2-Year Limitation Period Under Section 54 of the CGST Act Not Applicable to Cases of Refund of Tax Paid by Mistake

Issue: Whether the strict two-year period of limitation prescribed under Section 54 of the CGST Act, 2017, applies to applications seeking a refund of Goods and Services Tax (GST) that was paid mistakenly on an exempt supply or service.

Facts:

The petitioner, Nspira Management Services Private Limited, provided educational management and hostel accommodation services.
The petitioner had been paying GST on renting residential dwellings because the landlords charged them tax, despite this being an exempt service under Notification No. 12/2017-CT (Rate).
The GST refund applications, spanning from July 2017 to June 2022, were rejected by the tax authorities through defect memos, citing the expiry of the two-year limitation period under Section 54.

Decision:

The Andhra Pradesh High Court set aside the defect memos and directed the tax authorities to consider the refund applications without reference to the limitation period.

Key TakeDowns:

Tax Paid by Mistake is Not “Due Tax”: The Court observed that GST paid on an exempt service is a payment made without authority of law under Article 265 of the Constitution.
Section 54 Limit Applies Only to Lawful Tax: The limitation period prescribed under Section 54 applies only to refunds of taxes that were validly collected. It does not apply to money paid by mistake, which the government has no right to retain (unjust enrichment). * Adjudication is Mandatory: The rejection of a refund claim is an adjudicatory process. The authorities cannot reject refund applications as time-barred via mere deficiency memos. They must issue a Show Cause Notice (SCN), provide an opportunity to reply, and pass a reasoned order per Rule 92(3) of the CGST Rules.
Substantive Justice: The judgment emphasizes a substantive justice-driven approach, ensuring taxpayers can recover money paid erroneously without being penalized by rigid procedural timelines.

Source :- JUDGEMENT