M/S Merek Life Science Private Limited vs The Union Of India on 7 November, 2025
AI Legal Insights
This GST case law examines the applicability of Section 54 of the CGST Act, 2017, concerning the limitation period for GST refund claims. The Karnataka High Court addressed whether the two-year limitation period applies strictly to Integrated Goods and Services Tax (IGST) refunds when the tax was initially paid under the mistaken belief that the supply was inter-state, subsequently determined to be intra-state, and CGST/SGST was paid. The court considered whether such claims are barred by limitation or if the provisions should be interpreted as directory.
This case provides significant relief to taxpayers who have inadvertently paid the wrong tax (IGST instead of CGST/SGST) and filed refund claims beyond the standard limitation period. It clarifies that the department must consider refunds based on merit, even with delays, preventing unjust enrichment by the government.
- Section 54 limitation for GST refunds is directory for payments made under mistake of law.
- Section 17 of the Limitation Act, 1963, applies when tax is paid under a mistake.
- Tax authorities have a duty to assist taxpayers in rectifying GST deficiencies.
- Refunds should not be denied on technical grounds if the initial application was timely.
- Retention of wrongly paid IGST constitutes unjust enrichment if CGST/SGST already paid.
QIs there a time limit to claim GST refund?
Generally, Section 54 of the CGST Act, 2017, prescribes a two-year limitation period to claim a GST refund. However, this case clarifies that the limitation period is directory, not mandatory, for taxes paid under a mistake of law.
QWhat happens if I pay IGST instead of CGST and SGST?
If IGST is wrongly paid instead of CGST and SGST, you are entitled to claim a refund of the wrongly paid IGST. The Karnataka High Court clarified that if the refund claim is delayed due to the mistake, the claim cannot be rejected solely on limitation grounds, and the department should consider the claim on its merits.
QWhat is unjust enrichment under GST law?
Under GST law, unjust enrichment arises when the government retains wrongly collected tax, especially when the correct tax has already been paid. The Merek Life Science case highlights that retaining wrongly paid IGST, after CGST/SGST has been paid for an intra-state supply, violates constitutional principles and amounts to unjust enrichment.
Ruling Summary
Merek Life Science Private Limited vs The Union Of India on 7 November, 2025**
1. Outcome
The Karnataka High Court allowed the petitions, set aside the impugned orders rejecting the refund claims on grounds of limitation, held that the refund claims were not barred by limitation, and remitted the matters back to the Assistant Commissioner of Central Taxes for passing fresh orders on the merits of the refund applications within three months.
2. Core Issue
The core issue was whether the refund claims for Integrated Goods and Services Tax (IGST), wrongly paid by the petitioner on services initially considered as inter-state supply but later determined to be intra-state supply (for which CGST and SGST were subsequently paid), were barred by the two-year limitation period prescribed under Section 54 of the CGST Act, 2017, read with Rule 89(1A) of the CGST Rules, 2017. A subsidiary issue was whether these statutory provisions are mandatory or directory.
3. Key Facts
* M/s Merek Life Science Private Limited, a Science and Technology Company, provides intermediary services to foreign entities.
* For the periods of November 2017, July 2017, October 2017, August 2017, and September 2017, the petitioner, under a bonafide belief, paid IGST on these services, considering them as export of services (inter-state supply).
* Subsequently, the petitioner realized that these services were actually intra-state supplies and accordingly discharged State GST (CGST and SGST) by making payments in Form GSTR-3B for March 2018.
* The petitioner filed refund applications on 30.03.2024 with the Central Tax Authorities, seeking a refund of the wrongly paid IGST amounts (e.g., Rs. 52,63,596/-, Rs. 82,91,091/-, Rs. 69,88,339/-, Rs. 54,52,930/-, Rs. 52,72,686/-).
* The Assistant Commissioner of Central Taxes (Respondent No. 3) issued refund rejection notices and impugned orders (dated 25.05.2024 and 27.05.2024), rejecting the refund claims solely on the ground that they were barred by limitation under Section 54 of the CGST Act.
* The Revenue did not dispute that the IGST was paid in excess and that the correct CGST/SGST was subsequently paid for the same transactions.
