Facts of the Case

M/s. Nspira Management Services Pvt. Ltd. (GSTIN 37AAECN3984D1ZB), engaged in managing educational institutions and providing hostel accommodation, took residential dwellings on rent from landlords who charged GST on their invoices despite such renting being exempt under Entry No. 12 of Exemption Notification No. 12/2017-Central Tax (Rate). The petitioner accordingly filed refund applications on 01.05.2024 and 29.02.2024 for Rs. 11,49,32,214/- covering July 2017 to June 2022. The respondent authorities issued deficiency memos dated 21.05.2024 rejecting the applications solely on the ground that the two-year limitation under Section 54 of the CGST Act, 2017 had expired, without issuing a show cause notice or passing a speaking order.

Issues Involved

  1. Whether a refund claim can be rejected merely by a deficiency memo without following the mandatory procedure of show cause notice (RFD-08), reply (RFD-09) and speaking order (RFD-06) under Rule 92(3) of the CGST Rules.
  2. Whether the two-year limitation under Section 54 of the CGST Act applies to tax collected without authority of law in respect of an exempted service.

Petitioner's Arguments

  • The eligibility of a refund claim cannot be decided merely through deficiency memos; it requires adjudication under the procedure contemplated by Rule 92(3) of the CGST Rules.
  • The respondent authorities were bound to issue a show cause notice in Form RFD-08, allow a reply in Form RFD-09, and pass a speaking order in Form RFD-06 before rejecting the claim.
  • Since the renting of residential dwellings was itself exempt under the Notification, the tax collected by the landlords and passed on to the petitioner was not 'tax' under the CGST Act but an amount collected without authority of law under Article 265, to which the two-year limitation of Section 54 does not apply.

Respondent's Arguments

  • The Department relied on CBIC Circular No. 125/44/2019-GST to contend that once a deficiency memo is issued, the refund application is not further processed and a fresh application must comply with limitation.
  • It was contended that under Section 54 of the CGST Act, refund applications must be filed within two years from the relevant date, and even after excluding the COVID period under Notification No. 13/2022-Central Tax, the applications filed on 01.04.2024 were beyond the extended due date of 19.01.2024.

Court Order / Findings

  • The Court held that services by way of renting of residential dwellings for use as residence are exempt under Entry No. 12 of Notification No. 12/2017-Central Tax (Rate), and any amount collected as tax on such exempt supply is not tax collected under authority of law and offends Article 265 of the Constitution.
  • Relying on the Gujarat High Court's ruling in Comsol Energy Pvt. Ltd. vs. State of Gujarat, the Court held that Section 54 of the CGST Act applies only to refund of tax validly paid under the Act; amounts collected without authority of law fall outside its limitation and are governed instead by general principles against unjust enrichment.
  • The Court also followed its own earlier order in W.P. No. 17220 of 2024 directing consideration of similar refund claims without going into the question of limitation.
  • The deficiency memos were set aside and the respondents were directed to consider the refund applications on merits without raising the limitation objection, and to pass appropriate orders within four weeks.

Important Clarification

  • A deficiency memo cannot substitute for the statutory adjudication process (RFD-08 show cause notice, RFD-09 reply, and a speaking RFD-06 order) mandated under Rule 92(3) of the CGST Rules for rejecting a refund claim.
  • Tax collected on an exempt supply, even if paid by mistake or under invoice pressure from a supplier, is not 'tax' for the purposes of Section 54 of the CGST Act, and its refund is not subject to the two-year limitation prescribed therein.

Sections Involved

  • Section 54, CGST Act, 2017 — governs refund claims and prescribes a two-year limitation from the relevant date.
  • Rule 92(3), CGST Rules, 2017 — mandates issuance of RFD-08 show cause notice, RFD-09 reply, and a speaking RFD-06 order before rejecting a refund claim.
  • Entry No. 12, Notification No. 12/2017-Central Tax (Rate) — exempts services by way of renting of residential dwellings for use as residence.
  • Article 265, Constitution of India — no tax shall be levied or collected except by authority of law.

Decision – In Favour of

The decision is in favour of the assessee (Nspira Management Services). The deficiency memos rejecting the refund claims were set aside and the respondents directed to reconsider the applications on merits without invoking limitation.

Case Details

High Court of Andhra Pradesh at Amaravati; Writ Petition Nos. 18287 & 14905 of 2024; Coram: Hon'ble Sri Justice R. Raghunandan Rao and Hon'ble Sri Justice T.C.D. Sekhar; Order dated 26.09.2025.

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