Statutory limitation for GST refund is mandatory, but High Court may condone delay under Article 226.

The respondent-assessee, a company in healthcare and life sciences, initially treated its intermediary services as "export of services" and paid Integrated Goods and Services Tax (IGST) in October 2017

In March 2018, realizing the transactions were intra-state supplies, the assessee paid Central Goods and Services Tax (CGST) and State Goods and Services Tax (SGST) but did not receive a refund for the initial IGST

Rule 89(1A) of the CGST Rules, introduced on September 24, 2021, provided a two-year window to claim refunds for such cases

The assessee filed a refund application under Section 54 of the CGST Act on March 30, 2024, which the Revenue rejected as time-barred

A Learned Single Judge set aside the rejection, declaring the time limits in Section 54 and Rule 89(1A) as "directory"

The Revenue appealed this decision

1. Whether the filing of a refund application within the two-year period provided under Section 54 of the CGST Act is mandatory or directory?

2. Whether a registered person is left without a remedy to claim genuine refunds if the statutory period has expired?

3. What is the appropriate mechanism to condone delay in filing a refund application under Section 54 of the CGST Act?

The Court applied Section 54 of the CGST Act, 2017, which prescribes a mandatory two-year limitation period for refund claims

It considered Section 77 of the CGST Act regarding the refund of taxes paid on a transaction subsequently held to be a different type of supply

The Court also analyzed Sections 73 and 74, which provide three and five-year limitation periods for the Revenue to determine tax shortfalls or erroneous refunds

Reliance was placed on Article 265 of the Constitution (taxation only by authority of law) and Article 226 (Writ jurisdiction)

Precedents included Dhulabhai v. State of Madhya Pradesh regarding the availability of writ jurisdiction where statutory remedies are inadequate

Salonah Tea Co. Ltd. v. Superintendent of Taxes regarding the refund of tax collected without legal authority

The Court held that Section 54 is mandatory, assigned its plain and natural meaning as a fiscal statute

The two-year limit is integral to the Act's time-bound scheme and is linked to the Revenue's powers under Sections 73 and 74; making Section 54 directory would unfairly handicap the Revenue from taking remedial action if an erroneous refund was discovered after the Section 73/74 limits expired

The Court observed that the CGST Act lacks a mechanism to mitigate genuine hardship (unlike Section 119 of the Income Tax Act)

Therefore, while the "proper officer" has no discretion to overlook the two-year bar, the High Court’s jurisdiction under Article 226 remains available to prevent the state from retaining taxes in violation of Article 265

The Court balanced the interests of both parties by ruling that any condonation of delay under Article 226 must be accompanied by a corresponding extension of time for the Revenue to invoke Sections 73 or 74

the two-year limit in Section 54 is mandatory for the tax authorities

a party may seek condonation of delay via Article 226 in cases of genuine hardship

In the present case, as the entitlement to refund was undisputed and the delay was only six months, the Court condoned the delay and directed the authorities to process the refund claim within sixty days

The condonation is subject to the condition that the Revenue retains its right to invoke other applicable provisions, such as Sections 73 and 74, as if the claim had been filed within time