Act, which deals with relief from the consequences of a mistake, was deemed appropriate. The court cited several precedents, including the cases of Binani Cement Ltd., Joshi Technology International, and 3E Infotech Ltd., to support this interpretation.4. Jurisdiction and authority of the court under Article 226 of the Constitution to order refunds:The court emphasized its jurisdiction under Article 226 of the Constitution to order refunds of amounts collected without authority of law. It referenced the case of State of Madhya Pradesh vs. Bhailal Bhai, where the Supreme Court held that the High Court has the power to order repayment of money realized by the government without authority of law. The court also cited its own decisions in Gokul Agro Resources Ltd. and Bharat Oman Refineries Ltd., where it directed the respondents to process refund claims without raising technical issues.Conclusion:The court quashed the deficiency memo issued by the respondent and directed them to process the refund claim filed by the petitioner for the months of February and March 2018. The refund amount of Rs. 93.54 lakh was to be processed along with simple interest at the rate of 6% per annum. The court mandated that this exercise be completed by 17th August 2021. The writ application was thereby disposed of.