GST Refund Saved Court Overturns Time-Bar Rejection for SEZ Supplier

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Case Name

M/s. Gandharoil Refinery India Limited Vs Assistant Commissioner of Sales Tax

Court Name: High Court of Andhra Pradesh

Case No.: W.P. No. 24873 of 2022

Date of Order: 24th August 2022

Before: Per Hon’ble Sri Justice C. Praveen Kumar and Hon’ble Sri Justice A.V. Ravindra Babu

Key Takeaways

1. COVID-19 Period Excluded from Limitation: The Notification dated 05.07.2022 issued by the Government of India, Ministry of Finance, Department of Revenue, Central Board of Indirect Taxes and Customs, clearly excludes the period from 1st March 2020 to 28th February 2022 from the computation of the limitation period for filing refund applications under Section 54 or Section 55 of the CGST Act.

2. No ‘Relevant Date’ for SEZ Supplies: The court noted an important legal gap — the Clause 2 to the Explanation to Section 54 of the CGST Act prescribes a ‘relevant date’ only for goods exported out of India, but there is no provision determining the ‘relevant date’ for supplies to SEZ (Special Economic Zone) units, which are treated as zero-rated sales under Section 16 of the IGST Act, 2017.

3. Circular Cannot Override Beneficial Notification: The authorities had relied on Circular No. 157/13/2021-GST dated 20.07.2021 to reject the refund, but the subsequent Notification of 05.07.2022 effectively changed the legal landscape in the petitioner’s favour.

4. Matter Remanded for Fresh Consideration: The court did not grant the refund outright but directed the first respondent to reconsider the application afresh in accordance with law.

Issue

The central legal question here is:

Was the petitioner’s GST refund application for the period May 2018 to May 2019, filed on 22.09.2021, barred by the two-year limitation period under Section 54(14) of the CGST Act — especially in light of the COVID-19 exclusion Notification dated 05.07.2022?

In simpler terms: Did the tax authorities wrongly reject the refund application as time-barred, when the COVID period should have been excluded from the limitation count?

Facts

• The petitioner is a business engaged in trading of coal.

• The petitioner believed they were entitled to a GST refund for tax paid on supplies, specifically for the tax period May 2018 to May 2019. This claim was made under Section 54 of the Central Goods and Services Tax Act, 2017 (CGST Act) and the Andhra Pradesh State Goods and Services Tax Act, 2017 (APSGST Act), read with Rule 89 of the GST Rules.

• The petitioner filed the refund application on 22.09.2021.

• Shortly after, on 12.10.2021, the first respondent (tax authority) issued a Show Cause Notice (SCN), proposing to reject the application on the ground that it was filed beyond the two-year limitation period prescribed under Section 54(14) of the CGST Act.

• The authorities also relied on Circular No. 157/13/2021-GST dated 20.07.2021 issued by the Government of India, Ministry of Finance, Department of Revenue.

• Despite the petitioner’s response, the first respondent passed an order dated 16.06.2022, formally rejecting the refund application as time-barred.

• Aggrieved by this rejection, the petitioner filed the present Writ Petition No. 24873 of 2022 before the High Court of Andhra Pradesh.

Arguments

🟦Petitioner’s Arguments:

1. COVID Exclusion Notification: The petitioner’s counsel, Sri P. Karthik Ramana, pointed out that the Notification dated 05.07.2022 issued by the Central Board of Indirect Taxes and Customs clearly states that the period from 1st March 2020 to 28th February 2022 shall be excluded from the computation of the limitation period for filing refund applications under Section 54 or Section 55 of the CGST Act. This makes the rejection bad in law.

2. No ‘Relevant Date’ for SEZ Supplies: The petitioner also argued that a reading of Clause 2 to the Explanation to Section 54 of the CGST Act shows that the ‘relevant date’ is prescribed only for goods exported out of India. There is no provision determining the ‘relevant date’ for supplies to SEZ units, which are treated as zero-rated sales under Section 16 of the Integrated Goods and Services Tax Act, 2017 (IGST Act).

3. Challenge to the Circular: The petitioner also sought to set aside Circular No. 157/13/2021-GST dated 20.07.2021 to the extent it applied to quasi-judicial proceedings like refund applications, arguing it was contrary to the Supreme Court’s order in Suo Motu Writ Petition (Civil) No. 03 of 2020 dated 27.04.2021, read with the final order dated 10.01.2022.

