24.11.2023: Time Limitation fixed under Section 54(1) is directory-like in nature and is not mandatory: Madras High Court

Recently, the Madras High Court in the case of M/s. Lenovo (India) Pvt. Ltd. Versus JCIT vide W.P.Nos. 23604, 23605 and 23607 of 2022 dated 06.11.2023, has held that the 2-year limitation to file a GST refund application is a directory and not mandatory.

In this case, the petitioner is in the business of manufacturing and importing computers (desktops, laptops, etc.) and supplying the said goods and related services to units in Special Economic Zones (in short, SEZ units). As per Section 16 of the Integrated Goods and Services Tax Act, 2017, exports and supply of goods or services or both to SEZ units or developers are considered zero-rated supplies (i.e., no tax is payable on such supplies). The petitioner filed applications under Section 16 of the IGST Act, read with Section 54 of the Central Goods and Services Tax Act, 2017 (CGST Act), read with Rule 89 of the CGST Rules, 2017, claiming a refund of IGST paid by them.

However, the petitioner's applications have been rejected in part by the respondent or department. When the petitioner went on appeal before the the Appellate Authority, the Appellate Authority also confirmed the order passed by the department.

The petitioner submitted that the petitioner is a Domestic Tariff Unit (DTA Unit) for the supply of goods and services to SEZ units made during the months of December 2019, January 2020, and February 2020. The petitioner filed applications for refund through the GSTN Portal, claiming refund of IGST paid along with the required declarations and undertakings, which are inclusive of Statement-4, along with copies of tax invoices with endorsements made by the authorized officer in the respective SEZ. However, the department rejected the applications.

The reason for the rejection was the wrong mention of the date of endorsement in Statement-4 so as to cover an inordinate delay in getting endorsement from the authorized officer or specified officer (AO/SO). The delay cannot be attributed to the pandemic since the lockdown commenced only in March 2020. The Revised Statement-4 filed by the application is not liable to be considered since the same is time-barred.

The petitioner contended that rejection of the application on the grounds that the endorsement does not specifically state that the goods have been admitted in full is for authorized operations The endorsement only states that the goods were received in full, and that is not sufficient; hence, the claim is rejected and is not sustainable.

The petitioner contended that the refund claim cannot be rejected so long as such a claim is filed within a period of limitation, viz., 2 years, as stipulated under Section 54(1) of the CGST Act. The delay in filing the supporting document at the time of filing the reply or personal hearing would only extend the time limit to pass an order under Section 54(7) of the CGST Act, and the non-submission of documents at the time of filing the application for refund cannot lead to an inference that the application was filed with a delay.

The department contended that with regard to the rejection of the claim for a refund made for the month of December 2019, there had been a mismatch of details contained in Statement-4 as the date of endorsement made in the invoices is different from the date of endorsement mentioned in Statement-4. Though the petitioner filed revised Statement-4, since it had been filed with a delay, the claim has been rejected on the grounds of limitation.

The Court has observed that the terms used in Section 54(1) of the CGST Act ”may make application before two years from the relevant date in such form and manner as may be prescribed”, which means that the assessee may make application within two years, and it is not mandatory that the application has to be made within two years, and in appropriate cases, refund applications can be made even beyond two years. The time limit fixed under Section 54(1) is directory-like in nature and is not mandatory. Therefore, even if the application is filed beyond the period of two years, the legitimate claim of refund by the assessee cannot be denied in appropriate cases.

The court held that the rejection of the petitioner's claim on the grounds that the endorsement does not specifically state that the goods that have been admitted in full were for authorized operations and only states that the goods were received in full and that the endorsement is incomplete, insufficient, or inappropriate, is not tenable. Hence, the findings rendered by the respondent department with regard to the denial of the claim by citing the delay in obtaining endorsement, that endorsement is inappropriate, etc., are set aside.

The court reasoned that the question of making a claim after two years does not arise, even assuming AO made an endorsement after two years; the same  would in no way debar the claim as barred by limitation. Further, even Rule 90(3) of the CGST Act permits a fresh application, which means that in appropriate cases, the officer concerned can permit the refund application even beyond the period of limitation

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