Excess GST Amount Paid Voluntarily due to System Error: Gujarat HC allows Refund without Interest [Read Order]

Recently, the Gujarat High Court has directed the Goods and Services Tax ( GST ) refund to the assessee who deposited excess tax amount of Rs. 40 lakhs to the revenue due to system error without any interest. 

The bench of Justices Bhargav D Karia and D N Ray, citing Joshi Technologies International and Gujarat State Police Housing Corporation stating that amounts paid by mistake or ignorance cannot be retained by the Revenue.

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The petitioner, engaged in manufacturing textile machinery and equipment, is registered under the GST Act, 2017. During May 2019 to March 2020, the petitioner imported various inputs and materials, filing 33 Bills of Entry and paying import duties, including an integrated tax of ₹2,48,28,300/-, which was claimed as Input Tax Credit (ITC).

Believing there was an excess credit of ₹40,00,000/- due to a mismatch between GSTR-2A and GSTR-3B, the petitioner voluntarily deposited this amount on November 13, 2020, via Form DRC-03. However, the same was due to the system error and not the reason that the petitioner erroneously availed the credit.

However, an audit in January-February 2024 revealed no excess liability for FY 2019-2020. The petitioner clarified the mistake and applied for a refund of ₹40,00,000/- on March 30, 2024.

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Although the respondent authorities initially closed the matter via Form GST ASMT-12, they later issued a notice on May 29, 2024, proposing to reject the refund as time-barred under Section 54(1) of the GST Act, which prescribes a two-year limitation period.

Despite oral clarifications, the Assistant Commissioner rejected the refund on June 14, 2024, citing the delay. The petitioner filed a writ petition, arguing that the deposit was voluntary and not a tax recovery, making the limitation period inapplicable.

The bench cited the Supreme Court judgment in Salonah Tea Company Ltd. Etc. v. Superintendent of Taxes Now-gong and Ors. etc, it was opined that "Normally in a case where tax or money has been realised without the authority of law, the same should be refunded and in an application under Article 226 of the Constitution the court has power to direct the refund unless there has been avoidable laches on the part of the petitioner which indicate either the abandonment of his claims or which is of such nature for which there is no probable explanation or which will cause any injury either to the respondent or any third party. It is true that in some cases the period of three years is normally taken as a period beyond which the court should not grant relief but that is not an inflexible rule.”

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Accordingly, the high court directed the department to grant the amount deposited by mistake. However, it was clarified that the petitioner will not be entitled to any interest.

It was observed that “when the petitioner has deposited voluntarily the amount of Rs. 40,00,000/-, the same would not be covered by the provisions of Section 54 of the GST Act and the same is required to be refunded by the respondent authorities as the same could not have been rejected on the ground of limitation under Section 54(1) of the GST Act.”

To Read the full text of the Order CLICK HERE

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