M/S Merck Life Science Private Limited vs The Union Of India on 7 November, 2025
AI Legal Insights
This GST case law analysis examines M/S Merck Life Science Private Limited vs The Union Of India, concerning Section 54 of the CGST Act and the limitation period for GST refund claims. The Karnataka High Court addressed whether the two-year limit applies when IGST is erroneously paid on transactions later classified as intra-state supply. The central issue was whether refund applications were time-barred. The court determined that when tax is collected without legal authority, the limitation period is directory and the claims must be adjudicated on merit. This case clarifies the scope of Section 54 in cases of unlawful tax collection.
This ruling protects taxpayers from losing legitimate refund claims when IGST is erroneously paid. It clarifies that strict time limits may not apply when tax collection violates Article 265 of the Constitution, safeguarding taxpayer rights against unlawful tax levies.
- Section 54 limitation for GST refunds is directory, not mandatory, for taxes collected unlawfully.
- Tax collected without legal authority is not a valid tax under Article 265.
- General principles of restitution or the Limitation Act may apply to illegally collected taxes.
- Refund claims rejected solely on limitation without merit review are invalid.
- Taxpayers can pursue refunds beyond two years for taxes paid under a mistake of law.
QIs there a time limit to claim GST refund?
Generally, Section 54 of the CGST Act prescribes a two-year time limit to claim a GST refund from the relevant date. However, the Karnataka High Court clarified in M/S Merck Life Science Private Limited vs The Union Of India that this limitation is directory and not mandatory when the tax was collected without legal authority.
QWhat happens if GST is paid by mistake?
If GST is paid by mistake, particularly without the authority of law violating Article 265, it is considered a payment under a mistake of law rather than a valid tax. In such instances, the standard limitation period under Section 54 may not strictly apply, allowing for potential restitution based on broader legal principles.
Ruling Summary
Outcome
The High Court allowed the petitions, setting aside the impugned orders passed by Respondent No.3 (Assistant Commissioner of Central Taxes). It held that the taxpayer's refund applications/claims were not barred by limitation**. The matters were remitted back to Respondent No.3 for passing appropriate orders on the refund applications on their merits, within a period of three months.
2. Core Issue
The core issue was whether the refund applications filed by the taxpayer for IGST erroneously paid on transactions (initially considered inter-State supply but subsequently held to be intra-State supply) were barred by the two-year period of limitation prescribed under Section 54 of the CGST Act and Rule 89(1A) of the CGST Rules, 2017.
3. Key Facts
* M/s Merck Life Science Private Limited (taxpayer) is a company providing intermediary services to foreign entities.
* For the periods November 2017, July 2017, October 2017, August 2017, and September 2017, the taxpayer initially paid Integrated Goods and Services Tax (IGST) to the Central Government, believing these services constituted "export of services" (inter-State supply).
* Subsequently, the taxpayer realized these services were actually "intra-State supply" and accordingly paid the correct State Goods and Services Tax (SGST) to the State GST Authorities in March 2018.
* The taxpayer filed refund applications with the Central Tax Authorities on 30.03.2024 to claim back the IGST erroneously paid.
* Respondent No.3 (Assistant Commissioner of Central Taxes) rejected these refund applications through orders dated 25.05.2024 and 27.05.2024, solely on the ground that they were barred by limitation under Section 54 of the CGST Act.
* The Revenue admitted that the taxpayer had paid IGST in excess to the Central Authorities and subsequently paid CGST/SGST for the same transactions to the State Authorities, disputing only the maintainability of the refund claims due to limitation.
4. Arguments (Taxpayer vs Revenue)
* Taxpayer:
* The refund claim falls under Section 19(1) of the IGST Act and Section 77(1) of the CGST Act, read with Rule 89(1A) of the CGST Rules, which specifically address situations of tax wrongfully collected.
* Section 54 of the CGST Act, prescribing a two-year limitation period, is directory in nature and not mandatory, as supported by judgments from the Madras and Andhra Pradesh High Courts.
* The Central Authorities are not entitled to retain the erroneously paid IGST under the principle of unjust enrichment, especially since the correct tax (SGST) has already been paid to the State Authorities. Such retention would be against Article 265 of the Constitution (no tax without authority of law).
* CBIC Circular No. 162/18/2021-GST clarifies that "subsequently held" (referring to the change in classification from inter-State to intra-State or vice-versa) includes self-realization by the taxpayer, further supporting the refund claim.
