JANUARY 08, 2025

By Vijay Kumar

EVER wondered what happens if you accidentally pay more tax than you owe? Do you get a thank-you card from the government, or does your money vanish into the bureaucratic black hole?

Will you get a refund?

Article 265 of the Constitution famously stipulates that no tax can be levied or collected without the authority of law.

There was a manufacturer of textile machinery registered under CGST. The manufacturer availed Input Tax Credit of Rs. 2,48,28,300/-. Some error in the system resulted in the impression that excess credit of Rs.40,00,000/- was reflected in the return. The Manufacturer, therefore, deposited Rs.40,00,000/- on 13.11.2020 in Form DRC-03 believing bona fide that credit of Rs.40,00,000/- was erroneously availed in excess of what was legally admissible. No communication or letter was issued by the GST Department acknowledging the deposit of Rs.40,00,000/- as voluntary payment and such payment is still shown on GST portal as "pending for action by Tax Officer".

In early 2024, the GST Range Superintendent conducted verification and formal auditing of the records of the manufacturer and found that there is discrepancy of about Rs. 40,00,000/- which was deposited but there was apparently no such tax liability. Therefore, a notice dated 23.2.2024 was uploaded on the portal calling upon the manufacturer to clarify about the payment of Rs.40,00,000/-. The manufacturer clarified on 20.3.2024 that there was an excess payment of Rs.40,00,000/- by mistake and filed an application for refund on 30.3.2024 stating that he has paid excess GST by mistake. The GST Department also accepted the reply and closed the matter by passing an order dated 24.4.2024.

The GST Department then issued a notice for rejection of the refund claim on 29.5.2024 on the ground of limitation as the same was filed after two years from the date of payment, as per the provisions of Section 54(1) of the GST Act.

The GST Assistant Commissioner by his order dated 14.6.2024 rejected the refund being time barred.

Aggrieved, the manufacturer is before the Gujarat High Court.

The manufacturer-petitioner's advocate submitted that:

1. There are no disputes regarding the facts of the case as it is admitted by the GST Department in the affidavit-in-reply that the payment made by the petitioner was not recovered as tax by the authorities but was a voluntary payment.

2. The petitioner has not paid the amount of Rs.40,00,000/- towards any tax and interest as contemplated under Section 54(1) of the Act and, therefore, the limitation of two years prescribed in Section 54(1) shall not be applicable to the refund of the amount voluntarily deposited.

3. The issue of refund of such voluntary payment is no more res-integra in view of decision of the same High Court in case of M/s. Joshi Technologies International Versus Union of India reported in 2016-TIOL-1240-HC-AHM-CX which was subsequently followed in decision of M/s Gujarat State Police Housing Corporation Ltd. Versus Union of Indian and Another reported in 2024-TIOL-1222-HC-AHM-GST.

It was therefore prayed that the Department may be directed to grant refund Rs. 40,00,000/- voluntarily deposited by the petitioner with statutory interest, if any.

On the other hand, the Counsel for the Department submitted that the petitioner deposited the sum of Rs.40,00,000/- in the year 2020 and has made the application for refund in the year 2024 after calling upon the petitioner to give the clarification for deposit of such amount. It was further submitted that the amount of Rs. 40,00,000/- deposited by the petitioner cannot be refunded after the expiry period of two years as per provisions of Section 54(1) of the GST Act.

In the affidavit-in reply the Department submitted that: -

1. The petitioner had voluntarily made payment of Rs.40,00,000/- on 20.11.2020 for excessive availment of ITC under the reason as "IGST CREDIT EXCESSIVELY CLAIMED BY RS.4000000 DUE TO PUNCHING ERROR IN F.Y. 2019-20, WHICH IS HEREBY PAID THROUGH DRC-03."

2. It is pertinent to note that, the said payment was not recovered as 'tax' by the authorities but was a voluntary payment as it is evident from the section 'cause of payment' in the form.

3. Thereafter, the petitioner had made refund application on 30.03.2024 for refund of the amount of Rs.40,00,000/-on ground of IGST excess paid by mistake.

4. As per the provisions of S. 54(1) read with it Explanation 2(h) defining 'relevant date', of the said Act, any refund application has to be made within the period of 2 years.

5. Thus, in present case, the petitioner ought to have claimed refund under S.54 for FY 2019-2020 within 2 years as per the statutory limit.

