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GST paid for Exempted Supply by mistake must be Refunded without applying Time Line of Section 54

Hon'ble Delhi HC in the case of Delhi Metro Rail Corporation Ltd (W.P.(C) 6793/2023) has held on 18 September, 2023 that Refund of GST Paid on Exempted Supply can not be denied on the ground of limitation (Time Period of Two Years) as prescribed under Section-54. (Copy of Order is provided in the end of the Article).

In this article, we will discuss legal Provisions regarding the matter.

Brief Facts of the Case

The DMRC was engaged by Surat Municipal Corporation for preparation of a project report for the purpose of development of Metro Rail Project for the City of Surat, Gujarat. In terms of its engagement, the DMRC rendered services for the preparation of Detailed Project Report for the aforementioned project. And on 11.08.2017, raised an invoice of an amount of ₹19,04,520/- for the services rendered. The invoiced amount included Goods and Services Tax (GST) of ₹2,90,520/- computed at the rate of 18%.

Surat Municipal Corporation did not pay the GST amount. Thereafter, DMRC paid the GST amount on its own in GSTR-3B of August-2017.

Later on, Surat Municipal Corporation informed that in terms of Notification no.12/2017 - Central Tax (Rate) dated 28.06.2017 issued by the Ministry of Finance, Government of India, the services billed under the invoice dated 11.08.2017, were not chargeable to GST.

Accordingly, DMRC filed Refund application on 02.05.2022. However, Department rejected the refund on the ground it has become time-barred as per the provisions of Section-54. (Time Line is Two Years from relevant date).

Basis of Judgement (as per our interpretation)

It is the DMRC’s case that retaining the amount paid under a mistake would amount to collection of tax without the authority of law and thus, violates Article 265 of the Constitution of India.

Section 54 of the CGST Act is applicable only for claiming refund of any tax paid under the provisions of the CGST Act and/or the CGST Act.

The amount collected by the Revenue without authority of law is not considered as tax collected by them and, therefore, Section 54 is not applicable.

Article 265 of the Constitution of India proscribes any levy or collection of tax except by authority of law. Concededly, GST is not payable by the DMRC in respect of the service of preparation of Detailed Project Report.

Thus, the amount of ₹2,90,520/- deposited by the DMRC on an erroneous belief that payment for services rendered by it were chargeable to tax, cannot be retained by the Department.

The period of limitation for applying for a refund as prescribed under Section 54 of the CGST Act, would not apply where GST is not chargeable and it is established an amount has been deposited under a mistake of law.

Similar view has been taken by Hon'ble Gujarat High Court in the case of M/s Cosmol Energy Private Limited v. State of Gujarat (Refund of IGST on Ocean Freight once it was held that it is not taxable) wherein it was held that in such cases Limitation under Section 54 will not apply but Section of 17 will apply which provides that in case of mistake, Limitation Period will start from the day when such mistake comes to the notice.

Additional Information: Even Section 72 of the Indian Contract Act prescribes that: A person to whom money has been paid, or anything delivered, by mistake or under coercion, must repay or return it.


In view of the above, we set aside the impugned order dated 24.02.2023 as well as the refund rejection order dated 04.07.2022 and direct the respondents to process the DMRC’s claim for refund of ₹2,90,520/-.

Copy of the Order

Delhi Metro Judgement_Time Barred of Refund
Download PDF • 697KB

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Disclaimer: We did interpretation of Hon’ble High Court Decision for purely academic purpose. In case, there is any mistake in understanding of the order, we are apologised to the Hon'ble High Court and the Readers.

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