* Revenue:
* The refund applications filed on 30.03.2024 were beyond the statutory limitation period of two years prescribed by Section 54 of the CGST Act and Rule 89(1A) of the CGST Rules, 2017.
* These provisions for limitation are mandatory, and any application filed beyond this period is not maintainable.
* The taxpayer failed to file the refund applications within the stipulated time, calculated to be by February 2024, taking into account Notification No.13/2022-Central Tax.
* The department followed due process by issuing show-cause notices and granting personal hearings before rejecting the claims based on limitation.
5. Court’s Reasoning
* The Court found that Section 77(1) of the CGST Act and Section 19(1) of the IGST Act, read with Rule 89(1A) of the CGST Rules, are the relevant provisions for claiming refunds when tax is wrongfully paid due to misclassification of supply.
* The Court highlighted the Revenue's admission that the IGST was paid in excess to the Central Authorities and the corresponding CGST/SGST was subsequently paid to the State Authorities, confirming the erroneous payment.
* The Court heavily relied on precedents from the High Court of Madras (Lenovo (India) Pvt. Ltd. v. Joint Commissioner of GST) and the High Court of Andhra Pradesh (Louis Dreyfus Company Pvt. Ltd. v. Union of India and Nspira Management Services Private Limited v. Assistant/Deputy Commissioner of Central Tax). These judgments held that:
* Section 54 of the CGST Act is directory and not mandatory, particularly in cases where tax is collected without the authority of law.
* When tax is levied without the authority of law (violating Article 265 of the Constitution), such collection is not a valid "tax," but rather a payment made under a mistake of law. In such circumstances, the specific limitation under Section 54 of the GST Act may not apply, and general principles of restitution or the Limitation Act might be relevant.
* Applying the principles of restitution and unjust enrichment, the Court held that the Central GST Authorities were not entitled to retain the IGST erroneously collected, especially since the correct State GST had been paid. The Central government was obligated to refund the IGST.
* The Court concluded that the impugned orders, which rejected the refund claims solely on the ground of limitation, were contrary to facts and law. The refund claims were therefore deemed not barred by limitation.
* Since Respondent No.3 had not decided the refund claims on their merits, the Court remitted the matters for fresh adjudication on merits.
6. Statutory References
* Constitution of India: Article 226, Article 265
* Integrated Goods and Services Tax Act, 2017 (IGST Act): Section 19(1), Section 16(3)(a), Section 16(3)(b)
* 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), Rule 90(2), Rule 90(3), Rule 92(3)
* Limitation Act, 1963: Section 17(1) (mentioned in cited precedents)
* Special Economic Zones (SEZ) Act (mentioned in cited precedents)
* SEZ Rules, 2006: Rule 30(4) (mentioned in cited precedents)
* Companies Act, 2013
7. Precedents Cited
* Lenovo (India) Pvt. Ltd. vs. Joint Commissioner of GST (Appeals-1) - [(2023) 12 Centax 230 (Mad.)] (Madras High Court)
* Louis Dreyfus Company Pvt. Ltd. vs. Union of India - [(2025) 33 Centax 418 (A.P.)] (Andhra Pradesh High Court)
* Nspira Management Services Private Limited vs. Assistant/Deputy Commissioner of Central Tax - [W.P.Nos.18287 and 14905/2024 dated 26.09.2025] (Andhra Pradesh High Court)
* Mohit Minerals Pvt. Ltd. v. Union of India (Gujarat High Court)
* Union of India v. Mohit Minerals (Supreme Court)
* Baburam v. C.C. Jacob (Supreme Court)
* 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)
* State of Madhya Pradesh v. Bhailal Bhai (Supreme Court)
* CBIC Circular No. 14 of 1955 dated April 11, 1955
* CBIC Circular No.162/18/2021-GST dated 25th September, 2021
Key Legal Principles
- Section 54 of the CGST Act is **directory and not mandatory**, particularly in cases where tax is collected without the authority of law.
- When tax is levied without the authority of law (violating Article 265 of the Constitution), such collection is not a valid "tax," but rather a payment made under a mistake of law. In such circumstances, the specific limitation under Section 54 of the GST Act may not apply, and general principles of restitution or the Limitation Act might be relevant.
- The Court concluded that the impugned orders, which rejected the refund claims solely on the ground of limitation, were contrary to facts and law. The refund claims were therefore deemed not barred by limitation.
- Since Respondent No.3 had not decided the refund claims on their merits, the Court remitted the matters for fresh adjudication on merits.