M/S Merck Life Science Private Limited vs The Union Of India on 7 November, 2025
AI Legal Insights
This GST case law examines M/S Merck Life Science Private Limited vs. The Union Of India, concerning Section 54 of the CGST Act and Rule 89(1A) of the CGST Rules. The core issue was whether the two-year limitation period barred refund claims for IGST wrongly paid on transactions initially considered inter-state supply but later correctly paid as intra-state supply (CGST/SGST). The Karnataka High Court allowed the petition, setting aside the rejection orders and remanding the matter for a decision on merits, emphasizing the CBIC circular on 'subsequently held' and principles of unjust enrichment. This case provides clarity on GST refund timelines in cases of tax misclassification.
This case clarifies the timeline for claiming GST refunds when taxes are initially misclassified. Taxpayers can now rely on the CBIC circular to claim refunds from the date of correct tax payment, reducing disputes with the department over limitation issues.
- Refunds for wrongly paid IGST, later adjusted as CGST/SGST, are not barred by limitation if claimed per CBIC Circular 162/18/2021-GST.
- The limitation period for such refunds starts from the date of payment of tax under the correct head.
- Taxpayers can claim refunds even if they themselves realize the initial tax payment error.
- Authorities must consider the merits of refund claims, not just limitation, before rejection.
- Principles of restitution and unjust enrichment prevent the government from retaining wrongly paid taxes.
QWhat is the time limit to claim GST refund for wrongly paid tax?
As per CBIC Circular 162/18/2021-GST and this case, the limitation period for claiming a GST refund for wrongly paid tax, later adjusted under the correct head, starts from the date of payment of tax under the correct head, or from 24.09.2021 if the correct payment was made earlier.
QWhat happens if my GST refund is rejected due to limitation?
If a GST refund is rejected solely on the grounds of limitation without considering the merits, this case suggests that the rejection order can be challenged. The matter may be remanded back to the assessing officer for a decision on the merits of the refund claim, as happened in M/S Merck Life Science Private Limited.
Ruling Summary
Outcome**
The petitions are allowed. The impugned orders passed by the Assistant Commissioner of Central Taxes (Respondent No.3) rejecting the refund claims are set aside. The High Court held that the refund applications/claims of the petitioner are not barred by limitation. The matters are remitted back to Respondent No.3 to pass appropriate orders on the refund applications on merits, in accordance with law and the observations made by the Court, within three months.
2. Core Issue
The core issue is whether the refund applications for IGST wrongly paid on transactions initially considered as inter-state supply (export of services), but subsequently realized and correctly paid as intra-state supply (CGST/SGST), are barred by the two-year period of limitation prescribed under Section 54 of the Central Goods and Services Tax Act, 2017 (CGST Act) read with Rule 89(1A) of the CGST Rules, 2017.
3. Key Facts
* Petitioner: M/S Merck Life Science Private Limited, a science and technology company providing intermediary services to foreign entities.
* Disputed Periods: November 2017, July 2017, October 2017, August 2017, and September 2017.
* Initial Payment: Petitioner initially believed its services qualified as "export of services" (inter-state supply) and accordingly paid IGST (amounts ranging from Rs. 52,63,596/- to Rs. 82,91,091/- for various periods) in its GSTR-3B returns (filed between July 2017 to December 2017).
* Subsequent Realization & Correct Payment: Petitioner later realized that the services were in fact "intra-state supply" and discharged/paid the correct State GST (CGST/SGST) in Form GSTR-3B in March 2018.
* Refund Application: A refund application for the wrongly paid IGST was filed on 30.03.2024 with the Central Tax Authorities.
* Rejection by Authorities: Respondent No.3 issued refund rejection notices (08.05.2024) and final orders (25.05.2024 & 27.05.2024), rejecting the claims solely on the ground of being barred by limitation under Section 54 of the CGST Act.
* Authorities' Admission: The respondents, in their Statement of Objections, did not dispute that the petitioner had paid the IGST in excess and subsequently discharged the correct CGST/SGST, but maintained that the refund claim was time-barred.
4. Arguments (Taxpayer vs Revenue)
* Taxpayer's Arguments:
* The power to grant refund for wrongly paid tax is derived from Section 19(1) of the IGST Act and Section 77(1) of the CGST Act read with Rule 89(1A) of the CGST Rules, not Section 54 of the CGST Act, which is inapplicable to such scenarios.
* The Central Authorities are not entitled to retain the wrongly collected IGST, especially after the petitioner paid the correct tax to the State GST Authorities, citing the doctrine of unjust enrichment and Article 265 of the Constitution.
* The two-year limitation period under Section 54 of the CGST Act and Rule 89(1A) of the CGST Rules is directory, not mandatory, as held by the Madras and Andhra Pradesh High Courts in similar cases.
* Relied on CBIC Circular No. 162/18/2021-GST, which clarifies that "subsequently held" includes self-realization by the taxpayer and sets out specific dates for calculating the limitation for refund claims under Section 77/19.
- Revenue's Arguments:
- The refund application filed on 30.03.2024 was beyond the two-year limitation period stipulated in Section 54 of the CGST Act and Rule 89(1A) of the CGST Rules.
- These provisions for limitation are mandatory, not directory.
- The refund claims were rightly rejected as being time-barred, even if the fact of excess payment was not disputed.
- The department followed due process, issued notices, and granted personal hearings before concluding that the claims were time-barred.
5. Court’s Reasoning
* Reliance on Precedents: The Court heavily relied on and expressly agreed with the principles laid down by the Madras High Court in Lenovo (India) Pvt. Ltd v. Joint Commissioner of GST (Appeals-1) and the Andhra Pradesh High Court in Louis Dreyfus Company Pvt. Ltd. v. Union of India and Nspira Management Services Private Limited v. Assistant/Deputy Commissioner of Central Tax.
