Mistaken GST deposit on non-taxable service-refund not time-barred u/s54(1); restitution ordered, unjust enrichment rejected.

The dominant issue was whether refund of an amount deposited as GST under a mistake of law could be denied as time-barred under s.54(1) CGST Act. Applying Art. 265, the HC held that since GST was concededly not chargeable on the service in question, the State lacked authority to retain the amount collected, and s.54 limitation could not defeat restitution where tax is not leviable and the deposit is proved to be under mistake of law; unjust enrichment was inapplicable because the indirect tax burden had not been passed on to the service recipient. The impugned rejection was set aside and refund was directed; the petition was allowed.

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Issues involved:
The petitioner (DMRC) challenges the rejection of its refund claim based on the application filed beyond the stipulated period under Section 54(1) of the Central Goods and Services Tax Act, 2017.

Detailed Judgment:

Issue 1: Refund claim rejection

The DMRC filed a petition against the rejection of its refund claim of Rs. 2,90,520 deposited under a mistake, which was denied due to the application being filed after the prescribed two-year period under the CGST Act.

Issue 2: Mistaken deposit

The DMRC deposited the amount with GST authorities after invoicing services for a project, including GST, which the recipient did not pay. Subsequently, it was clarified that the services were not taxable under GST, leading to the refund claim.

Issue 3: Legal position

The DMRC argued that retaining the amount paid under a mistake would violate Article 265 of the Constitution, citing legal precedents where refunds were granted for payments made under a mistake of law.

Issue 4: Interpretation of CGST Act

The DMRC relied on a Gujarat High Court decision stating that Section 54 of the CGST Act does not apply to amounts collected without legal authority, supporting the refund claim based on mistaken payment.

Issue 5: Constitutional validity

Article 265 of the Constitution prohibits tax collection without legal authority. Since GST was not applicable to the DMRC's services, the deposited amount should be refunded as it was collected erroneously.

Issue 6: Burden of tax

As GST is an indirect tax, the burden falls on the final recipient, who should reimburse the GST. In this case, since GST was not payable, the recipient did not pay the amount, justifying the refund to DMRC.

Issue 7: Limitation for refund

The limitation period under Section 54 of the CGST Act does not apply when an amount is deposited under a mistake of law, as established in this case, warranting the approval of the refund claim.

Conclusion:

The High Court set aside the orders rejecting the refund claim and directed the respondents to process the DMRC's claim for the refund of Rs. 2,90,520, allowing the petition in favor of DMRC.

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