Introduction:
In a significant ruling safeguarding taxpayer rights under the Goods and Services Tax regime, the High Court of Jammu & Kashmir and Ladakh has held that the 2019 amendment to Section 54 of the Central Goods and Services Tax Act, 2017, which altered the computation of limitation for claiming refund of unutilised input tax credit, cannot be applied retrospectively to deny refund claims relating to periods prior to 1 February 2019. The judgment was delivered by a Division Bench comprising Justice Sindhu Sharma and Justice Shahzad Azeem while adjudicating a writ petition filed by Bharat Oil Traders, a registered partnership firm engaged in the business of refilling and sale of edible oil and ghee, against the Assistant Commissioner of GST and another authority. The case arose from the rejection of refund claims pertaining to accumulated input tax credit under an inverted duty structure for the period spanning July 2017 to March 2019, primarily on the ground of limitation introduced by a subsequent statutory amendment. The decision reiterates the settled constitutional principle that vested or accrued rights cannot be taken away by retrospective application of a law unless such intent is clearly expressed by the legislature, and it reinforces substantive justice over hyper-technical interpretation of limitation provisions under GST law.
Arguments of the Petitioner:
The petitioner, Bharat Oil Traders, through its counsel Sachin Sharma, contended that it was duly registered under the CGST and SGST laws and operated under an inverted tax structure, wherein the tax rate applicable on inward supplies exceeded the tax rate on outward supplies. Due to this structural imbalance, the petitioner consistently accumulated unutilised input tax credit and was statutorily entitled to claim refund under Section 54(3)(ii) of the CGST Act, 2017. It was argued that refund claims were filed for the relevant tax periods from July 2017 to March 2019, and the rejection of such claims solely on the ground of limitation was legally unsustainable. The petitioner asserted that at the time when the cause of action arose and the right to refund accrued, the unamended Section 54 governed the field, under which the limitation period of two years was reckoned from the end of the relevant financial year. The amendment brought in through Section 23 of the CGST (Amendment) Act, 2018, effective from 1 February 2019, which altered the starting point of limitation to the due date of filing the monthly return under Section 39, could not be retrospectively applied to periods prior to its enforcement. It was emphasized that the amendment curtailed the limitation period and therefore operated to the prejudice of taxpayers, making retrospective application impermissible in the absence of express legislative intent.
The petitioner further submitted that its refund application dated 2 February 2021 was well within the permissible period, particularly in light of CBIC Notification No. 13/2022, which excluded the period from 1 March 2020 to 28 February 2022 from computation of limitation due to the COVID-19 pandemic. It was contended that once such exclusion was applied, even otherwise borderline claims would fall squarely within limitation. The petitioner also challenged the rejection of refund claims for the period from January to March 2019, arguing that the authorities had failed to provide any cogent reasoning on alleged ineligibility of inputs, thereby violating principles of natural justice. According to the petitioner, denial of refund on technical grounds defeated the very objective of GST as a value-added tax system intended to avoid cascading effect of taxes.
Arguments of the Respondents:
On behalf of the State and tax authorities, Rohan Nanda, appearing for the respondents, defended the impugned orders primarily on the basis of statutory limitation. The respondents argued that the amendment to Section 54 of the CGST Act, which came into force on 1 February 2019, clearly stipulated that the two-year limitation period for filing refund claims would commence from the due date of furnishing the return under Section 39, and not from the end of the financial year as under the earlier regime. It was submitted that refund claims pertaining to the period from July 2017 to January 2018 were filed beyond the prescribed limitation even after considering the amended provision, and hence were rightly rejected. The respondents maintained that the amended provision was procedural in nature and therefore applicable to all pending and future claims, irrespective of the period to which the refund related.
However, during the course of hearing, the revenue fairly conceded that refund claims relating to the period from February 2018 to December 2018 could not be treated as time-barred in view of the limitation exclusion granted by CBIC Notification No. 13/2022. Despite this concession, the respondents persisted in their stand that refund claims for the earlier period from July 2017 to January 2018 were barred by limitation. They further argued that the petitioner could not claim a vested right in a procedural provision like limitation, and that the legislature was competent to modify such timelines in the interest of certainty and administrative efficiency. With regard to the rejection of refund claims for January to March 2019, the respondents sought to justify the decision by asserting ineligibility of certain inputs, though no detailed reasoning was demonstrated in the impugned orders.
Court’s Judgment:
After considering the rival submissions and examining the statutory framework, the High Court decisively ruled in favour of the petitioner. The Division Bench categorically held that an amendment which curtails or restricts the period of limitation cannot be applied retrospectively so as to divest a taxpayer of a right that had already accrued under the unamended law. The Court observed that the right to claim refund of unutilised input tax credit for periods prior to 1 February 2019 had already crystallised in favour of the petitioner under the original Section 54 of the CGST Act, which computed limitation from the end of the financial year. In the absence of an express provision conferring retrospective operation on the 2019 amendment, applying it to past periods would be legally impermissible.
The Bench rejected the contention that limitation provisions are always procedural, holding that where such provisions have the effect of extinguishing substantive rights, they cannot be retrospectively enforced. The Court underscored that GST refunds are not a concession but a statutory right, particularly in cases of inverted duty structure where accumulation of credit is inevitable. It further noted that the approach of the tax authorities in rejecting refund claims purely on technical grounds of limitation was contrary to the scheme and objectives of the GST legislation.
Importantly, the Court also took note of the revenue’s concession regarding the applicability of the COVID-related limitation exclusion and held that once such exclusion was applied, even the disputed period could not be mechanically treated as time-barred. Additionally, the Court found fault with the rejection of refund claims for January to March 2019, observing that the authorities had failed to record any proper findings or reasons on the alleged ineligibility of inputs, rendering the orders arbitrary and unsustainable.
Accordingly, the High Court set aside the appellate order dated 30 September 2022 and remanded the matter back to the competent authority for fresh consideration on merits. The Court made it clear that refund claims could not be rejected solely on technical or procedural grounds of limitation and directed the authorities to re-examine the claims in accordance with law, keeping in view the principles laid down in the judgment.