Respondents’ Arguments:

1. Circular Justifies Rejection: The learned Government Pleader for Commercial Tax, Sri T.C.D. Sekhar, argued that the order passed by the authorities was based on Circular No. 157/13/2021-GST dated 20.07.2021 and there was no illegality in the rejection. He specifically referred to Clause 3(iii) and Clause 4(b) of the said Circular to support his position.

2. Application Filed Beyond Two Years: The Government Pleader contended that the refund application was filed beyond the two-year limitation period, making it liable to be rejected.

Key Legal Precedents & Provisions

Section 54 of the CGST Act, 2017

Deals with refund of tax; prescribes the two-year limitation period

Section 54(14) of the CGST Act

Specifically prescribes the two-year limitation period for refund applications

Clause 2 to the Explanation to Section 54 of the CGST Act

Defines ‘relevant date’ — but only for goods exported out of India

Section 55 of the CGST Act

Also deals with refund in certain cases

Rule 89 of the GST Rules

Procedural rule for filing refund applications

Section 16 of the IGST Act, 2017

Defines zero-rated supplies, including supplies to SEZ units

Circular No. 157/13/2021-GST dated 20.07.2021

Government circular on limitation for refund applications

Notification dated 05.07.2022(CBIC)

Excludes the period 01.03.2020 to 28.02.2022 from limitation computation

Suo Motu Writ Petition (Civil) No. 03 of 2020 dated 27.04.2021 (Supreme Court)

Supreme Court’s COVID-related order on limitation extension

Final Order dated 10.01.2022 in the above Suo Motu petition

Final Supreme Court order on the same matter

The Notification dated 05.07.2022 was the game-changer here. It directly addressed the limitation issue by excluding the entire COVID-19 period from the two-year count. The court found that once this exclusion is applied, the petitioner’s application could not be said to have been filed beyond the limitation period.

Judgment

The Petitioner (Coal Trader) won — at least at this stage

What Did the Court Decide?

The court, after hearing both sides and reviewing the material on record, held as follows:

1. The Notification dated 05.07.2022 clearly excludes the period from 1st March 2020 to 28th February 2022 from the computation of the limitation period for filing refund applications under Section 54 or Section 55 of the CGST Act.

2. In view of this, it cannot be said that the application for refund was made beyond the period of limitation.

3. Therefore, the order dated 16.06.2022 rejecting the refund application was set aside.

4. The matter was remanded back to the first respondent for fresh consideration in accordance with law.

5. The writ petition was disposed of with no order as to costs.

In plain English: The court said — “Hey, you can’t count the COVID period against the taxpayer. The Notification clearly says so. Go back and reconsider the refund application properly.”

FAQs

Q1: What does “remanded back for fresh consideration” mean?

It means the court didn’t decide the refund itself. Instead, it sent the case back to the tax authority and said — “You rejected it on the wrong ground (time-bar). Now reconsider it properly, keeping the COVID exclusion in mind.” The petitioner still needs to prove their entitlement to the refund on merits.

Q2: Why was the COVID period relevant here?

The refund application was for May 2018 to May 2019. Normally, the two-year clock would have run out by May 2021. But the petitioner filed in September 2021. The Notification dated 05.07.2022 excludes the period 1st March 2020 to 28th February 2022 (24 months) from the limitation count. So effectively, the petitioner had more time than the authorities originally calculated.

Q3: What is the significance of the SEZ/zero-rated supply argument?

The petitioner also raised an interesting point — that for supplies to SEZ units (which are zero-rated under Section 16 of the IGST Act), there is no ‘relevant date’ defined in Clause 2 to the Explanation to Section 54 of the CGST Act. This is a separate legal argument that could mean the limitation period itself may not apply in the same way. The court didn’t need to go deep into this since the Notification argument was sufficient.

Q4: What was wrong with the Circular No. 157/13/2021-GST dated 20.07.2021?The petitioner argued that this circular was contrary to the Supreme Court’s orders in Suo Motu Writ Petition (Civil) No. 03 of 2020. The Supreme Court had extended limitation periods due to COVID, and the circular (in the petitioner’s view) did not properly account for this in the context of quasi-judicial proceedings like refund applications.

Q5: Does this judgment mean all GST refund applications rejected as time-barred during COVID will be reconsidered?

This judgment is specific to this case, but the legal principle — that the period from 1st March 2020 to 28th February 2022 must be excluded from limitation computation under Section 54 or Section 55 of the CGST Act — is based on a government notification and has broader applicability. Taxpayers in similar situations can rely on this Notification and this judgment as persuasive authority.

