Bombay HC Remands Refund Case; Rule 90(3) Limitation to be Re-examined in light of Darshan Processors

Issue

Limitation Calculation: Whether the two-year limitation period for filing a GST refund claim under Section 54(3) should be reckoned from the date of the original application (which was rejected via deficiency memo) or from the date of the rectified/fresh application filed subsequently.
Validity of Rule 90(3): Whether Rule 90(3) of the CGST Rules—which implies that a rectified application is treated as a “fresh” application, potentially resetting the limitation clock to the detriment of the taxpayer—is ultra vires the parent Act.

Facts

Refund Claim: The petitioner filed a refund application under Section 54(3) of the CGST Act (Refund of unutilized ITC).
Rejection: The original refund application was not processed on merits but was met with a Deficiency Memo. The petitioner subsequently filed a rectified application.
Time Bar: The Revenue rejected the refund claim on the ground of limitation. They relied on Rule 90(3), arguing that the rectified application was a “fresh application” filed after the two-year statutory period had expired, regardless of when the original (deficient) application was filed.
Appellate Order: The First Appellate Authority dismissed the appeal, upholding the rejection on limitation.
Challenge: The petitioner challenged these orders in the Bombay High Court and also sought a declaration that Rule 90(3) is ultra vires Section 54 of the CGST Act, as it artificially shortens the limitation period provided by the statute.

Decision

The Bombay High Court ruled in favour of the assessee (by way of remand).
Reliance on Darshan Processors: The Court noted the petitioner’s reliance on the Gujarat High Court judgment in M/s. Darshan Processors v. Union of India [2024].
- Ratio of Darshan Processors: The Gujarat HC held that the limitation period must be stopped at the date of the original refund application. The time spent between the issuance of the deficiency memo and the filing of the rectified application should be excluded. Treating the rectified filing as a wholly new application for limitation purposes would defeat the substantive right to refund.
Vires Challenge Avoided: The Court observed that since the grievance could be resolved by interpreting the rules in line with the Darshan Processors judgment (reading down the rigor of Rule 90(3)), there was no need to adjudicate on the constitutional validity (vires) of the Rule at this stage.
Remand: The impugned rejection orders were set aside. The matter was remanded to the proper officer to decide the refund application afresh.
Direction: The officer was directed to apply the principles laid down in Darshan Processors regarding limitation and dispose of the claim on merits within three months.

Key Takeaways

Original Date Matters: For limitation purposes, the date of the first successful filing (even if deficient) is critical. Taxpayers should not be penalized for the time taken by the department to scrutinize and issue deficiency memos.
Rule 90(3) Read Down: Courts are increasingly interpreting Rule 90(3) liberally to ensure that a “deficiency” does not become a tool to deny legitimate refunds on technical limitation grounds.
Relief for Exporters: This is a major relief for exporters and businesses with inverted duty structures, whose refund claims are often delayed by repetitive deficiency memos, pushing them out of the 2-year window.

HIGH COURT OF BOMBAY

Mukesh Incense Enterprises (P) Ltd.

Union of India

M.S. Sonak and Advait M. Sethna, JJ.

WRIT PETITION NO. 3238 OF 2022

NOVEMBER 3, 2025

Deepak Bapat, Sonali Bapat and Krupa Chavan for the Petitioner. Manish Upadhye, AGP., J.B. Mishra, Harshad Shingnapurkar, Soutrik Kar, Rupesh Dubey and Ashutosh Mishra for the Respondent.

ORDER

1. Heard learned counsel for the parties.

2. Rule. The rule is made returnable immediately at the request of and with the consent of learned counsel for the parties.

3. The Petitioner,inter alia, challenges orders dated 23 June 2020 rejecting the Petitioner’s refund application under Section 54(3) of the CGST Act, and an order dated 18 August 2021 made by the first Appellate Authority rejecting the Appeal against the order dated 23 June 2020. In addition, the Petitioner has sought a declaration that Rule 90(3) of the CGST and NGST Rules is ultra vires Section 54(3) of the CGST and SGST Act, and, based thereon, the impugned orders could not have been made.

4. Mr Bapat, learned counsel for the Petitioner, relied on the decision of the Gujarat High Court in Darshan Processors v. Union of India (Guj) Judgment dated 26 July 2024 passed in Special Civil Application No.2114 of 2021. to submit that Rule 90(3) of the CGST Rules has been construed to count the limitation period from the date of the original application and not from the date of filing of a subsequent application after clearing the deficiencies pointed out in the original application. Mr Bapat submitted that several other High Courts have also taken a similar view in the context of the provision of Rule 90(3) of the CGST and SGST Rules. Mr Bapat submitted that this would be the most reasonable manner to construe Rule 90(3), because otherwise the Rule itself would be vulnerable to a challenge that it is ultra vires the provisions of the parent Act, i.e., Section 54(3) of the CGST and SGST Act.

5. In matters of challenge to constitutional validity or declaring any Rules to be ultra vires, as a Court, we are required to tread cautiously. Such challenges are considered only if they are inevitable and not simply because we are empowered to do so.

6. The impugned orders challenged in the present Petition did not benefit from the later decision of the Gujarat High Court in Darshan Processors (supra). Similarly, even the decisions of the other High Courts do not appear to have been considered before making the impugned orders dated 23 June 2020 and 18 August 2021.

7. Therefore, we are satisfied that the interest of justice would be met if the impugned orders dated 23 June 2020 and 18 August 2021 are set aside and directions are issued to the proper officer to decide the Petitioner’s application for refund afresh after considering the decision of the Gujarat High Court and such other decisions as the Petitioner may choose to rely in the context of the limitation issue.

8. The proper officer must dispose of the Petitioner’s refund application afresh as expeditiously as possible and in any event within three months from the date of the Petitioner’s filing an authenticated copy of this order before the proper officer, along with a compilation of decisions that the Petitioner seeks to rely on. The proper officer must afford the Petitioner an opportunity of a personal hearing and pass a reasoned order.

9. If the Petitioner remains aggrieved by the decision on its application for a refund, it may challenge it in accordance with the law. We clarify that the issue of challenge to the validity of Rule 90(3) of the CGST and SGST Rules is expressly kept open, as we have not examined it in this Petition.

10. The Petition is disposed of in the above terms without any order for costs. All concerned to act upon an authenticated copy of this order.