Refund Allowed Despite Delay: GST Paid by Mistake Under Exempted Notification

Case Title: M/s Gujarat State Police Housing Corporation Ltd. vs Union of India & Anr.
Court: High Court of Gujarat at Ahmedabad
Petition No.: Special Civil Application Nos. 11221, 15758, 15756, 15755, 15752 of 2022
Category: Refund – Tax paid under mistake of law
Judgment Date: 18 January 2024
Relevant Sections: Section 54(1), Explanation 2(h) of the CGST Act, 2017; Article 265 of the Constitution of India
Judges: Hon’ble Mr. Justice Bhargav D. Karia and Hon’ble Mr. Justice Niral R. Mehta

Facts of the Case (¶4)

• The petitioner is a government undertaking involved in civil construction for state police and related departments.

• Between November 2017 and September 2018, it paid GST on construction activity assuming it to be taxable.

• Later, it realized the activity was exempt under Notification No. 32/2017-Central Tax (Rate) dated 13.10.2017, which granted exemption for services provided by Government Entities through government grants (¶4.3).

• Refund applications were filed under Section 54 of CGST Act only for amounts paid in cash (not via ITC), but were rejected as time-barred by two years (¶4.5, ¶4.8).

• Appeals were filed, and all five were dismissed by the Appellate Authority (¶4.9), prompting the petitioner to move the High Court.

Questions in Consideration (¶3, ¶5, ¶6, ¶9)

• Whether refund of GST paid under mistake of law can be denied solely on the ground of limitation under Section 54(1) of CGST Act?

• Whether limitation under Section 54 applies to refunds claimed for taxes wrongly paid due to unawareness of exemption?

Observations of the Court

1. Applicability of Notification No. 32/2017:
   Petitioner’s service was indeed exempt; hence, GST payment was a mistake (¶22–23).

2. Article 265 Violation:
   Taxes collected without the authority of law cannot be retained. Refund is required to prevent violation of Article 265 of the Constitution (¶7, ¶29).

3. Mistake of Law:
   Citing Joshi Technologies, Salonah Tea Co., and KVR Construction, court held that tax paid under mistake of law becomes a deposit, not “tax”, and general limitation under Section 54 may not apply (¶29–¶35).

4. Refund Applications within Extended Limitation:
   Refund claims for March 2018, May 2018, and September 2018 were within time if extension under Notification No. 13/2022 is considered (¶21).

5. Refunds via Electronic Cash Only:
   The petitioner claimed refunds only for cash-paid amounts, not through ITC, hence no unjust enrichment (¶21).

Judgment of the Court (¶36)

• All five refund rejections quashed.

• Matter remanded back to Adjudicating Authority.

• Authority directed to reprocess refunds without applying the 2-year limitation under Section 54(1).

• Refund claims to be decided on merits and in accordance with law.

🧾 Between Fine Lines:

• Tax paid mistakenly on exempt service can’t be retained by the department.

• Refund claims are allowed even if beyond two years, if paid under mistake of law.

• Article 265 mandates refund of tax without legal authority.

• Refunds only for electronic cash payments—not ITC—avoids unjust enrichment.

• Notification No. 13/2022 extends limitation due to COVID-19 period.

📚 Summary of Referred Cases