GST Paid on Exempt Residential Rentals: Andhra Pradesh HC allows Refund, sets aside Deficiency Memos [Read Order]

NSPIRA Management Services Private Limited.,petitioner-assessee, was incorporated under the Companies Act, 2013, and registered under GST. It was engaged in managing educational institutions, providing consultancy, and offering hostel accommodation to students.

For this purpose, the petitioner-assessee had taken residential dwellings on rent from landlords and paid tax on the invoices raised, though it claimed the services were exempt under Entry No. 12 of Notification No. 12/2017 Central Tax (Rate) dated 28.06.2017. Believing the tax was wrongly paid, it filed refund applications one on 01.05.2024 for Rs. 11,49,32,214/- covering July 2017 to January 2020, and another on 29.02.2024 for the period February 2020 to June 2022.

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The authorities initially sought details through defect memos but later, by memos dated 21.05.2024, rejected the applications as being time-barred beyond the two-year limit. Aggrieved by this, the writ petitions were filed.

The petitioner counsel argued that refund eligibility could not have been rejected through defect memos and had to be decided by following due process under Rule 92(3) of the Central Goods and Service Tax (CGST) Rules, 2017. It was submitted that the authorities should have issued a show cause notice, allowed a reply, and passed a speaking order instead of rejecting the claims through memos.

The respondents contended that as per CentralBoard of Indirect Taxes and Customs (CBIC) Circular No. 125/44/2019 and Section 54 of the CGST Act, 2017, a refund application had to be filed within two years. They stated that even after excluding the COVID-19 period as per Notification No. 13/2022, the application should have been filed by 19.01.2024, but the petitioner filed it on 01.04.2024, making it time-barred.

In rejoinder, the petitioner submitted that the delay was due to technical and procedural issues and argued that the limitation ground should not have been raised later when it was not mentioned in the first memo.

Justice R Raghunandan Rao and Justice T.C.D. Sekhar observed that the petitioner had filed refund applications under Section 54 of the CGST Act, claiming that tax was wrongly paid on renting of residential dwellings despite the exemption under Entry No. 12 of Notification No. 12/2017 dated 28.06.2017. The authorities, however, issued deficiency memos stating that the applications were time-barred beyond the two-year limit.

The Court noted that tax could be collected only with the authority of law as per Article 265 of the Constitution. Since the petitioner was not liable to pay GST on the said services, the payment was made under mistake of law.

Referring to the Gujarat High Court ruling in Comsol Energy Pvt. Ltd. v. State of Gujarat, it held that in cases where tax was collected without authority of law, Section 54 of the CGST Act would not apply, and instead the limitation provisions of the Limitation Act would govern refund claims.

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The bench also relied on earlier decisions, including Binani Cement Ltd. and Gokul Agro Resources Ltd., where refunds were directed without applying the limitation period when tax was collected without authority of law. The bench also further referred to its own recent order in W.P. No. 17220 of 2024, where a similar view had been taken.

Accordingly, the Court set aside the deficiency memos and directed the authorities to consider the petitioner’s refund applications on merits, without raising limitation as an issue, and to pass appropriate orders within four weeks.

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