Another refund application after deficiency is not a new refund application

[Kamal Aggarwal]

The Hon’ble Jammu & Kashmir and Ladakh High Court, in the matter of M/S HALLMARK VERSUS JAMMU AND KASHMIR GOODS AND SERVICES TAX DEPARTMENT, JAMMU-1, THROUGH ITS COMMISSIONER, ASSISTANT COMMISSIONER, GOODS AND SERVICES TAX - 2024 (9) TMI 1582 - JAMMU & KASHMIR AND LADAKH HIGH COURT, has held that the subsequent refund application after deficiency cannot be said to be a new refund application, rather it is a continuation to the original refund application as the proceedings in the first application had not come to an end.

In the present matter, the petitioner adjusts GST on the returned garments against future tax liabilities, thereby claiming refunds for any excess tax deposits upon filing the final return. The petitioner filed the final GST return and as per Rule 89 of CGST Rules, 2017, filed an application for refund of the tax paid-in-advance, well within the period of limitation of two years with all requisite documents. 

The respondent issued a deficiency memo, prompting the petitioner to file a fresh refund application, which was later rejected due to limitation issue under Section 54 of the CGST Act, 2017. Consequently, the petitioner filed a writ petition. The petitioner contended that since the respondent allowed a fresh refund application, rejecting it later on the grounds of limitation was improper.

The Hon’ble High Court has observed that no limitation issue has been mentioned while rejecting the original refund application, suggesting it was submitted within the allowed time frame. In view of this, the second application could not be deemed barred by time when the first was not, and it points out that the respondent did not clarify the relevant date from which the limitation was assessed. The relevant extracts of the judgement are reproduced below:

“14. It is to be seen here that respondent No.2 in the deficiency memo dated 23.09.2020 had no where mentioned that the application was barred by limitation in terms of Section 54 of CGST Act of 2017; meaning thereby when the petitioner concern applied for refund of tax on 08.09.2020 the application for refund was certainly within time from the relevant date. Otherwise, the original application dated 08.09.2020 itself had to be dismissed as barred by time and no occasion had arisen for respondent No.2 to advice the petitioner concern to file fresh application along with supporting documents. Therefore, the first application dated 08.09.2020 was itself within time. Further, a perusal of application dated 08.09.2020 reveals that the petitioner concern had already annexed the supporting documents with the application, i.e., returns for January, February, March, June, July & August, 2018 as well as certificate of CA.”

“16. It is very strange that in the deficiency memo dated 23.09.2020 the respondent No.2 did not take the ground of limitation or that the original application of petitioner concern dated 08.09.2020 was barred in terms of Section 54 of CGST Act of 2017, which leads to the conclusion that on 08.09.2020 the original application of petitioner concern for refund of GST was within time from the relevant date. However, the application dated 28.03.2020, which was filed on the asking of respondent No.2, was rejected by respondent No.2 only on the ground of limitation. Once the respondents had treated the original application dated 08.09.2020 as within time from the relevant date, then how the second application dated 28.09.2020, which was in continuation to the original application dated 08.09.2020 and was filed only on the advice of respondent No.2, became barred by limitation. Respondent No.2 has also failed to show from which date the application of petitioner concern became barred by time and how respondent No.2 took the relevant date.”

The Honorable high court discussed the legal position regarding determination of limitation in cases where new refund application is filed which is in fact not a new application but rather a continuation of the original application, as the proceedings for the first application were still active. Its essence is identical to that of the original, and it should be viewed as part of the ongoing process rather than a separate matter. The relevant extract of the judgement is reproduced below:

“17. The annexure attached with the petition reveal that the second application for refund of GST was filed by the petitioner concern only on the advice of respondent No.2 so as to sustain its claim. Therefore, the time limit for refund of GST will be determined from the date the original application came to be filed by the petitioner concern and not from the date of follow-up application. The follow-up application, which came to be filed by the petitioner concern only on the advice of respondent No.2, was in continuation to the proceedings related to the original application, as such the time period to claim the refund of GST was required to be determined based on the original application and not the follow-up application. Therefore, the follow-up application cannot be said to be a new application, rather the same was in continuation to the original application as the proceedings in the first application had not come to an end. If the proceedings under the first application had come to an end, then the second application cannot be taken to be in continuation of the first application. Further, the character or nature of the second application can in no way be said to be different from that of the original application, rather the same was part of the proceedings in continuation to the first application. Therefore, the claim of petitioner concern can in no way be said to be barred by limitation.”

