Background

During the course of a departmental audit under Section 65 of the Central Goods and Services Tax Act, 2017, covering the financial years 2018-19 to 2022-23, our team carried out a comprehensive review of the client's GST compliance records.

We observed that, while filing GST returns during FY 2018-19, the taxpayer had a liability only under the CGST head. However, interest had been discharged under both CGST and SGST heads in equal amounts, resulting in a substantial excess payment under the SGST interest head.

Upon verification, it was found that the previous consultant had made the payment because, at the relevant time, the GST portal was not permitting return filing unless interest was discharged in both tax heads. Consequently, the taxpayer paid the interest merely to ensure timely filing of returns, without any statutory liability under the SGST head.

The cumulative excess interest paid over the relevant period amounted to approximately ₹58.89 lakh.

Legal Issue

Whether interest paid without any corresponding statutory liability, merely due to portal or system constraints, can be refunded despite the expiry of the limitation period prescribed under Section 54 of the CGST Act, 2017.

Proceedings Before the Department

A refund application was filed before the jurisdictional GST authorities seeking refund of the excess interest.

The Proper Officer rejected the application on the ground that it was barred by limitation, holding that the refund application had not been filed within two years from the relevant date as prescribed under Section 54 of the CGST Act.

Appeal Before the Appellate Authority

The rejection order was challenged before the Appellate Authority.

The primary submissions included:

• The amount deposited was not legally payable under the SGST interest head.
• The payment was made solely because of the technical limitations prevailing on the GST portal during the initial implementation phase of GST.
• The Government cannot retain money that is not authorized by law.
• Retention of tax or interest collected without authority violates Article 265 of the Constitution of India, which provides that "No tax shall be levied or collected except by authority of law."
• Limitation provisions should not be interpreted to defeat a legitimate claim where the amount itself was never legally payable.

After considering the facts and legal submissions, the Appellate Authority allowed the appeal and directed appropriate relief to the taxpayer.

Legal Principles Emerging

This case reinforces certain well-established legal principles:

• Tax or interest paid without statutory liability cannot ordinarily be retained by the Government.
• Procedural limitations should not override substantive legal rights where collection itself lacks legal authority.
• Payments made due to technical or procedural constraints of the GST portal deserve judicial scrutiny.
• Every GST audit should include an independent review of historical tax, interest and penalty payments instead of relying solely on portal-generated records.

Practical Takeaway

A GST return may be successfully filed, yet historical payments may still contain significant excess tax or interest due to system limitations, incorrect accounting, or interpretational errors.

A comprehensive GST Health Check-up can help businesses:

• Identify excess tax, interest or penalty payments.
• Detect ineligible or missed Input Tax Credit (ITC).
• Review historical GST positions for potential refunds.
• Minimize future litigation and compliance risks.
• Strengthen GST governance through proactive compliance reviews.

Professional review of historical GST records often uncovers opportunities that remain unnoticed during routine compliance.

Disclaimer: The above case study is based on an actual professional experience. Client identity and confidential information have been omitted. The outcome of every matter depends upon its own facts, statutory provisions, judicial precedents, and the evidence placed before the authorities.