Delhi HC: Refund Limitation Starts from Conciliation Date, Not Tax Payment Date
Key Judgment
The Delhi High Court held that the limitation period for claiming a GST refund begins from the date of a conciliation agreement, when the excess tax amount becomes clearly ascertainable. Therefore, the rejection of DMRC’s refund claim as time-barred was found unsustainable.
Background
Delhi Metro Rail Corporation Ltd. (DMRC) had entered into a rental agreement with M/s Kamal Sponge Steel & Power Ltd. (KSSPL) on May 8, 2015. However, disputes over lease rentals led both parties to conciliation.
A conciliation agreement dated August 3, 2021, retrospectively reduced KSSPL’s rental liability by 40%, resulting in an excess GST payment by DMRC amounting to ₹83,36,182 for the period from July 2017 to March 2019.
Refund Claim and Rejection
DMRC filed two refund applications on January 17, 2021 and March 21, 2021. However, the Department rejected both, calling them time-barred.
The authorities claimed that the limitation period began in 2017, when GST was originally paid. They also suggested that DMRC should have adjusted the excess through credit notes under Section 34 of the CGST Act.
DMRC’s Argument
DMRC argued that the actual refundable amount only became determinable after the conciliation agreement, which holds the same legal weight as a decree under Section 73 of the Arbitration and Conciliation Act.
Therefore, the “relevant date” for refund purposes should fall under Explanation 2(d) of Section 54 of the CGST Act, which covers refunds arising from a judgment, decree, order, or direction.
Legal Issue
Was DMRC’s refund claim within the limitation period under Section 54 of the CGST Act?
Specifically, should the relevant date fall under Explanation 2(d) or Explanation 2(h)?
Court’s Observations and Ruling
- The Court clarified that conciliation settlements under Section 89 of the CPC are recognized and carry the same weight as a court order or decree.
- The conciliation agreement dated August 3, 2021, is legally equivalent to an arbitral award or decree under Section 36 of the Arbitration & Conciliation Act.
- Explanation 2(d) is applicable in this case since it covers tax refunds following judicial or quasi-judicial directions.
On the other hand, Explanation 2(h) is residual and applies only if other clauses don’t.
Conclusion
The Court ruled that the refund claim was within the two-year statutory period, calculated from August 3, 2021. Accordingly, it:
- Set aside the impugned orders dated March 3, 2021, and May 18, 2021.
- Directed the Department to process the refund of ₹83,36,182 along with applicable interest.