Q6: What happens next for the petitioner?

The petitioner’s refund application goes back to the first respondent (tax authority) for a fresh decision. The authority must now consider the application on its merits — i.e., whether the petitioner is actually entitled to the refund — without rejecting it on the ground of limitation.

Heard Sri P. Karthik Ramana, learned counsel for the petitioner and Sri T.C.D. Sekhar, learned Government Pleader for Commercial Tax, appearing for the respondents and perused the record, and with their consent, the writ

petition is disposed of at the admission stage.

2. The present writ petition came to be filed, seeking the following relief:-

“(a) to set aside the Circular No.157/13/2021-GST dated 20.07.2021 in so far as the quasi-judicial proceedings like refund application is concerned as

contrary to the order of the Hon’ble Supreme Court in Suo Motu Writ Petition (Civil) No.03 of 2020 dated 27.04.2021 read with final order dated 10.01.2022; and

(b) to set aside the order of the first respondent dated 16.06.2022 in rejecting the application of refund as barred by time as illegal, improper and incorrect in view of the orders passed by the Hon’ble Supreme Court.”

3. The averments made in the affidavit filed, in support of

the writ petition, show that the petitioner herein, who was

engaged in business of trading of Coal, claims that he is

entitled for refund of tax paid on such supplies, in terms of

Section 54 of the Central Goods and Services Tax Act, 2017

[for short, “CGST Act”] and Andhra Pradesh State Goods and

Services Tax Act, 2017 [for short “APSGST Act”] read with

Rule 89 of GST Rules. Accordingly, the petitioner filed refund

application for the tax period May, 2018 to May, 2019 on

22.09.2021. But, however, a show cause notice was issued

to the petitioner on 12.10.2021 by the first respondent,

proposing to reject the application, on the ground that the

application made by the petitioner, is barred by limitation. In

the said notice the first respondent asking the petitioner to

furnish a reply, as to why his request should not be rejected.

But, since the application came to be made beyond the period

of two years prescribed under Section 54(14) of the CGST Act

coupled with Circular dated 20.07.2021, issued by the

Government of India, Ministry of Finance, Department of

Revenue, the first respondent passed the order dated

16.06.2022, rejecting the request of the petitioner. Assailing

the same, the present writ petition came to be filed.

4. Learned counsel for the petitioner mainly submits that

in view of the subsequent Notification dated 05.07.2022,

Government of India, Ministry of Finance, Department of

Revenue, Central Board of Indirect Taxes and Customs, the

rejection of application for refund is bad in law.

5. Sri T.C.D. Sekhar, learned Government Pleader for

Commercial Tax, would submit that the order passed by the

authorities basing on the Circular dated 20.07.2021, cannot

be found fault with. He took us through Clause 3(iii) and

Clause 4(b) of the said Circular and submits that there is no

illegality in the order passed by the first respondent.

6. A perusal of the material on record would show that the

refund application came to be made by the petitioner was on

22.09.2021, for the Tax period May, 2018 to May, 2019.

Though, learned Government Pleader would contend that the

said application came to be made beyond the period of two

years, but the learned counsel for the petitioner would

submit that, a reading of the Clause 2 to the Explanation to

Section 54 of the CGST Act, show the ‘relevant date’ is

prescribed only for goods exported out of India, but, there is

no provision determining the ‘relevant date’ in respect of the

supplies to SEZ units, which are considered as zero-rated

sales under Section 16 of the Integrated Goods and Services

Tax Act, 2017 [for short, “IGST Act”]. It would be relevant to

note that the recent Notification issued by Government of

India, Ministry of Finance, Department of Revenue, Central

Board of Indirect Taxes and Customs, dated 05.07.2022

clearly postulates that the period from 1st March, 2020 to

28th February, 2022, for computation of period of limitation

for filing refund application under Section 54 or Section 55 of

the said Act shall stand excluded.

7. In view of the above, it cannot be said that the

application for refund was made beyond the period of

limitation. Hence, the order under challenge is set aside and

the matter is remanded back to the first respondent, for fresh

consideration in accordance with law. Accordingly, the writ

petition is disposed of. There shall be no order as to costs.

Miscellaneous petitions pending, if any, shall stand

closed.

JUSTICE C.PRAVEEN KUMAR

JUSTICE A.V. RAVINDRA BABU

Date: 24.08.2022