Case Summary: Refund of GST deposited under mistake allowed as limitation under Section 54 held inapplicable where tax itself was not leviable
Case Title: Delhi Metro Rail Corporation Ltd. v. Additional Commissioner, CGST Appeals-II & Ors.
Court: High Court of Delhi
Petition No.: W.P.(C) 6793/2023
Category: Refund – Tax paid under mistake of law
Date of Judgment: 18.09.2023
Relevant Statutes: Section 54(1) CGST Act, Article 265 Constitution of India
Source: High Court Judgment
Facts (Paras 1–7)
The petitioner, Delhi Metro Rail Corporation (DMRC), challenged the rejection of its refund claim arising from GST deposited inadvertently. As narrated in para 1–2, DMRC had raised an invoice dated 11.08.2017 upon Surat Municipal Corporation (SMC) for preparation of a Detailed Project Report, charging GST of ₹2,90,520/-. SMC paid only the value of services (₹16,14,000/-) and withheld the GST component. To avoid any statutory lapse, DMRC deposited this GST amount through GSTR-3B for August 2017 (para 4).
Subsequently, SMC informed DMRC that the services of preparation of DPR were wholly exempt under Notification No. 12/2017-CTR (para 5). Realising that GST was not leviable, DMRC filed a refund application on 02.05.2022 (para 6). The refund was rejected by the adjudicating authority on the ground of limitation under Section 54(1). DMRC, relying upon Bhailal Bhai and Cosmol Energy (para 7–8), contended that retention of tax paid under a mistake violates Article 265 and cannot be subject to statutory limitation.
Questions / Issues (Paras 2, 7–14)
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Whether GST deposited by DMRC under a mistaken belief that its services were taxable constitutes “tax” within the meaning of Section 54 of the CGST Act.
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Whether the two-year limitation prescribed under Section 54(1) applies where the levy itself is non-existent and the amount paid has no colour of authority of law.
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Whether Article 265 prohibits the Government from retaining amounts collected without lawful authority.
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Whether the Gujarat High Court ruling in Cosmol Energy—holding that amounts collected without authority of law fall outside Section 54—has been accepted by the Department.
Observations (Paras 8–14)
The Court observed (para 8–9) that Bhailal Bhai authoritatively holds that amounts paid under a mistake of law must be refunded. Further, Cosmol Energy (Gujarat HC), dealing with an identical issue, had ruled that Section 54 governs refund of “tax” legally leviable; amounts collected without authority of law do not acquire the character of “tax” and hence fall outside the statutory limitation.
In para 10–11, the Court specifically sought confirmation from the Department as to whether Cosmol Energy had been appealed. The Department admitted it had not challenged the ruling, implicitly accepting the legal reasoning.
In para 12–14, the Court reaffirmed that Article 265 mandates that no tax shall be collected except by authority of law. Since GST was wholly exempt on DPR services, the amount deposited by DMRC was not legally payable. Being an indirect tax (para 13), its burden is intended to be passed on to the recipient. However, in this case, the recipient (SMC) did not bear the burden because no tax was leviable. Hence, retention of the amount by the Government would amount to unconstitutional collection.
The Court concluded (para 14) that limitation under Section 54(1) does not apply to amounts recovered without authority of law, especially where the payment arises out of a mistake of law.
Judgment / Verdict (Paras 15–16)
The High Court set aside both the appellate order dated 24.02.2023 and the refund-rejection order dated 04.07.2022 (para 15). It directed the authorities to process and grant the refund of ₹2,90,520/- to DMRC without being fettered by Section 54 limitation. The writ petition was accordingly allowed (para 16).
Table of Cases Referred
| Case | Court & Citation | Issue Considered | Verdict / Ratio |
|---|---|---|---|
| State of Madhya Pradesh v. Bhailal Bhai | Supreme Court, AIR 1964 SC 1006 | Whether amounts paid under mistake of law must be refunded | Held that retention of money collected without authority of law is unconstitutional; refund permissible even if limitation provisions exist |
| Cosmol Energy Pvt. Ltd. v. State of Gujarat | Gujarat High Court, R/SCA 11905/2020 (22.12.2020) | Whether Section 54 limitation applies to payment made under a mistake of law where no tax was leviable | Held Section 54 applies only to tax legally leviable; amounts collected without authority of law must be refunded without limitation |
Between the Fine Lines (Practical Takeaways for Trade & Industry)
This ruling clarifies that tax paid by mistake—where the underlying supply is exempt or not taxable—does not become “tax” under GST law. Consequently, the two-year limitation under Section 54 is irrelevant. Any amount deposited without authority of law must be refunded irrespective of delay. This is extremely relevant for businesses that inadvertently pay GST on exempt supplies, reverse charge transactions not applicable, or misclassified services. The Government cannot retain such amounts merely because the statutory refund period has lapsed.
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