Finding that the payment in excess made by the petitioner to the Central Revenue Authorities was neither contested nor disputed by the Authorities, the Karnataka High Court (Bengaluru Bench) ruled that the payment erroneously made in favour of the Central GST Authorities towards IGST before making a similar payment to the State GST Authorities cannot be retained illegally.
The Court explained that the limitation period for claiming a refund as per Section 54 of the CGST Act and Rule 89(1A) of the CGST Rules, 2017, is directory and not mandatory, and having regard to Article 265 of the Constitution, the Central GST authorities are not entitled to collect IGST from the petitioner, who was not liable to pay the same.
Also, upon the petitioner paying the IGST to the State GST authorities, the Centre was not entitled to retain the IGST. Therefore, applying the principles of restitution and unjust enrichment, the Court directed the Centre to refund the IGST to the petitioner.
A Single Judge Bench of Justice S.R. Krishna Kumar referred to Section 77(1) of the CGST Act to observe that the taxpayer who pays tax to the Central Authority by oversight, inadvertence and erroneously, would be entitled to a refund of the amount of taxes so paid in such manner and subject to such conditions as may be prescribed.
The Single Judge also quoted Section 19(1) of the IGST Act, which relates to the Inter-State supply, to explain that if an Integrated Tax on a supply considered by the taxpayer to be an Inter-State supply is subsequently held to be an Inter-State supply, then such taxpayer shall be granted refund of the amount of integrated tax so paid in such manner and subject to such conditions as may be prescribed.
Further, the Bench pointed out that Rule 89(1A) of the CGST Rules, 2017, stipulates that the refund claim under Section 77 of the CGST Act and Section 19 of the IGST Act would have to be made within a period of 2 years from the date of payment by applying in the prescribed format.
Briefly, the petitioner company, operating across healthcare, life science and electronics, and engaged in providing intermediary services to foreign entities, received commission income. Believing that the services provided by them to the foreign entity qualified as export of services, the petitioner paid IGST in their GST or 3B returns. However, subsequently realising 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 in fact an Intra-State supply, they discharged and paid State GST under the provisions of the Karnataka GST Act, 2017.
Later, the petitioner claimed a refund in terms of terms of Section 19(1) of the IGST Act and Section 77(1) of the CGST Act, 2017, read with Rule 89(1A) of the CGST Rules, 2017, contending that they had erroneously paid the taxes to the Central Authorities under the bona fide belief that it was an Inter-State supply. The Department, however, rejected the refund on the grounds of being barred by limitation in terms of the provisions of Section 54 of the CGST Act.
Appearances:
Advocates Bharat B. Raichandani and Raaghul Piraanesh, for the Petitioner/ Taxpayer
Advocate Swati Panduranga and Aravind V. Chavan, for the Respondent/ Revenue