6. Even assuming, without admitting, that upon intimation of GST ASMT-10 dated 23.02.2024, it came to the knowledge of petitioner regarding such mistake, it would not be of any relevance, since as per the Act, the period of limitation of 2 years does not start with such knowledge of mistake but starts with payment of tax.

It was therefore submitted that the petitioner is not entitled to any refund in view of the belated claim of refund made by the petitioner after the period of two years from the date of deposit.

This High Court in the case of Joshi Technologies International had held that the amount paid by mistake or through ignorance as self-assessment of tax cannot be retained by the revenue and revenue is duty bound to refund as its retention is hit by Article 265 of the Constitution of India, which mandates that no tax shall be levied or collected except by authority of law.

This Court in Swastik Sanitarywares Ltd. v. Union of India = 2012-TIOL-757-HC-AHM-CX had held:

merely because there is no specific statutory provision pertaining to return of amount deposited under a mistake, per se, in our opinion, should not deter us from directing the respondents to return such amount. Admittedly, there is no prohibition under the Act from returning such an amount. Allowing the respondents to retain such amount would be, in our opinion, highly inequitable.

In Salonah Tea Co. Ltd. v. Supdt. of Taxes = 2002-TIOL-504-SC-CT, the Supreme Court held that Under Article 113 of the Limitation Act, 1963 the limitation was the period of three years from the date the right to sue accrues.

Thus, in view of the principles enunciated by the Supreme Court in Salonah Tea Co. Ltd, in case where money is paid by mistake, the period of limitation prescribed is three years from the date when the mistake was known. Besides, section 17 of the Limitation Act inter alia provides that when a suit or application is for relief from the consequences of a mistake, the period of limitation would not begin to run until the plaintiff or applicant has discovered the mistake, or could, with reasonable diligence, have discovered it. Therefore, in case where money is paid under a mistake, the limitation would begin to run only when the applicant comes to know of such mistake or with reasonable diligence could have discovered such mistake.

The High Court observed that the claim of the Department in refusing to return the amount would go against the mandate of Article 265 of the Constitution of India, which provides that no tax shall be levied or collected except by authority of law.

The Supreme Court in the case of Salonah Tea held as under: -

1. Normally speaking in a society governed by rule of law taxes should be paid by citizens as soon as they are due in accordance with law.

2. Equally as a corollary of the said statement of law it follows that taxes collected without the authority of law, from a citizen should be refunded because no State has the right to receive or to retain taxes or levies realised from citizens without the authority of law.

So, the High Court ruled that: 2025-TIOL-08-HC-AHM-GST

1. Considering the dictum of law, the amount of GST paid by the petitioner is admittedly paid as a self-assessment, which the petitioner was not required to pay. Accordingly, the amount paid by the petitioner from electronic cash ledger is required to be refunded by the respondent authority and could not have been rejected on the ground of limitation under Section 54(1) of the CGST Act.

2. When the petitioner has deposited voluntarily the amount of Rs. 40,00,000/-, the same would not be covered by the provisions of Section 54 of the GST Act and the same is required to be refunded by the respondent authorities as the same could not have been rejected on the ground of limitation under Section 54(1) of the GST Act.

3. However, the petitioner will not be entitled to any interest on such amount as the same was deposited voluntarily by mistake and, therefore, the respondents to refund the amount of Rs. 40,00,000/- deposited by the petitioner.

4. In view of the foregoing reasons impugned order dated 14.6.2024 passed by the respondent No.2 rejecting the refund application of the petitioner is hereby quashed and set aside and the respondent shall refund the amount of Rs. 40,00,000/- which was deposited by the petitioner by mistake on 20.11.2022 within a period of twelve weeks from the date of receipt of copy of this order.

The Department collects about 20 lakh crores as GST annually. Do they still want to retain some amount deposited by mistake?

Why are our taxmen obsessed with revenue collection by any means - fair or foul? Is there some secret code in the Department that as long as you collect Revenue by means, legal or otherwise, you are safe? Are they taught in the high-profile academies that 'yours is not to question why; yours is but to collect'? Even young officers out in the field resort to all kinds of arm-twisting to collect that extra rupee in the name of revenue.

In this process, they actually don't collect any excess revenue, they collect tremendous amount of bad name for the Government.

Taxman - your job is to collect correct Tax - Not a Penny More - Not a Penny Less!

Until next week