Centre Cannot Retain Wrongly Paid IGST Once Correct Tax Is Paid To State GST Authorities: Karnataka High Court
The Karnataka High Court has held that the Centre cannot retain wrongly paid IGST (Integrated Goods and Services Tax) once the correct tax is paid to the State authorities. Justice S.R. Krishna Kumar observed that since the assessee had wrongly paid IGST and later paid the correct tax to the State GST, the Central government must refund IGST to the assessee....
The Karnataka High Court has held that the Centre cannot retain wrongly paid IGST (Integrated Goods and Services Tax) once the correct tax is paid to the State authorities.
Justice S.R. Krishna Kumar observed that since the assessee had wrongly paid IGST and later paid the correct tax to the State GST, the Central government must refund IGST to the assessee.
The assessee/appellant is a Science and Technology Company operating across healthcare, life science and electronics and has been engaged in providing intermediary services to foreign entities.
The assessee was under the bona fide belief that the services provided by them to the foreign entity qualified as export of services and accordingly, paid IGST under the provisions of the Integrated Goods and Services Tax Act, 2017.
Subsequently, the assessee, having realised that the services rendered by them did not qualify as export of services and that the same was not an Inter-State supply, but was actually in fact Intra-State supply, discharged and paid State GST under the Provisions of the Karnataka Goods and Services Tax Act, 2017.
Subsequently, a refund application was filed by the assessee before the Central Tax Authorities. The Central Tax Authorities issued a refund rejection notice on the grounds that the refund application was barred by limitation.
The assessee argued that Rule 89(1A) of the CGST Rules, 2017 and Section 54 of the CGST Act, which provides a period of 2 years, is directory and not mandatory.
The assessee relied upon Section 19(1) of the IGST Act, 77(1) of the CGST Act read with Rule 89(1A) of the CGST Rules, 2017 and argued that the source of power to grant a refund emanates from these provisions and not Section 54 of the CGST Act, which was inapplicable to a case where authorities had retained the amount paid by the assessee, especially when the same amount had been paid by the assessee to the State GST Authorities.
The department submitted that the provisions contained in Section 54 of the CGST Act and Rule 89(1A) of the CGST Rules, 2017 are mandatory and not directory and any refund application filed beyond the period of 2 years from when it becomes due was not maintainable and has been rightly rejected by the Assistant Commissioner of Central Taxes.
The bench referred to a few judgments and noted that Section 54 of the CGST Act and Rule 89(1A) of the CGST Rules, 2017 have been held to be directory and not mandatory.
The bench stated that having regard to Article 265 of the Constitution of India, the Central GST authorities were not entitled to collect IGST from the assessee, who was not liable to pay the same and consequently, upon the assessee paying the same amount to the State GST authorities subsequently, the Centre was not entitled to retain the IGST and consequently, by applying the principles of restitution and unjust enrichment, the Centre was obligated to refund IGST back to the assessee.
The Court opined that the assessee is entitled to a refund of the amount undisputedly paid by him towards IGST.
The bench held that the assessee's refund application/claim is not barred by limitation.
In view of the above, the bench allowed the petition.
Case Title: M/s Merck Life Science Pvt. Ltd. v. Union of India
Case Number: WRIT PETITION NO. 27259 OF 2024 (T-RES)
Counsel for Petitioner/Assessee: Bharat B. Raichandani and Raaghul Piraanesh
Counsel for Respondent/Department: Swati Panduranga and Aravind V. Chavan
Citation No: 2025 LiveLaw (Kar) 395