The Patna High Court has held that limitation for GST Refund in wrong tax head cases starts from the date of correct payment.
The bench of Justice Rajeev Ranjan Prasad and Justice Shailendra Singh has observed that the tax authorities had “committed an error” by calculating the two-year limitation period from January 2018 — the date when Central GST (CGST) and Bihar GST (BGST) were initially paid — instead of from March 4, 2023, when the petitioner paid Integrated GST (IGST) under the correct tax head following an audit.
The bench note that Section 77 prevails over Section 54 in cases of wrong-head tax payments. Limitation runs from the date of correct payment, not the original incorrect payment. CBIC Circulars and Rule 89(1A) are binding on refund authorities.
The petitioner, Sai Steel, a Patna-based proprietorship, had in FY 2017–18 classified certain transactions as intra-State and paid CGST and BGST accordingly. A subsequent audit under Section 65 revealed these were in fact inter-State transactions, triggering an IGST liability of ₹5,08,195. The firm promptly paid the IGST through DRC-03 on March 4, 2023, and applied on January 17, 2024, for a refund of the CGST and BGST paid earlier.
The refund was rejected by the Joint Commissioner of State Taxes on May 6, 2024, citing Section 54’s two-year limitation period, which the officer claimed had expired in January 2020.
The High Court emphasised that Section 77 of the CGST Act and Section 19 of the IGST Act specifically govern cases where tax is wrongly paid under the wrong head (intra-State instead of inter-State, or vice versa). The relevant date for limitation, it held, is the date of payment under the correct head, not the date of the original erroneous payment.
The Bench relied heavily on CBIC’s Circular No. 162/18/2021-GST and the 2021 amendment to Rule 89(1A), which clarified that taxpayers have two years from the date of correct payment to claim a refund. It also cited the Jharkhand High Court’s ruling in Gajraj Vahan (P.) Ltd. v. State of Jharkhand, which treated the circular as a benevolent provision extending limitation for such refunds.
“If the order of the Respondent authority is allowed to remain in existence, it would render Section 77… and the clarificatory Circular… redundant,” the Court observed.
The Court set aside the refund rejection order, directed the department to refund the CGST and BGST amounts with 6% interest (from three months after the refund application date until payment), and imposed ₹10,000 in litigation costs on the State. The refund must be processed within three months.
Case Details
Case Title: M/S Sai Steel versus State of Bihar
Case No.: Civil Writ Jurisdiction Case No.13163 of 2024
Date: 28/07/2025
Counsel For Appellant: Bijay Kumar Gupta
Counsel For Respondent: Vikash Kumar
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Mariya is the Senior Editor at Juris Hour. She has 5+ years of experience on covering tax litigation stories from the Supreme Court, High Courts and various tribunals including CESTAT, ITAT, NCLAT, NCLT, etc. Mariya graduated from MLSU Law College, Udaipur (Raj.) with B.A.LL.B. and also holds an LL.M. She started as a freelance tax reporter in the leading online legal news companies like LiveLaw & Taxscan.
