2025 (2) TMI 352 - HC - GST

Writ allows refund of statutory pre-deposit; Section 54's 'may' held directory, not mandatory forfeiture, and vested right restored

The HC allowed the writ, quashing the respondents' rejection of an application for refund of statutory pre-deposit as time-barred. The court held the word ... Refund of pre-deposited amounts - Rejection on the ground of being time barred - whether the application for refund made beyond a period of 2 years should be entertained or not or if it is time barred? - HELD THAT:- There is no dispute to the effect that once refund is by way of statutory exercise, the same cannot be retained neither by the State, nor by the Centre, that too by taking aid of a provision which on the face of it is directory, inasmuch as, the language couched in Section 54 is “may make an application before the expiry of 2 years from the relevant date”. The word ‘may’ has been interpreted by the Hon’ble Apex Court in numerous cases and the Hon’ble Apex Court has opined that the word ‘may’ as would appear in different statutes, is normally directory in nature and not mandatory. Recently, the Hon’ble Apex Court in the matter of Muskan Enterprises & Anr. vs. State of Punjab & Anr. [2024 (12) TMI 1528 - SUPREME COURT] has interpreted the word ‘may’ and while dealing with the statute the Negotiable Instrument Act, 1881, has been inter alia pleased to hold that 'Law is well-settled that user of the verbs ‘may’ and ‘shall’ in a statute is not a sure index for determining whether such statute is mandatory or directory in character. The legislative intent has to be gathered looking into other provisions of the enactment, which can throw light to guide one towards a proper determination. Although the legislature is often found to use ‘may’, ‘shall’ or ‘must’ interchangeably, ordinarily ‘may’, having an element of discretion, is directory whereas ‘shall’ and ‘must’ are used in the sense of a mandatory provision. Also, while the general impression is that ‘may’ and ‘shall’ are intended to have their natural meaning, it is the duty of the court to gather the real intention of the legislature by carefully analysing the entire statute, the section and the phrase/expression under consideration. A provision appearing to be directory in form could be mandatory in substance. The substance, rather than the form, being relevant, ultimately it is a matter of construction of the statute in question that is decisive.' In terms of the interpretation extended by the Hon’ble Apex Court, as also, taking into consideration that the refund of statutory pre-deposit is a right vested on an assessee after an appeal is allowed in its favour, there are no reason to say that the pre-deposit made by an assessee cannot be forfeited taking aid of section 54 of the Act and the same cannot be the intent of the Act of 2017 - It is not even a case that there is any unjust enrichment on the part of the assessee, inasmuch as, the pre-deposit has been made from the own pocket by an assessee and by restricting the refund in reading the word ‘may’ as ‘shall’ would be unreasonable and would otherwise be arbitrary and in conflict with the Limitation Act, 1963. When the Constitution of India restricts levy of any tax without authority of law, the retention of the same on the ground of statutory restriction, which is in conflict with the Limitation Act, appears to be being misread by the authorities of the GST Department. Conclusion - i) Article 137 of the Limitation Act provides a three-year limitation period for filing a Money Suit. If Section 54 were interpreted as mandatory, it would bar an assessee from filing a Money Suit, which cannot be the intent of the GST Act. ii) In terms of the interpretation extended by the Hon’ble Apex Court, as also, taking into consideration that the refund of statutory pre-deposit is a right vested on an assessee after an appeal is allowed in its favour, there are no reason to say that the pre-deposit made by an assessee cannot be forfeited taking aid of section 54 of the Act and the same cannot be the intent of the Act of 2017. iii)The action of the respondents in rejecting the refund application considering it as time barred has no legs to stand in law and accordingly, the rejection order by way of Deficiency Memo dated 06.11.2024, is hereby, quashed and set-aside. The instant writ application stands allowed. The Court was tasked with addressing several key issues in this case, primarily revolving around the interpretation and application of Section 54 of the Goods & Services Tax Act, 2017, particularly concerning the refund of pre-deposited amounts and the implications of the statutory time limit for making such claims.Issues Presented and Considered:The primary legal issues considered by the Court were:Whether the application for refund made beyond a period of two years under Section 54 of the GST Act should be considered time-barred and thus rejected.The interpretation of the word 'may' in Section 54(1) of the GST Act and whether it should be considered mandatory or directory, particularly in the context of refund applications.Whether the retention of the pre-deposit amount by the respondents, after the appeal was allowed, violates Article 265 of the Constitution of India.The applicability of the Limitation Act, 1963, in relation to the time period for claiming refunds under the GST Act.Issue-wise Detailed Analysis:1. Time Barred Refund Application:Section 54 of the GST Act stipulates that any person claiming a refund must make an application before the expiry of two years from the relevant date. The respondents argued that the petitioner's application was time-barred as it was filed beyond this period. The Court examined the statutory framework and the language of Section 54, particularly focusing on the usage of the word 'may' in the provision.The Court referenced the judgment of the Madras High Court in Lenovo India Pvt. Ltd. v. Joint Commissioner of GST, which interpreted the word 'may' in Section 54 as directory rather than mandatory. This interpretation suggests that the time limit for filing a refund application is not rigidly fixed and can be extended in appropriate cases.Additionally, the Court considered the legislative intent and the context in which the word 'may' is used, as interpreted by the Supreme Court in various judgments. The Court concluded that the statutory time limit under Section 54 is directory, allowing for flexibility in cases where the refund application is filed beyond the two-year period.2. Interpretation of 'May' in Section 54:The Court analyzed the interpretation of the word 'may' in Section 54 of the GST Act. The Court noted that the word 'may' is generally directory and not mandatory, as supported by precedents from the Supreme Court, including Muskan Enterprises & Anr. vs. State of Punjab & Anr. and Rakesh Ranjan Shrivastava Vs. State of Jharkhand & Anr. These cases emphasized that the interpretation of 'may' depends on the legislative intent and the context of the statute.The Court highlighted that interpreting 'may' as mandatory would lead to unjust outcomes, such as forfeiting the pre-deposit made by an assessee, which is contrary to the legislative intent and the principles of fairness and justice. Therefore, the Court held that the refund application should not be automatically rejected for being filed beyond the two-year period.3. Violation of Article 265 of the Constitution:The petitioner argued that withholding the pre-deposit amount without reasonable cause violates Article 265 of the Constitution, which mandates that no tax shall be levied or collected except by authority of law. The Court agreed with this argument, stating that once a refund is due by statutory exercise, it cannot be retained by the State or Centre without proper legal authority.The Court emphasized that the refund of the pre-deposit is a right vested in the assessee after the appeal is allowed, and retaining it would be unreasonable and arbitrary, conflicting with the Limitation Act, 1963.4. Applicability of the Limitation Act, 1963:The Court noted that Article 137 of the Limitation Act provides a three-year limitation period for filing a Money Suit. If Section 54 were interpreted as mandatory, it would bar an assessee from filing a Money Suit, which cannot be the intent of the GST Act. The Court found that the retention of the pre-deposit on the ground of statutory restriction, conflicting with the Limitation Act, was a misinterpretation by the GST authorities.Significant Holdings:The Court held that the action of the respondents in rejecting the refund application as time-barred was legally unsustainable. The rejection order by way of the Deficiency Memo dated 06.11.2024, was quashed and set aside. The Court directed the respondents to process the refund application within six weeks and pay the petitioner the statutory interest as per Section 54.The Court reinforced the principle that statutory provisions should not be interpreted in a manner that leads to unjust enrichment or arbitrary outcomes. The interpretation of 'may' as directory rather than mandatory aligns with the legislative intent and ensures fairness in the application of the law.