2025 (10) TMI 107 - HC - GST

Renting residential dwellings exempt under Entry No.12, refunds allowed despite invoiced tax; Section 54 time-bar not decisive

M/s. Nspira Management Services Private Limited Versus Assistant/ Deputy Commissioner of Central Tax, Nellore, Union of India.

HC held that renting of residential dwellings is exempt under Entry No. 12 of Notification 2017 and where tax was collected in invoices despite exemption, ... Refund u/s 54 of the CGST Act - no obligation to pay tax on renting of residential dwelling services as per Entry No. 12 of Exemption N/N. 12 by 2017-Central Tax (Rate), dated 28.06.2017 - stipulated time of two years time period for submission of the said applications is already completed - HELD THAT:- As per Entry No. 12 of Exemption N/N. 12 by 2017-Central Tax (Rate), dated 28.06.2017, services by way of renting of residential dwellings for use as residents is exempted, nevertheless the petitioner paid taxes inasmuch as invoices raised by the landlords included the GST component. It is needless to point that any collection of tax shall be in accordance with Article 265 of the Constitution of India which postulates that no tax can be collected without authority of law. As already stated in the case on hand though the petitioner is not liable to pay tax, the same was paid as per the invoices raised by the landlords and therefore it had filed application seeking to refund of the same. Further by impugned deficiency memos, the authorities have informed the petitioner that the applications are not fit for processing as the same were filed beyond the two years as per Section 54 of CGST Act, 2017. Further, the Hon’ble Gujarat High Court in the case of Comsol Energy Private Limited Vs. State of Gujarat [2021 (6) TMI 827 - GUJARAT HIGH COURT] had considered the applicability of period of limitation set out under Section 54 of CGST Act and held that 'It is held that the assessee is not bound by the limitation prescribed under the special law for claiming the refund of the excess duty or duty collected illegality. The period of limitation prescribed under the Limitation Act would apply.' The deficiency memos under challenge are set aside and the respondents are directed to consider the application of the petitioner for refund of tax without going into the question of limitation. Further, the respondents are directed to pass appropriate orders on the petitioner’s application within a period of four weeks from the date of receipt of copy of the order. Petition allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether refund applications filed under Section 54 of the CGST Act can be rejected as 'not fit for processing' by way of deficiency/defect memos on the ground of limitation without initiating adjudication proceedings in the manner prescribed under the CGST Rules (Forms RFD-06/RFD-08/RFD-09 and Rule 92(3)). 2. Whether a claim for refund of tax paid on renting of residential dwellings (allegedly exempt under the relevant exemption notification) is governed exclusively by the two-year limitation in Section 54 of the CGST Act, or whether where tax was collected/paid without authority of law the Limitation Act (and Section 17 thereof) applies instead. 3. Whether the revenue may, at the deficiency memo stage, raise the question of limitation if earlier communications did not raise limitation, and whether reliance on administrative circulars or notifications (including pandemic period exclusion notifications) can justify treating refund applications as time-barred without adjudication. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Procedural mode for adjudicating refund eligibility and effect of defect/deficiency memos Legal framework: Section 54 of the CGST Act prescribes refund procedure and time limits; Rule 92(3) of the CGST Rules prescribes the procedure and forms (RFD-06, RFD-08, RFD-09) for adjudication of refund claims; administrative Circular No.125/44/2019-GST and deficiency memos are used by revenue to communicate defects. Precedent treatment: The Court relied on earlier decisions (including those instructing that authorities should not raise technical objections when the underlying notification has been held to render the tax payment involuntary) and administrative practice directing adjudication rather than outright rejection at defect stage. Interpretation and reasoning: The Court held that eligibility for refund cannot be finally adjudicated by issuing defect/deficiency memos that treat the application as 'not fit for processing' solely on limitation grounds. The proper statutory procedure - issuance of show cause notice in Form RFD-08, opportunity to reply in Form RFD-09 and passing of a speaking order in Form RFD-06 under Rule 92(3) - is required for adjudication of refund claims. Administrative memos which preclude further processing without following the prescribed adjudicatory steps are inappropriate to foreclose a substantive refund claim. Ratio vs. Obiter: Ratio - It is a core legal requirement that refund eligibility must be adjudicated in accordance with the procedure in Rule 92(3) and the prescribed forms; defect memos cannot foreclose adjudication without following that procedure. Obiter - observations on administrative convenience or internal circulars have no overriding force over the prescribed rule-based adjudicatory process. Conclusion: Defect/deficiency