ITC Refund Limitation Must Be Counted Based on Nature of Supply, Not Mechanical Application of S. 54: Delhi High Court

The Delhi High Court has clarified the correct interpretation of limitation under Section 54 of the CGST Act for refund of unutilised Input Tax Credit (ITC), holding that the “relevant date” must be determined based on the nature of the refund claim and statutory scheme, and not through a rigid or mechanical application of provisions. The Bench of Justice Prathiba M. Singh and Justice Shail Jain undertook a detailed analysis of Section 54 of the CGST Act and the definition of “relevant date” under Explanation (2). It noted that the statute provides different relevant dates depending on the nature of the transaction—exports, deemed exports, services, or unutilised ITC. Therefore, a uniform approach to limitation cannot be applied across all refund categories. BUY NOW: E-Magazine: Top 100 GST ITC Judgements (2024–25) The issue raised was whether refund claims for unutilised ITC are time-barred when filed beyond two years from the date of export or return filing. The petitioner/assessee was engaged in the manufacturing and trading of spices and seasonings. The assessee has challenged the refund claims rejected by the GST department on the ground of limitation. In one case, the petitioner had claimed a refund of accumulated ITC arising from zero-rated exports without payment of tax, while in the other, the refund related to ITC accumulated due to an inverted duty structure. In both matters, adjudicating and appellate authorities had rejected the claims as time-barred by computing limitations from dates such as export or return filing under the amended provisions. Mr. N.K. Sharma, the counsel for the assessee contended that the refund claim of the Petitioner is not time-barred, as the case of the Petitioner would be covered under the first proviso to Section 54 (3) of the CGST Act. The further contention is that the relevant date, in the case of refund of unutilised ITC would be in terms of the unamended Explanation 2(e) to Section 54 of the CGST Act. The said provision construes the relevant date to be the end of the financial year in which such claim for refund arises. The Court examined the amendment to Explanation 2(e) introduced with effect from 1 February 2019, which altered the relevant date for refund of unutilised ITC under inverted duty structure to the due date of filing returns under Section 39. The Court observed that prior to this amendment, the relevant date for such refunds was the end of the financial year in which the claim arose. The High Court held that this amendment cannot be applied retrospectively to curtail vested rights of taxpayers for earlier periods. Refund claims pertaining to pre-amendment periods must be governed by the unamended provision, which provided a more liberal limitation framework. Applying the amended provision retrospectively would effectively extinguish accrued rights, which is impermissible in law unless expressly stated by the legislature. The Court also emphasized that refund of ITC, particularly in export cases, is in the nature of a beneficial incentive and must be interpreted liberally. Procedural provisions such as limitation cannot be used to defeat substantive rights where taxpayers have otherwise complied with the statutory scheme. Further, the Court clarified that in cases involving exports, Explanation 2(a) may apply where refund relates to tax paid on goods or inputs used in exports. However, where the claim specifically pertains to unutilised ITC under Section 54(3), the applicable clause must be carefully identified, and authorities cannot automatically apply export-based limitation provisions without examining the nature of the claim. On facts, the Court found that the authorities had failed to properly appreciate the distinction between different categories of refund and had wrongly applied limitation provisions, leading to rejection of claims without proper legal basis. The High Court set aside the rejection orders and directed reconsideration of refund claims in accordance with the correct interpretation of Section 54, ensuring that limitation is computed based on the appropriate “relevant date” as per the applicable statutory provision. Case Details Case Title: M/S Kanika Exports Versus UOI Citation: JURISHOUR-884-HC-2026(DEL) Case No.: W.P.(C) 12512/2021 Date: 18/04/2026 Counsel For Petitioner: Adv. N.K. Sharma Counsel For Respondent: Aditya Singla SSC Click Here To Read Order Read More: CUSTOMS ACT | Nominal Shortfall in Penalty Can’t Deny Amnesty Benefit Under Customs Law: CESTAT

ITC Refund Limitation Must Be Counted Based on Nature of Supply, Not Mechanical Application of S. 54: Delhi High Court

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