Case Details
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Court: High Court of Judicature at Patna
- Case: Sai Steel v. State of Bihar
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Petition No.: Civil Writ Jurisdiction Case No. 13163 of 2024
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Date of Judgment: 28 July 2025
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Category of Dispute: Refund of wrongly paid tax (Section 77, Rule 89(1A))
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Relevant Sections: Section 54, Section 77 of CGST/BGST Act, Section 19 of IGST Act, Rule 89(1A) of CGST Rules
Facts of the Case (Paras 3–5)
M/s Sai Steel filed returns for FY 2017–18 and paid taxes under CGST/SGST treating certain transactions as intra-State. Audit under Section 65 later found that such supplies were inter-State, leading to short payment of IGST. To correct this, the petitioner deposited ₹5,08,195 as IGST through DRC-03 on 04.03.2023. Subsequently, refund was sought of the wrongly paid CGST and SGST (₹2,54,097 each). A show cause notice was issued and replied, yet the refund claim was rejected by order dated 06.05.2024 on limitation grounds under Section 54.
Questions Before the Court (Paras 2, 6–8)
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Whether refund of tax wrongly paid under wrong head (CGST/SGST instead of IGST) is governed by Section 54 or Section 77 of CGST Act.
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What is the relevant date for computing limitation in such refund claims—date of wrong payment or date of subsequent correct payment?
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Whether CBIC Circular No. 162/18/2021-GST and Rule 89(1A) override rejection based on Section 54.
Observations of the Court (Paras 11–18)
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The refund rejection order itself acknowledged eligibility but rejected solely on limitation under Section 54.
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Section 77 of CGST and Section 19 of IGST Act specifically govern situations where tax is wrongly paid under wrong head.
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Circular No. 162/18/2021-GST clarified that limitation is to be computed from the date of correct payment, not from the earlier wrong payment.
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Rule 89(1A) (inserted via Notification 35/2021) allows two years from the date of payment under correct head or from 24.09.2021 in case of prior payments.
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Jharkhand High Court in Gajraj Vahan Pvt. Ltd. v. State of Jharkhand (2023) held that CBIC circulars extend beneficial limitation for such refunds.
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The authority erred in computing limitation from January 2018 instead of 04.03.2023, thereby rendering Section 77 and the Circular redundant if sustained.
Judgment (Paras 19–21)
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The impugned refund rejection order was quashed as contrary to Section 77 and Rule 89(1A).
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The petitioner was held entitled to refund of ₹5,08,194 (CGST + SGST wrongly paid), along with interest @6% p.a. from three months after filing of refund application until realization.
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Litigation costs of ₹10,000 awarded.
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Refund with interest and costs to be completed within three months.
Case Law Referred
| Case | Court | Year | Ratio Decidendi |
|---|---|---|---|
| Gajraj Vahan Pvt. Ltd. v. State of Jharkhand | Jharkhand HC | 2023 | CBIC Circular 162/18/2021-GST clarified limitation for refund under Section 77; refund claims must be computed from date of correct tax payment, not wrong payment. |
Between Fine Lines
This ruling confirms that refunds for taxes paid under the wrong head cannot be rejected on limitation grounds by invoking Section 54. Instead, Section 77 read with Rule 89(1A) applies, where limitation is counted from the date of correct payment. For businesses, this judgment secures refund rights even when errors are corrected years later, provided claims are filed within two years of the subsequent correct deposit.
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