The Karnataka High Court delivered a significant ruling in the case involving M/s Merck Life Science Pvt. Ltd. against the Union of India and others, concerning the refund of wrongly paid Integrated Goods and Services Tax (IGST). The petitioner, a life-science technology company, initially treated their services to foreign entities as exports and paid IGST from July to November 2017. Upon realizing the supplies were actually intra-State, they corrected their tax liability in March 2018 by paying the appropriate State and Central GST.
In 2024, the petitioner sought a refund for the IGST paid in error, citing provisions under Sections 19(1) of the IGST Act and 77(1) of the CGST Act. However, the tax authorities denied the refund based on the limitation period outlined in Section 54 of the CGST Act, despite the tax being paid twice. The main issue was whether the refund could be denied due to this limitation when it stemmed from a misclassification between inter-State and intra-State supplies.
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The Court ruled that the right to a refund under Sections 19(1) of the IGST Act and 77 of the CGST Act is independent of the limitation period in Section 54. It asserted that retaining the tax when an equivalent amount has been paid to the State is unconstitutional and results in unjust enrichment. The Court quashed the rejection orders, directing the authorities to process the refund with interest, citing similar precedents from other high courts. This decision underscores the importance of statutory rights to refunds and limits on the application of procedural barriers like limitation periods.
Order Date: 07 November 2025
Parties: M/s Merck Life Science Pvt. Ltd. v. Union of India & Ors.
Facts:
- The petitioner, a life-science technology company, provided intermediary services to foreign entities during July–November 2017 and initially treated such supplies as exports, paying IGST under a bona fide belief. Later, upon realising the supplies were intra-State, the petitioner discharged the correct SGST/CGST liability in March 2018.
- In 2024, the petitioner filed refund applications seeking return of IGST wrongly paid, relying on Sections 19(1) IGST Act and 77(1) CGST Act read with Rule 89(1A).
- The department rejected the refund solely on the ground of limitation under Section 54 CGST Act, despite the tax being paid twice—once to Centre and again to the State.
Issue:
- Whether refund of wrongly paid IGST for misclassification between inter-State and intra-State supply can be denied on limitation under Section 54 when the refund arises from Sections 19(1) IGST Act and 77(1) CGST Act?
Order:
- The Court held that the statutory right to refund under Sections 19(1) IGST Act and 77 CGST Act is independent of Section 54, and limitation under Section 54 cannot defeat a refund arising from wrong tax paid on account of place-of-supply error.
- It observed that the department cannot retain tax when an equivalent amount has already been paid to the State, as such retention violates Article 265 and results in unjust enrichment.
- The Court also accepted the petitioners reliance on Lenovo (Madras HC), Louis Dreyfus (AP HC) and Nspira (AP HC) and held that the approach of the department was legally erroneous.
- All impugned refund-rejection orders were quashed and authorities were directed to process the refund along with interest. The writ petitions were allowed.
