Two-year refund limit u/s 54(1) CGST Act held directory, delay in IGST ocean freight refund condonable

HC held that the two-year limitation under Section 54(1) of the CGST Act for filing refund claims is directory, not mandatory. In the context of a refund claim for IGST paid on ocean freight under RCM, the Court followed its earlier ruling that, where reasons are furnished for delay, the authority must consider them and condone the delay rather than reject the claim mechanically on limitation. Finding that the refund had been denied solely on limitation grounds, the HC set aside the impugned order dated 24.09.2023 and disposed of the petition with directions consistent with its interpretation of Section 54(1).

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Issues involved: Challenge to imposition of IGST on Ocean Freight Charges under Reverse Charge Mechanism (RCM), rejection of refund application, applicability of limitation period for refund application.

Impugned Order Challenge - IGST on Ocean Freight Charges:
The petitioner challenged the imposition of IGST on Ocean Freight Charges by the respondent based on the Reverse Charge Mechanism (RCM). The petitioner argued that since the exporter normally includes the Ocean Freight Charges in the cost of goods exported, the imposition of IGST on Ocean Freight Charges for imported goods by the petitioner was unjust. The petitioner was charged IGST on Ocean Freight Charges for specific periods, and despite a previous application for refund being rejected, the petitioner sought reconsideration following the precedent set by the Hon'ble Apex Court in the Union of India vs. Mohit Minerals Pvt Ltd. case.

Refund Application Rejection and Limitation Issue:
The Department rejected the refund application citing non-acceptance of the petitioner's contention and limitation concerns. The Appellate Authority also upheld the rejection. The respondent contended that the rejection was based on both the petitioner's argument and the limitation aspect. However, a recent judgment by the Madras High Court clarified that the limitation period for refund applications under the Goods and Services Tax Act is directory, not mandatory. Delays in filing refund applications can be considered and condoned if valid reasons are provided.

Judgment and Directions:
The High Court held that the petitioner was entitled to a refund of the IGST paid on Ocean Freight Charges, following the precedent set by the Hon'ble Apex Court. The impugned order was set aside, and the matter was remitted back to the respondent for reconsideration. The respondent was directed to review the refund application in light of the legal principles established by the courts and provide a personal hearing to the petitioner. Both parties were given the opportunity to raise additional issues, and the respondent was instructed to consider all issues on their merits within three months from the date of the order. The writ petition was disposed of with no costs incurred.

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