In a significant development, the Delhi High Court has summoned the Assistant Commissioner, CGST, for denying a GST refund to a widow for the second time, even after the Court had issued clear directions a year ago permitting the refund. The matter has reignited debate over GST refund eligibility for legal heirs and the scope of Section 54 of the CGST Act, 2017.
Case Background
The petitioner, a widow of a deceased sole proprietor, had sought cancellation of her late husband’s GST registration following his death and discontinuation of business. The cancellation was approved. She subsequently applied for a refund of excess balance lying in the electronic cash ledger of the deceased, submitting the death certificate as required.
Despite a favourable Delhi High Court order in 2023, the GST department rejected the refund, citing non-submission of the death certificate and the fact that she is not a “registered person” under GST—a position now being widely criticised.
Legal Position and Interpretations
The controversy hinges on the interpretation of Section 54(1) of the CGST Act, which provides that:
“Any person claiming refund of any tax and interest, if any, paid on such tax or any other amount paid by him, may make an application before the expiry of two years from the relevant date…”
A proviso to this section states that registered persons can claim refund of balance lying in the electronic cash ledger, but legal experts argue that this does not restrict legal heirs from applying on behalf of deceased proprietors.
Section 93(1)(a) further strengthens the widow’s case. It establishes the liability of the legal representative to pay duesof the deceased taxpayer, thereby implicitly recognising them as standing in the shoes of the taxpayer, and entitled to both responsibilities and rights, including refunds.
Speaking to Juris Hour, Advocate Arup Dasgupta noted:
“Section 54 uses the word ‘Registered Person’. However, when read with Section 93(1)(a), the legal heir, who is obligated to discharge the tax liability of the deceased, should logically be eligible to claim a refund as well.”
GST veteran and legal scholar Puneet Rai, who termed the situation as “catching the department (bull) by the horns,” emphasized that the refund was filed through the GST portal by the authorised representative, and the portal remained active post-cancellation.
Circular No. 188/20/2022-GST
The CBIC has issued the Circular No. 188/20/2022-GST prescribing the manner of filing an application for refund by unregistered persons. Instances have been brought to the notice where the unregistered buyers, who had entered into an agreement/ contract with a builder for supply of services of construction of flats/ building, etc. and had paid the amount towards consideration for such service, either fully or partially, along with applicable tax, had to get the said contract/ agreement cancelled subsequently due to non-completion or delay in construction activity in time or any other reasons.
In a number of such cases, the period for issuance of credit note on account of such cancellation of service under the provisions of section 34 of the Central Goods and Service Tax Act, 2017 (CGST Act) may already have expired by that time. In such cases, the supplier may refund the amount to the buyer, after deducting the amount of tax collected by him from the buyer.
Similar situation may arise in cases of long-term insurance policies where premium for the entire period of term of policy is paid upfront along with applicable GST and the policy is subsequently required to be terminated prematurely due to some reasons. In some cases, the time period for issuing credit note under the provisions of section 34 of the CGST Act may have already expired and therefore, the insurance companies may refund only the proportionate premium net off GST.
Representations have been received requesting for providing a facility to such unregistered buyers/ recipients for claiming refund of amount of tax borne by them in the event of cancellation of the contract/agreement for supply of services of construction of flat/ building or on termination of long-term insurance policy.
It would be pertinent to mention that subsection (1) of section 54 of the CGST Act already provides that any person can claim refund of any tax and interest, if any, paid on such tax or any other amount paid by him, by making an application before the expiry of two years from the relevant date in such form and manner as may be prescribed. Further, in terms of clause (e) of sub-section (8) of section 54 of the CGST Act, in cases where the unregistered person has borne the incidence of tax and not passed on the same to any other person, the said refund shall be paid to him instead of being credited to Consumer Welfare Fund (CWF).
Solution: What to do?
The procedure to be followed by an unregistered dealer is to obtain a temporary registration and then file the refund application. In a few flat cancellation cases, refund was granted to individuals by granting temporary registration.
Department’s Alleged Oversight
The High Court observed that the death certificate had been submitted on multiple occasions—once during cancellation and again in earlier refund proceedings—yet the department continued to rely on flawed procedural grounds for denying the claim.
Experts point to the lack of clarity in portal updates and departmental hesitance in applying purposive interpretation of the law. Refund functionality for non-registered persons, such as unregistered buyers in under-construction property deals, is already available on the GST portal—indicating that registration is not a hard precondition for all refund claims.
Conclusion
The case underscores a critical lacuna in GST implementation, especially in dealing with deceased taxpayers’ accounts. The Delhi High Court’s scrutiny may set a precedent for enabling legal heirs to claim refunds without being GST-registered, provided they are acting on behalf of the deceased and the refund is traceable to payments already made through the official GST platform.
As the hearing progresses, legal observers await a ruling that could harmonise substantive tax rights with procedural realities, ensuring justice to rightful claimants such as legal heirs.
