Facts of the Case:

The petitioner filed a refund application, being tax paid under an incorrect tax head. The refund claim arose on account of payment of tax under one head (CGST/SGST or IGST) which was later found to be not legally payable, and the tax was subsequently discharged under the correct head. The refund application was partly sanctioned by the Proper Officer; however, refund to the extent of ₹14,24,564/- was rejected vide Order in Form GST RFD-06 dated 18.04.2023, solely on the ground that the claim was barred by limitation under Section 54 of the CGST Act, 2017 read with Rule 89(1A) of the CGST Rules, 2017.

Aggrieved, the petitioner filed a rectification application on which was also rejected by order. The petitioner thereafter approached the High Court under Article 226 of the Constitution, seeking quashing of the rejection orders and sanction of the refund with interest. The petitioner relied upon the judgment of the Karnataka High Court in Merck Life Science (P.) Ltd. v. Union of India, wherein it was held that the limitation prescribed under Section 54 and Rule 89(1A) is directory and not mandatory in cases involving tax paid under the wrong head.

Issue:

Whether a refund claim filed under Section 77 of the CGST Act, 2017 read with Section 19 of the IGST Act, 2017, for tax paid under an incorrect head, can be rejected as time-barred by applying the limitation prescribed under Section 54 of the CGST Act and Rule 89(1A) of the CGST Rules, 2017.

Held that: 

The High Court allowed the writ petition and held as under:

• The sole ground for rejection of the refund claim was limitation, despite the fact of excess/wrong payment being undisputed by the Department.
• In cases covered under Section 77 of the CGST Act and Section 19 of the IGST Act, the limitation prescribed under Section 54 and Rule 89(1A) is directory and not mandatory.
• Retention of tax which was not legally payable , and the State is bound to refund such amounts by applying the principles of restitution and unjust enrichment.
• The impugned orders rejecting the refund and rectification application were held to be contrary to law and unsustainable.
• Accordingly, the Court quashed the orders and held that the refund claim was not barred by limitation, and remitted the matter to the Proper Officer for reconsideration of the refund claim on merits.

Case Name: Celebrity Structures India (P.) Ltd. v. Assistant Commissioner of Central Tax, Bengaluru dated 17.12.2025

To read the complete judgement 2025 Taxo.online 3480