memos that decline to process refund applications on limitation grounds without initiating the procedure under Rule 92(3) are set aside; revenue must follow the statutory adjudication process before rejecting refund claims. Issue 2 - Applicability of Section 54 limitation vis-à-vis refunds of tax collected without authority of law Legal framework: Section 54 prescribes a two-year limitation from the relevant date for refund claims under the CGST Act; Article 265 of the Constitution prohibits tax collection without authority of law; the Limitation Act, particularly Section 17, governs suits/applications for relief from consequences of mistake where payment was made without legal authority. Precedent treatment: The Court followed earlier High Court authority and principles from decisions holding that where duty/tax is collected without authority of law, such collection is not 'tax paid under the Act' for the purposes of the special statutory limitation, and the Limitation Act applies to claims for restitution. Decisions cited (and followed) include authorities holding that collection without legal authority is contrary to Article 265 and that limitation under the special law does not bind claimants seeking refund of amounts collected illegally. Interpretation and reasoning: Where an exemption notification renders a service not liable to tax (renting of residential dwellings under the mentioned exemption entry), amounts collected and paid as tax pursuant to invoices are effectively collected without authority of law. In such circumstances Section 54's two-year bar (applicable to tax paid under the Act) is not the exclusive or necessarily applicable limitation; the Limitation Act provisions for relief from consequences of mistake (or other appropriate limitation provisions) govern restitution claims. Given that the petitioner paid tax despite exemption and claims refund on that basis, the limitation question cannot be conclusively resolved by revenue at the defect stage and deserves adjudication in accordance with law and precedents. Ratio vs. Obiter: Ratio - Where tax is collected/paid without legal authority (i.e., contrary to the exemption), Section 54 limitation does not automatically apply to bar refund claims; recourse to the Limitation Act may be appropriate. Obiter - Detailed application of particular Limitation Act provisions to facts may require further adjudication on evidence and was not determined here. Conclusion: The question whether Section 54 time-bar applies is not a foreclosable technical objection at the deficiency stage where the claim concerns tax paid contrary to an exemption; such claims call for substantive adjudication and cannot be dismissed on limitation without following statutory procedure and considering equivalently the Limitation Act principles. Issue 3 - Effect of administrative circulars/notifications and pandemic-period exclusion on limitation, and timing of raising limitation Legal framework: Notification excluding the pandemic period from limitation computation and Circular No.125/44/2019-GST are administrative instruments referred to by revenue; Section 54 prescribes form and time but interplay with exclusion notifications affects computation. Precedent treatment: The Court referred to earlier orders directing authorities to avoid raising purely technical issues in the face of substantive entitlement to refund and to process claims keeping in view judicial pronouncements that struck down or interpreted exemption notifications as conferring non-liability. Interpretation and reasoning: Revenue's reliance on Circular No.125 to foreclose processing after issuing a deficiency memo was held insufficient where the underlying entitlement (exemption) and the character of payment (paid despite exemption) raise the question of whether Section 54 applies at all. Similarly, computation of limitation with pandemic exclusion may impact cut-off dates, but where the claim relates to amounts arguably paid without authority the court declined to permit limitation to be determinative at defect stage. The Court also observed that raising limitation at a later stage (in a subsequent memo) does not cure the absence of adjudicatory process required by Rule 92(3). Ratio vs. Obiter: Ratio - Administrative circulars and defect memos cannot substitute for the statutorily mandated adjudication; pandemic-period exclusions and notifications affect computation but do not allow bypassing Rule 92(3). Obiter - Specific calendar computations were not resolved and were left for the adjudicating authority to consider on merits. Conclusion: Administrative circulars and exclusion notifications do not authorise denial of processing without adjudication; limitation queries and pandemic-period computations must be considered during proper adjudication rather than being determinative via deficiency memos. Disposition and remedial direction (consequential to the above issues) Having followed the precedents and applied the reasoning that refund eligibility and limitation issues require adjudication rather than foreclosing defect memos, the Court set aside the deficiency memos and directed the revenue to consider the refund applications on merits without going into the question of limitation at the defect stage, and to pass appropriate orders within a specified period (four weeks) in accordance with law and the Rule 92(3) procedure.