GST Refund: No Limitation Under Section 54(1) for Wrongly Deposited Tax for GSTR 2A-3B Mismatch

The assessee, being a manufacturer of textile machinery, mistakenly deposited Rs. 40 lakhs through Form DRC-03 in November 2020 due to a system-generated mismatch between GSTR-2A and GSTR-3B, which incorrectly suggested excess Input Tax Credit (ITC) claims. In March 2024, an audit confirmed that there was no actual tax liability. The company then applied for a refund of the amount paid. However, the tax authorities denied the refund request, citing the two-year limitation period prescribed under Section 54(1) of the CGST Act. Aggrieved by the rejection of the claim for refund, the assessee filed a writ petition before the Hon’ble High Court seeking an explanation.

Issue Raised: Whether voluntary tax paid by mistake, without any demand or assessment, is subject to the two-year limitation period prescribed under Section 54(1) of the Central Goods and Services Tax (CGST) Act, 2017.

High Court’s Decision: The Court ruled in favor of the assessee, referring to Joshi Technologies International and Gujarat State Police Housing Corp., and held that such refund claims fall outside the regular limitation and the State cannot unjustly enrich itself under Article 26. The Court explained that the two-year limitation period under Section 54(1) of the CGST Act did not apply because the amount was a mistaken deposit rather than a statutory tax payment. The Court underlined that money paid in error must be returned because keeping such sums without legal justification would be unconstitutional, citing Article 265 of the Constitution and pertinent case law. Therefore, the denial or rejection order was quashed, and the department was directed to refund Rs. 40,00,000 with applicable interest.