Facts of the Case

M/S Merck Life Science Private Limited had, by oversight, paid Integrated Tax (IGST) on transactions later found to be intra-State supplies, and subsequently discharged the correct CGST/SGST liability on the same transactions. Its applications for refund of the excess IGST paid, filed under Section 77 of the CGST Act and Section 19 of the IGST Act, were rejected by five separate orders (Nos. 27 to 31/2024-25) on the ground that the two-year limitation prescribed in Rule 89(1A) of the CGST Rules had expired.

Issues Involved

  1. Whether the two-year limitation period prescribed under Section 54 of the CGST Act read with Rule 89(1A) of the CGST Rules for a cross-head refund under Section 77/Section 19 is mandatory or merely directory.
  2. Whether, having held the refund claim to be within time, the Court should itself decide the refund on merits or remit the matter.

Petitioner's Arguments

  • Section 54 of the CGST Act and Rule 89(1A) prescribing a two-year limitation are directory and not mandatory, as held by the Madras High Court and the Andhra Pradesh High Court in comparable cases.
  • The Respondents did not dispute that the petitioner had, in fact, made excess payment under the IGST head and subsequently discharged the correct CGST/SGST liability.

Respondent's Arguments

  • The Respondents did not contest that the excess IGST payment had genuinely been made and later re-discharged correctly, but contended that the refund ought to have been claimed within the time prescribed under Rule 89 read with Notification No. 13/2022-Central Tax, and having been filed late, the claim was correctly rejected as time-barred.

Court Order / Findings

  • Since the Revenue did not dispute that the petitioner had in fact overpaid IGST and separately discharged the correct tax under the State/Central heads, and having regard to Article 265 of the Constitution (no tax can be collected except by authority of law), the Central GST authorities were not entitled to retain the wrongly collected IGST once the correct tax had been paid to the State GST authorities.
  • Following the Madras and Andhra Pradesh High Courts' rulings that Section 54 and Rule 89(1A) are directory, and applying principles of restitution and unjust enrichment, the Court held the refund claims to be within time and not barred by limitation.
  • Since the adjudicating authority had rejected the claims solely on limitation without examining the merits, the Court set aside all five impugned orders and remitted the matter for a fresh decision on the refund applications within three months, bearing in mind the observations in the judgment.

Important Clarification

  • The two-year limitation prescribed under Section 54 of the CGST Act read with Rule 89(1A) of the CGST Rules for refund of tax paid under the wrong head (Section 77 CGST Act / Section 19 IGST Act, on reclassification between inter-State and intra-State supply) is directory, not mandatory — a limitation defect alone cannot justify retention of tax collected without authority of law under Article 265, particularly where the correct tax has already been paid to the other tax administration.

Sections Involved

  • Section 77, CGST Act, 2017 and Section 19, IGST Act, 2017 – refund of tax wrongfully paid due to mis-classification of supply as inter-State/intra-State.
  • Section 54, CGST Act, 2017 and Rule 89(1A), CGST Rules, 2017 – limitation for filing such refund claims (two years).

Decision – In Favour of

Decided in favour of the Assessee – the refund claims are held to be within time, the rejection orders are set aside, and the matter is remitted for fresh orders on merits.

Case Details

  • Court: High Court of Karnataka at Bengaluru
  • Case No.: WP No. 27259 of 2024 (T-RES) (with connected WP Nos. 27261, 27552, 27691 and 28151 of 2024)
  • Neutral Citation: NC: 2025:KHC:45573
  • Coram: Hon'ble Justice S.R. Krishna Kumar
  • Date of Order: 7 November 2025

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