4. Arguments
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Taxpayer (M/s Merek Life Science Private Limited):
- The refund claims arise from tax wrongly paid due to a bonafide mistake (treating intra-state supply as inter-state supply).
- The power to grant such refunds stems 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. Section 54 of the CGST Act, dealing with general refund claims, is not applicable in this specific scenario.
- The Central Authorities are not entitled to retain tax collected without the authority of law, especially when the correct tax has been paid to the State Authorities. This violates Article 265 of the Constitution and the principle of unjust enrichment.
- The limitation period under Section 54 of the CGST Act and Rule 89(1A) is directory, not mandatory, as supported by judicial precedents from other High Courts.
- Relied on CBIC Circular No. 162/18/2021-GST dated 25.09.2021, which clarifies the interpretation of "subsequently held" to include self-realization of incorrect supply type and sets the relevant date for limitation under Rule 89(1A).
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Revenue (Union of India, CBIC, Assistant Commissioner):
- The refund applications were filed beyond the two-year limitation period stipulated in Section 54 of the CGST Act and Rule 89(1A) of the CGST Rules.
- These provisions are mandatory, and thus, applications filed beyond the prescribed period are not maintainable and were correctly rejected.
- The department merely followed the law by verifying the claim, issuing a show cause notice, granting a hearing, and passing a speaking order rejecting the claim due to time limitation.
5. Court’s Reasoning
* Interpretation of Statutory Provisions: The Court examined Section 77(1) of the CGST Act and Section 19(1) of the IGST Act, which specifically provide for refunds when tax is wrongfully paid on a transaction initially considered as intra-state/inter-state but subsequently held to be the other type of supply. Rule 89(1A) of the CGST Rules prescribes the manner and conditions for such refunds, including a two-year period from the date of payment of tax under the correct head or from the notification date of the rule (24.09.2021) if payment was earlier.
* Revenue's Admission: The Court noted that the respondents admitted the petitioner’s excess IGST payment to the Central Authorities and the subsequent correct payment of CGST/SGST to the State Authorities. The only point of contention was limitation.
* Precedents on Limitation: The Court relied heavily on the Madras High Court judgment in Lenovo (India) Pvt. Ltd. and the Andhra Pradesh High Court judgments in Louis Dreyfus Company Pvt. Ltd. and Nspira Management Services Private Limited. These judgments uniformly held that:
* Section 54 of the CGST Act and Rule 89(1A) are directory, not mandatory, for refunds of tax paid under a mistake of law or without authority of law.
* Where tax is collected without authority of law (violating Article 265 of the Constitution), it does not constitute a "tax" under the GST Act, and therefore, the limitation period under Section 54 does not apply. In such cases, Section 17 of the Limitation Act, 1963 (for relief from consequences of a mistake) would apply, with the limitation period commencing from the date the mistake is discovered.
* The department has a duty to assist taxpayers in rectifying deficiencies, and legitimate refund claims should not be denied due to technical irregularities or delays in document submission if the initial application was within time.
* Constitutional Mandate and Unjust Enrichment: The Court emphasized Article 265, stating that the Central GST authorities had no legal authority to collect the IGST once it was established that the supply was intra-state. Retaining this amount, especially after the correct tax was paid to the State, would amount to unjust enrichment and violate constitutional principles.
* Conclusion: The Court concluded that the impugned orders rejecting the refund claims based on limitation were contrary to law and facts. The refund claims were therefore not barred by limitation.
* Remand for Merits: As the Assistant Commissioner had not adjudicated the refund claims on their merits but only rejected them on limitation, the Court remitted the cases for fresh consideration and orders on the refund applications within the stipulated timeframe, incorporating the Court's observations.