* Limitation Period is Directory: Following the cited precedents, the Court held that the two-year limitation period specified in Section 54 of the CGST Act and Rule 89(1A) of the CGST Rules is directory in nature, not mandatory, particularly in cases of tax wrongly paid under a mistake of law.
* Constitutional Mandate & Unjust Enrichment: Reiterated that under Article 265 of the Constitution, no tax can be collected without the authority of law. Since the IGST was wrongly paid and the correct state taxes were subsequently paid, the Central GST authorities were not entitled to retain the IGST. Principles of restitution and unjust enrichment necessitate the refund.
* CBIC Circular on "Subsequently Held": Acknowledged CBIC Circular No. 162/18/2021-GST, which clarifies that the term "subsequently held" in Section 77 (CGST Act) and Section 19 (IGST Act) includes situations where the taxpayer himself realizes the error. The Circular also provides that the limitation period for such refunds starts from the date of payment of tax under the correct head, or from 24.09.2021 (the date of notification of Rule 89(1A)) if the correct payment was made earlier.
* Admission of Facts: The Court noted that the respondents did not dispute the factual matrix of the petitioner having wrongly paid IGST and subsequently having paid the correct CGST/SGST. Their sole ground for rejection was limitation.
* Remand for Merits: Since the Assistant Commissioner had only rejected the claims on the ground of limitation without addressing the merits of the refund, the Court deemed it appropriate to set aside the rejection orders and remand the matter for a decision on the merits.
6. Statutory References
* Article 226 of the Constitution of India
* Article 265 of the Constitution of India
* Integrated Goods and Services Tax Act, 2017 (IGST Act): Section 16(3)(a), 16(3)(b), 19(1)
* Central Goods and Services Tax Act, 2017 (CGST Act): Section 34, 39, 49(6), 54(1) to (14) (and its Explanation), 55, 56, 57, 77(1), 77(2), 168(1)
* Karnataka Goods and Services Tax Act, 2017
* Central Goods and Services Tax Rules, 2017 (CGST Rules): Rule 89(1A), 89(2), 89(3), 90(2), 90(3), 92(3); Forms GST RFD-01, RFD-02, RFD-03, RFD-06, RFD-08, RFD-09
* Limitation Act, 1963: Section 17(1)
* Special Economic Zones Act, 2005 (SEZ Act): Section 16
* Special Economic Zones Rules, 2006 (SEZ Rules): Rule 30(4)
* United Nations (Privileges and Immunities) Act, 1947
* Notification No. 8/2017-GST and Notification No. 10/2017-GST
* Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017
* Notification No. 13/2022-Central Tax dated 05.07.2022
* Notification No. 35/2021-Central Tax dated 24.09.2021
* Circular No. 125/44/2019-GST dated 18.11.2019 (CBIC)
* Circular No. 162/18/2021-GST dated 25.09.2021 (CBIC)
* CBDT Circular No. 14 of 1955 dated 11.04.1955
7. Precedents Cited
* Lenovo (India) Pvt. Ltd v. Joint Commissioner of GST (Appeals-1) - (2023) 12 Centax 230 (Mad.)
* Louis Dreyfus Company Pvt. Ltd. v. Union of India (2025) 33 Centax 418 (A.P.) [14-08-2025]
* Nspira Management Services Private Limited v. Assistant/Deputy Commissioner of Central Tax [W.P.Nos.18287 & 14905 of 2024] (Andhra Pradesh High Court)
* Mohit Minerals Pvt. Ltd. v. Union of India (Gujarat High Court decision dated 23.01.2020)
* Union of India v. Mohit Minerals (Supreme Court decision dated 19.05.2022)
* Comsol Energy Private Limited v. State of Gujarat (Gujarat High Court)
* Binani Cement Ltd. v. Union of India, (2013) 288 ELT 193 (Guj)
* Gokul Agro Resources Ltd. v. Union of India (Special Civil Application No. 1758 of 2020, decided on 26.02.2020) (Gujarat High Court)
* State of Madhya Pradesh v. Bhailal Bhai (Supreme Court)
* Baburam v. C.C. Jacob (Supreme Court)
* Sabharwal case, [(1995) 2 SCC 745: 1995 SCC (L&S) 548: (1995) 29 ATC 481] (referred in Baburam v. C.C. Jacob)
Key Legal Principles
- **Constitutional Mandate & Unjust Enrichment:** Reiterated that under Article 265 of the Constitution, no tax can be collected without the authority of law. Since the IGST was wrongly paid and the correct state taxes were subsequently paid, the Central GST authorities were not entitled to retain the IGST. Principles of restitution and unjust enrichment necessitate the refund.
- **CBIC Circular on "Subsequently Held":** Acknowledged CBIC Circular No. 162/18/2021-GST, which clarifies that the term "subsequently held" in Section 77 (CGST Act) and Section 19 (IGST Act) includes situations where the taxpayer himself realizes the error. The Circular also provides that the limitation period for such refunds starts from the date of payment of tax under the correct head, or from 24.09.2021 (the date of notification of Rule 89(1A)) if the correct payment was made earlier.
- **Admission of Facts:** The Court noted that the respondents did not dispute the factual matrix of the petitioner having wrongly paid IGST and subsequently having paid the correct CGST/SGST. Their sole ground for rejection was limitation.
- **Remand for Merits:** Since the Assistant Commissioner had only rejected the claims on the ground of limitation without addressing the merits of the refund, the Court deemed it appropriate to set aside the rejection orders and remand the matter for a decision on the merits.