Facts of the case:

In this case, the petitioner had inadvertently paid Integrated GST to the Central Government on certain transactions which were subsequently discharged under the correct heads of CGST and SGST. The petitioner filed refund applications seeking repayment of the excess IGST paid. The refund applications were rejected by the authorities on the ground that they were filed beyond the two-year limitation period prescribed under Section 54 of the CGST Act and Rule 89(1A) of the CGST Rules, 2017.

The petitioner challenged the rejection before the High Court, contending that the limitation prescribed under Section 54 and Rule 89(1A) is directory, not mandatory, and cannot bar a legitimate claim of refund. Refund claims for tax paid without authority of law (as per Article 265 of the Constitution) cannot be denied merely on the ground of time limitation. Proper procedure under Rule 92(3) of the CGST Rules, including issuance of show cause notice (Form RFD-08) and adjudication, was not followed.

The respondents argued that the refund applications were barred by the two-year limitation period and were correctly rejected. Circulars and Notifications clarified the timelines for filing refund claims under Section 77 CGST and Section 19 IGST, and the petitioner failed to comply.

Issue:

Whether the limitation period under Section 54 of the CGST Act and Rule 89(1A) of the CGST Rules is mandatory or directory for claiming refunds. Whether refund of tax paid without legal obligation can be denied solely on the ground of limitation. Whether the authorities were required to adjudicate the refund claim in accordance with statutory procedure.

Held that:

The High Court, following precedents including Lenovo (India) Pvt. Ltd. v. Joint Commissioner of GST (Madras High Court), M/s Nspira Management Services Pvt. Ltd. (Andhra Pradesh High Court), and Comsol Energy Pvt. Ltd. (Gujarat High Court), observed that Section 54(1) CGST and Rule 89(1A) CGST Rules set a two-year period for filing refund claims; however, the High Court held that the terms “may make application” indicate a directory, not mandatory, timeline. Legitimate refund claims cannot be denied merely because they are filed beyond two years.

Further, amounts paid to the revenue without legal obligation (in this case, IGST where no liability existed) are recoverable irrespective of the two-year limitation period. The principles of restitution and prevention of unjust enrichment apply. Section 17 of the Limitation Act may be invoked for refund claims made under mistake of law. The Authorities must follow the statutory procedure under Rule 92(3) of the CGST Rules, issuing defect memos, allowing replies, and passing speaking orders in Forms RFD-08/09/06. The authorities had not examined the refund claim on merits; they only rejected it on technical grounds of limitation, which is impermissible.

The Court directed the impugned orders rejecting the refund claims were set aside. The refund applications are not barred by limitation. The respondent is directed to reconsider and decide the refund applications on merits within three months, following statutory procedure and in accordance with law.

The ruling reinforces that Refund claims for tax paid erroneously or without legal obligation cannot be denied solely on the ground of limitation under Section 54 CGST Act. Limitation in Section 54 and Rule 89(1A) is directory. Authorities are bound to adjudicate refund claims following the prescribed procedure, ensuring compliance with principles of justice, restitution, and prevention of unjust enrichment.

Case name: M/s. Merck Life Science Private Limited Versus The Union of India, Central Board of Indirect Taxes And Customs New Delhi, Assistant Commissioner of Central Taxes North West Division-1 Bengaluru. dated 07.11.2025