Facts of the case: The petitioner filed all GST returns for the financial year 2017-18 and paid taxes accordingly. Subsequently, the petitioner’s accounts were audited under Section 65(1) of the BGST/CGST Act, 2017. The audit report identified certain transactions treated as intra-State supply by the petitioner but held to be inter-State supply by the authorities, resulting in short payment of Integrated Goods and Services Tax (IGST).

The petitioner paid the shortfall amount of Rs. 5,08,195/- under IGST on 04.03.2023, based on audit observations. Thereafter, the petitioner filed a refund application for the excess CGST and SGST paid, under the head of intra-State tax.

The respondent authority issued a show cause notice and ultimately rejected the refund application on 06.05.2024, holding the claim barred by the two-year limitation under Section 54 of the BGST/CGST Act, 2017, since the original tax payment was made in January 2018.

The petitioner challenged this rejection, arguing that the refund claim falls under Section 77 of the CGST Act (tax wrongfully collected and paid), which is not subject to the limitation under Section 54 but governed by the provisions including sub-rule (1A) of Rule 89 CGST Rules introduced by Notification No. 35/2021-Central Tax dated 24.09.2021. Further, relied on Circular No. 162/18/2021-GST issued by CBIC clarifying the limitation period for refund claims under Section 77/Section 19 IGST Act, and a judgment by the Jharkhand High Court in the case of Gajraj Vahan (P.) Ltd. v. State of Jharkhand, supporting extended limitation.

Issue: Whether the refund claim of the petitioner for excess CGST and SGST paid due to misclassification of supply is barred by limitation under Section 54 of the CGST Act, 2017.

Held that: The Court held that Section 77 of the CGST Act governs refund claims for tax paid under a wrong head and is distinct from the limitation period prescribed under Section 54. The relevant date for computing limitation for refund under Section 77 is the date on which the petitioner paid the tax under the correct head i.e. 04.03.2023, not the original tax payment date in January 2018.

The rejection of the refund application solely on the basis of limitation under Section 54, counting from the original tax payment date, was erroneous and contrary to the statutory provisions and CBIC Circular.

The Court relied on the CBIC Circular No. 162/18/2021-GST and the Jharkhand High Court ruling in Gajraj Vahan (P.) Ltd. which recognized the extended period for refund claims under Section 77.

The Court set aside impugned order rejecting the refund. The petitioner was entitled to refund of excess CGST and SGST paid, along with interest at 6% per annum from three months after the refund application filing date until the date of payment.

Case Name: Sai Steel v. State of Bihar dated 28.07.2025

To read the complete judgment 2025 Taxo.online 1704