The Honorable high court further observed that the revenue has contested that the petitioner was not entitled for an opportunity to be heard before rejecting its refund claim by citing Circular No. 125/44/2019-GST dated 18.11.2019. However, the court observed that under Rule 92(3) of the CGST Rules, no refund application can be rejected without opportunity of being heard, and thus the deficiency memo was quashed by the Honorable high court.

The Honorable high court relied upon the judgment of Division Bench of High Court of New Delhi, in the matter of NATIONAL INTERNET EXCHANGE OF INDIA VERSUS UNION OF INDIA & ORS. - 2023 (8) TMI 1211 - DELHI HIGH COURT, wherein it was held that the limitation period should not be considered as running due to the proper officer's request for additional documents, indicating that the petitioner’s initial application was timely and valid. The relevant extract of that judgement is reproduced below:

“25. As noted above, in terms of Section 54(1) of the CGST Act, an application is required to be made in the prescribed form and manner before two years from the relevant date. It is clear that the petitioner had complied with the said requirement inasmuch as it had filed an application for refund on 31.10.2019 in the “form and manner” as prescribed in the CGST Act and the CGST Rules. Thus, in terms of Section 54(1) of the CGST Act, the period of limitation would stop running notwithstanding that the proper officer required further documents or material to satisfy himself that the refund claimed was due to the petitioner.”

The Honorable high court relied another judgment of Division Bench of High Court of New Delhi, in the matter of BHARAT SANCHAR NIGAM LIMITED VERSUS UNION OF INDIA & ORS. - 2023 (4) TMI 495 - DELHI HIGH COURT wherein it was held that requesting additional documents through a deficiency memo does not invalidate the original application. If the initial application includes the necessary documentary evidence, it should be considered valid for limitation purposes, and the limitation period should stop upon its filing, regardless of subsequent requests for clarification. The relevant extract of that judgement is reproduced below:

“27. It is pointed out that the Adjudicating Authority had proceeded on the basis that it had communicated the deficiencies in Form GST RFD 03 on 31.01.2020 electronically and the said deficiency was resolved after the expiry of two years as stipulated in Section 54 of the CGST Act. The Adjudicating Authority had referred to Rule 90(3) of the Rules and had proceeded on the basis that the said Rule provides for filing of a fresh refund application after rectification of deficiencies. And, the date for filing the fresh application was required to be considered for the purpose of limitation.

28. We are of the view that Rule 90(3) cannot be applied in the manner as sought to be done by the Adjudicating Authority. Merely because certain other documents or clarifications are sought by way of issuing a Deficiency Memo, the same will not render the application by a taxpayer as non est.

29. If the application filed is not deficient in material particulars, it cannot be treated as non est. If it is accompanied by the “documentary evidences” as mentioned in Rule 89(2) of the Rules, it cannot be ignored for the purposes of limitation. The limitation would necessarily stop on filing the said application. This is not to say that the information disclosed may not warrant further clarification, however, that by itself cannot lead to the conclusion that the application is required to be treated as non est for the purposes of Section 54 of the CGST Act. It is erroneous to assume that the application, which is accompanied by the documents as specified under Rule 89(2) of the Rules, is required to be treated as complete only after the taxpayer furnishes the clarification of further documents as may be required by the proper officer and that too from the date such clarification is issued.”

The Honorable high court has asserted the legal principle that a taxpayer's initial application for a refund filed within the stipulated two-year limitation under Section 54 of the CGST Act, 2017 remains valid even if further documentation is requested. The follow-up application is definitively a continuation of the original, and the limitation period is effectively paused upon the initial filing. Moreover, the failure to provide a hearing before rejecting the claim, as required by Rule 92(3), fundamentally undermines the validity of the deficiency memo. This legal framework strongly reinforces the notion that procedural missteps and unwarranted delays cannot unjustly penalize compliant taxpayers, upholding the integrity of the refund process and ensuring that taxpayers are afforded their rightful claims without undue hindrance.

While concluding, the Hon’ble High Court has directed that refund to be granted along with interest at the rate of 7% from the date it fell due till the date of its realization.