6. Statutory References
* Constitution of India: Article 226, Article 265
* Integrated Goods and Services Tax Act, 2017 (IGST Act): Section 19(1)
* Central Goods and Services Tax Act, 2017 (CGST Act): Section 54, Section 77(1), Section 168(1)
* Central Goods and Services Tax Rules, 2017 (CGST Rules): Rule 89(1A)
* Notifications & Circulars:
* CBIC Circular No. 162/18/2021-GST dated 25.09.2021
* Notification No. 35/2021-Central Tax dated 24.09.2021
7. Precedents Cited
* Lenovo (India) Pvt. Ltd. v. Joint Commissioner of GST (Appeals-1) - [(2023) 12 Centax 230 (Mad.)]: Madras High Court held Section 54 of CGST Act to be directory and emphasized the department's duty to assist taxpayers for legitimate refunds, not rejecting on technicalities or delay in submitting supporting documents if the application was timely.
* Louis Dreyfus Company Pvt. Ltd. v. Union of India - (2025) 33 Centax 418 (A.P.): Andhra Pradesh High Court held that tax collected without authority of law is not "tax" under the GST Act, thus Section 54 limitation does not apply; Section 17 of the Limitation Act, 1963 applies for claims made under a mistake of law.
* Nspira Management Services Private Limited v. Assistant/Deputy Commissioner of Central Tax - W.P.Nos.18287 & 14905 of 2024 (A.P., dated 26.09.2025): Andhra Pradesh High Court reiterated the principles from Louis Dreyfus, directing reconsideration of refund applications without invoking limitation where tax was wrongly paid for exempted services.
* Comsol Energy Private Limited v. State of Gujarat (Gujarat High Court): (Cited in AP High Court judgments) Held Section 54 of CGST Act inapplicable for amounts collected without authority of law (violating Article 265), and Section 17 of the Limitation Act applies.
* Binani Cement Ltd. v. Union of India, (2013) 288 ELT 193 (Guj): (Cited in Gujarat High Court judgments) Held that illegal duty collection violates Article 265, and special law limitation doesn't apply; Limitation Act applies.
* Gokul Agro Resources Ltd. v. Union of India (Gujarat High Court, Special Civil Application No. 1758 of 2020): (Cited in Gujarat High Court judgments) Directed processing of refund for wrongly paid IGST without raising technical issues.
* State of Madhya Pradesh v. Bhailal Bhai (Hon'ble Supreme Court): (Cited in AP High Court judgments) Held that High Courts can direct refund of money realized by the government without authority of law under Article 226.
* Union of India v. Mohit Minerals (Hon'ble Supreme Court, 19.05.2022) & Mohit Minerals Pvt. Ltd. v. Union of India (Gujarat High Court, 23.01.2020): (Cited in AP High Court judgments) Judgments striking down notifications imposing GST on ocean freight, establishing that such collections were without authority of law, and that the Supreme Court's declaration of law was retrospective.
* Baburam v. C.C. Jacob (Hon'ble Supreme Court): (Cited by Revenue in Louis Dreyfus, distinguished by AP High Court) Concerned prospective application of law, which was deemed inapplicable to the Mohit Minerals context.
Key Legal Principles
- Section 54 of the CGST Act and Rule 89(1A) are directory, not mandatory, for refunds of tax paid under a mistake of law or without authority of law.
- Where tax is collected without authority of law (violating Article 265 of the Constitution), it does not constitute a "tax" under the GST Act, and therefore, the limitation period under Section 54 does not apply. In such cases, Section 17 of the Limitation Act, 1963 (for relief from consequences of a mistake) would apply, with the limitation period commencing from the date the mistake is discovered.
- The department has a duty to assist taxpayers in rectifying deficiencies, and legitimate refund claims should not be denied due to technical irregularities or delays in document submission if the initial application was within time.
- **Constitutional Mandate and Unjust Enrichment:** The Court emphasized Article 265, stating that the Central GST authorities had no legal authority to collect the IGST once it was established that the supply was intra-state. Retaining this amount, especially after the correct tax was paid to the State, would amount to unjust enrichment and violate constitutional principles.
- **Conclusion:** The Court concluded that the impugned orders rejecting the refund claims based on limitation were contrary to law and facts. The refund claims were therefore not barred by limitation.
- **Remand for Merits:** As the Assistant Commissioner had not adjudicated the refund claims on their merits but only rejected them on limitation, the Court remitted the cases for fresh consideration and orders on the refund applications within the stipulated timeframe, incorporating the Court's observations.