Retaining Tax Paid Twice Violates Article 265, Section 54 CGST Limitation Not A Bar: Orissa High Court

The Orissa High Court at Cuttack held that tax authorities cannot retain amounts deposited twice under a mistaken belief, as such retention would violate Article 265 of the Constitution.

A Division Bench comprising Chief Justice Harish Tandon and Justice Murahari Sri Raman set aside an order rejecting the refund claim filed by the petitioner, Rajendra Narayan Mohanty, and allowed him to seek a fresh refund. It held:

“There is no escape than to say that the Revenue is unjustified to withhold or retain one set of Rs.6,01,645/- towards CGST and Rs.6,01,645/- towards OGST inasmuch as the same would offend provision contained in Article 265 of the Constitution of India.”

“Under the above premise, refund claimed in respect of tax paid erroneously or under mistaken notion cannot be denied solely on the ground of limitation stipulated in Section 54 of the GST Act.”

The petitioner had approached the Court challenging the rejection of his refund application by the Joint Commissioner of State Tax, Cuttack, through an order dated 22 October 2025.

The claim pertained to Rs.12,03,290 (Rs.6,01,645 each under CGST and OGST) for the financial year 2019–20, which had been deposited twice—first through the credit ledger in February 2021 and later through the cash ledger in September 2022—due to erroneous advice.

The dispute arose from proceedings initiated under Section 74 of the GST Acts on 1 December 2020 regarding discrepancies in TDS credit returns. The petitioner clarified that his liability had already been discharged, and the proceedings were subsequently dropped by order dated 8 November 2024.

Upon realising the duplicate payment, the petitioner filed a refund application on 23 August 2025, which was rejected solely on the ground of limitation under Section 54 of the CGST Act. Section 54 provides for claiming refunds of excess GST paid by a registered person.

He argued that his refund application was timely as it was filed after the conclusion of proceedings and that Section 54's limitation is directory and cannot defeat a legitimate claim for taxes paid twice. He further contended that the Revenue cannot unjustly retain amounts once it is admitted that the tax was paid in excess.

The Revenue defended the rejection, asserting that the claim was time-barred under Section 54 and therefore rightly denied.

The Court noted that the Department had itself acknowledged the petitioner had deposited the tax twice. Relevant documents evidencing both payments were furnished, and the observation in the rejection order regarding lack of supporting documents was factually incorrect.

The Bench noted that retention of tax paid twice, even if voluntarily deposited under a mistaken belief, is impermissible and violative of Article 265, and such cases fall outside the ambit of Section 54. Therefore, the limitation prescribed therein would not apply.

The judges quashed the rejection and granted the petitioner liberty to file a fresh refund application within two weeks. It directed the authorities to process it in accordance with law and the observations of the Court.

The Court further directed that the refund be granted within seven days of such application, failing which it would carry interest at 6% per annum from the date of the original refund application.

Accordingly, the Bench disposed of the writ petition without costs.

For Petitioner: Madhab Lal Agarwal, Advocate

For Opposite Party: Sunil Mishra, Standing Counsel (Commercial Tax & Goods and Services Tax Organisation)