Facts of the Case:

In this case, the petitioner filed a refund application in Form GST RFD-01 dated 18.08.2025 under Section 54 of the applicable GST enactments. The proper officer subsequently issued a deficiency memo in Form GST RFD-03 dated 16.04.2026 under Rule 90(3), stating that the refund claim was time-barred. Aggrieved by the use of a deficiency memo for raising the limitation objection, the petitioner approached the Madras High Court under Article 226 seeking quashing of the deficiency memo and a direction to process and sanction its refund claim.

The petitioner contended that a deficiency memo under Rule 90(3) is intended only to communicate a deficiency or remediable defect in the refund application, following which the applicant is required to rectify the defect and file a fresh application. Where the proper officer proposes to reject the refund claim, wholly or partly, on the ground that it is inadmissible, including on limitation the prescribed procedure under Rule 92(3) is required to be followed by issuing a show cause notice in Form GST RFD-08 and providing an opportunity of hearing.

Issue:

Whether a refund application can be treated as deficient and returned through a deficiency memo under Rule 90(3) merely on the ground that the claim is time-barred, or whether the proper officer is required to issue a show cause notice under Rule 92(3) before rejecting the refund claim on limitation grounds?

Held That:

The Madras High Court held that a deficiency memo under Rule 90(3) cannot be issued merely on the ground that the refund application is time-barred.

The Court examined the distinction between Rule 90(3) and Rule 92(3). Rule 92(3) specifically prescribes the procedure to be followed where the proper officer, for reasons to be recorded in writing, considers that the whole or any part of the refund claimed is not admissible or payable. In such a situation, the officer is required to issue a notice in Form GST RFD-08, call upon the applicant to furnish a reply in Form GST RFD-09, consider the reply and thereafter pass an order in Form GST RFD-06. Importantly, the proviso to Rule 92(3) mandates that no refund shall be rejected without giving the applicant an opportunity of being heard.

In contrast, the Court observed that Rule 90(3) deals with deficiencies in the refund application. Once such a deficiency is communicated through a deficiency memo, the applicant is required to rectify the defect and file a fresh refund application. The Rule also provides for exclusion of the period between the filing of the refund application and communication of the deficiency while computing the limitation period under Section 54(1).

The Court therefore accepted the petitioner’s contention that a limitation objection does not constitute a remediable deficiency contemplated under Rule 90(3). If the Department forms the view that the refund claim is liable to be rejected, wholly or partly, because it is beyond the period prescribed under Section 54, such objection goes to the admissibility of the refund claim and must be dealt with under Rule 92(3), rather than by issuing a deficiency memo under Rule 90(3).

Accordingly, the Court held that the impugned RFD-03 deficiency memo dated 16.04.2026 could not be sustained. However, instead of directing automatic sanction of the refund, the Court left it open to the respondent to issue a proper show cause notice under Rule 92(3) if it intended to reject the refund application, wholly or partly. Such notice was directed to be issued within two weeks from receipt of the Court’s order. The Court further directed that no further action be taken pursuant to the impugned deficiency memo.

Thus, the Court clarified that the Department cannot use the deficiency-memo mechanism to effectively adjudicate and reject a refund claim on limitation grounds. The proper officer must follow the statutory adjudicatory procedure under Rule 92(3), including issuance of notice and grant of an opportunity of hearing.

Case Name: M/s.L.S.Pacific wood Tech pvt ltd No.3, G2 Ground Floor, G-Tech House, Krishnaswamy Street, Chennai-600 114 Vs Commercial Tax officer dated 01.09.2026

Citation No. 2026 Taxo.online 2707