The Karnataka High Court addressed the issue of whether the two-year limitation under Section 54 of the CGST Act is mandatory and if delayed refund claims can still be entertained. The case involved M/s Merck Life Science Pvt. Ltd., which initially treated its services as exports and paid IGST, but later corrected this to pay CGST and SGST, resulting in double taxation. The company filed for a refund of the wrongly paid IGST after the limitation period, leading to its rejection by the GST department solely on limitation grounds, despite no dispute on the refund entitlement.
The Court concluded that the limitation under Section 54 is indeed mandatory, emphasizing the necessity for strict adherence to timelines to maintain the integrity of the GST framework. It noted that GST authorities lack the power to condone delays, highlighting a legislative gap in addressing genuine hardship cases. However, the Court recognized that High Courts can exercise their writ jurisdiction under Article 226 to condone delays, especially when tax is collected without legal authority or refund entitlement is clear.
Read More: Bombay High Court: Vouchers are merely instruments creating obligation to accept payment, and hence cannot be treated as supply of goods or services [Order attached]
The Court stressed that any condonation of delay must also protect the Revenue, suggesting that if a delay is condoned, authorities should receive a corresponding extension to invoke Sections 73 and 74, ensuring no prejudice to tax administration.
Order Date - 17 March 2026
Parties: Assistant Commissioner of Central Taxes & Ors. Vs M/s Merck Life Science Pvt. Ltd.
Facts -
- M/s Merck Life Science Pvt. Ltd., while filing GST returns, first treated its services as export and paid IGST, but later corrected itself and paid CGST & SGST treating it as intra-State supply, leading to double tax payment.
- Realizing the mistake, the company sought refund of wrongly paid IGST, but filed the refund application on 30.03.2024, much after the prescribed limitation period.
- The GST department rejected the refund purely on limitation grounds, even though the entitlement to refund was not disputed.
- The Single Judge allowed the refund, holding limitation as directory, which prompted the Revenue to file appeals before the High Court.
Issue -
- Whether the 2-year limitation under Section 54 of CGST Act is mandatory, and if so, whether delayed refund claims can still be entertained?
Order -
- The Court held that Section 54 limitation is mandatory, emphasizing that GST law is a time-bound framework where strict adherence to timelines ensures finality and prevents misuse. Allowing flexibility would disturb the statutory scheme and affect related provisions like Sections 73 & 74.
- It observed that no power exists with GST authorities to condone delay, and hence they cannot entertain refund claims beyond limitation, even if the claim is genuine. This shows a clear legislative gap in addressing hardship cases.
- However, the Court balanced equity by holding that High Courts can condone delay under Article 226, especially where tax is collected without authority of law or refund entitlement is undisputed.
- Importantly, the Court clarified that condonation must protect Revenue also, meaning if delay is condoned, authorities must be given corresponding extension to invoke Sections 73/74, ensuring no prejudice to tax administration.
