Two-Year GST Refund Limitation Starts From Date Of Correct Payment: Kerala High Court

Earlier this month, the Kerala High Court held that the two-year limitation period under the GST law to claim refunds begins from the date on which tax is paid under the correct head, and not from the date of an earlier mistaken payment.

The ruling was delivered by Justice Ziyad Rahman A.A. while allowing a writ petition filed by Pushpagiri Medical Society, a registered non-profit organisation running a hospital and medical education institutions in Kerala.

The Bench observed:

“The right to claim a refund arises on the date on which the applicant makes the tax payable by him, in the correct account. Therefore, the period of limitation has to be counted from the date on which such payment has been effected in the correct account.”

The dispute arose in relation to the Kerala Flood Cess, introduced under the Finance Act, 2019 with effect from June 2019. Between August 2019 and July 2021, the petitioner had mistakenly remitted the cess along with Form GSTR-1 instead of paying it through the prescribed Form KFC-A.

Form GSTR-1 is a monthly/quarterly sales return under GST, while Form KFC-A is the specific form prescribed for depositing the Kerala Flood Cess, and payment through the wrong form is not credited under the correct head.

Since the payment was not credited under the correct head, the State Tax Department initiated proceedings alleging non-payment of the cess.

Pushpagiri Medical Society stated that the error was discovered only upon receipt of a departmental notice in March 2025. The Kerala Flood Cess was subsequently paid under the correct account on 10 March 2025, and refund applications were filed in April 2025 seeking return of the amount previously paid under the wrong head.

The department rejected the claims, arguing that the applications were barred by the two-year limitation period under Section 54 of the CGST Act, relying on Section 77 of the CGST Act (which deals with refunds of tax erroneously paid to the Central or State Government) and Section 19 of the IGST Act (which provides for refunds on zero-rated supplies or unutilized input tax credit).

Setting aside the rejection, the High Court relied on a CBIC circular dated 25 September 2021, which clarified the reckoning of the “relevant date” for refund purposes. The Court held that the right to claim a refund arises only when tax is paid in the correct account, and the two-year limitation period must be computed from that date.

The Bench noted that since the petitioner paid the cess under the correct head only on 10 March 2025, the refund applications filed in April 2025 were within time. It observed:

“The relevant date in this case can be the date on which the petitioner had actually made payment of tax in the correct account. In this case, it is evident that the payment was affected by the petitioner in the correct account only on 10.03.2025 and thus, the petitioner became entitled to seek refund of the said amount on that date onwards.”

The Court accordingly quashed the rejection orders and directed the authorities to reconsider the refund claims within three months.

For Petitioner: Harikumar G., P. Devikrishna, Jayasankar R. 

For Respondent: Arun Ajay Shankar