Delhi Metro Wins ₹83+ Lakh GST Refund: Court Says Settlement Date - Not Payment Date - Decides Time Limit for Applying Refund

The Hon'ble High Court of Delhi in Delhi Metro Rail Corporation Ltd vs Commissioner (Appeals-II)[W.P. (C) NO. 10635 OF 2022, dated May 21, 2025] held that where though tax was paid in 2017, conciliation between the assessee and a party under the Arbitration Act was finalised in 2020/2021, the date of conciliation agreement would be deemed as the date of communication of judgment/decree under Section 54 for the purpose of computing the limitation period for filing refund application, and refund applications filed in 2021 were well within time.

FACTS OF THE CASE

The Petitioner, Delhi Metro Rail Corporation Ltd (DMRC), had entered into a rental agreement dated May 8, 2015 with M/s Kamal Sponge Steel and Power Limited (KSSPL). Under this agreement, DMRC was receiving lease rentals and maintenance charges from KSSPL, and GST was being paid on the same based on the original contract terms.

Disputes had arisen between the parties regarding the rental agreement, and the same was referred to conciliation proceedings under the Arbitration and Conciliation Act, 1996. The rental agreement contained a Disputes Resolution Clause which contemplated both amicable resolution and arbitration. The dispute was resolved finally through two key documents: the Minutes dated October 9, 2020 and the Conciliation Agreement dated August 3, 2021.

Pursuant to the settlement entered into between the parties through conciliation proceedings, the payment liability of KSSPL was reduced by up to 40%. The lease rentals for the period July 2017 to March 2019 were reduced/revised retrospectively to 60% (reduced by 40%) and maintenance charges for the same period were revised to actual expense plus 20%. This reduction was on grounds of deficiency in provision of services on part of DMRC during

the said period.

As a result of this settlement, the actual transaction value of monthly lease rent and maintenance charges was reduced from the initial agreed value, which consequently meant that DMRC had made an excess payment of tax to the tune of Rs. 83,36,182/-. This excess tax was calculated and deposited on the basis of the pre-dispute provisions of the lease/rental agreement for the period from July 2017 to March 2019.

When DMRC filed refund applications in this regard in the year 2021, specifically on January 17, 2021 and March 21, 2021, the Respondent GST Department rejected the refund applications on the ground of limitation vide the impugned orders dated March 3, 2021 and May 18, 2021. The Department's stand was that the limitation period for filing the refund application would commence from 2017, when the tax payments were made, and therefore the refund applications were barred by limitation.

However, DMRC's contention was that in the absence of conciliation, it was not possible for it to ascertain the exact amount payable by KSSPL to DMRC. According to DMRC, the limitation period was to be computed either from August 3, 2021 or even October 9, 2020, when the settlement was finalized. DMRC was aggrieved by the rejection of its refund applications and approached the Hon'ble High Court challenging the impugned orders.

ISSUE

Whether the date of conciliation agreement under the Arbitration and Conciliation Act should be deemed as the date of communication of judgment/decree under Section 54 for the purpose of computing the limitation period for filing GST refund applications, when the refund became ascertainable only after resolution of contractual disputes?

HELD BY THE COURT

The Hon'ble High Court of Delhi in [W.P. (C) NO. 10635 OF 2022, dated May 21, 2025] held that:

The Court observed that the short question was whether the refund applications filed by DMRC were within time or not, and whether the 'relevant date' was to be read in terms of Explanation 2(d) or 2(h) of Section 54 of the CGST Act. The Court noted that Explanation 2(h) relied upon by the Department was a residual clause, whereas Explanation 2(d) was clear to the extent that it shall be applicable when tax becomes refundable as a consequence of judgment, decree, order or direction of the Appellate Authority, Appellate Tribunal or any Court.

The Court held that it was a reasonable assertion that the exact extent of tax payable was not ascertainable at the initial stages in situations where the value of the subject matter contract was disputed. In such circumstances, tax payments to the Department were made in advance by the concerned assessee, and it was only when the dispute was subsequently resolved/settled that the exact extent of tax payable/refundable became ascertainable. The

Court opined that until and unless the disputes themselves got resolved, there was no way for the assessee to ascertain whether the provisional tax payments made ad-interim were in excess or not.

The Court observed that the conciliation agreement conclusively determined the contractual value and, in effect therefore, enabled crystallisation of the quantum of excess tax paid to the Department. According to the Petitioner, it was only at this juncture that the exact amount of tax refundable became ascertainable. The refundable amount, as estimated, stood at Rs. 83,36,182/- for the period between July 2017 and March 2019.

The Court held that under Section 89 of the CPC, the Arbitration & Conciliation Act applies to conciliation proceedings. The settlement agreement in this case was one which was recognised under Section 73 of the Arbitration and Conciliation Act. The Court noted that as per Section 73, the settlement agreement becomes binding and final between the parties upon them signing it.

The Court further held that the status of such a settlement was set out in Section 74 of the Arbitration and Conciliation Act, which provides that the settlement agreement shall have the same status and effect as if it is an arbitral award on agreed terms on the substance of the dispute rendered by an arbitral tribunal under Section 30. The Court opined that in view of these provisions, the conciliation agreement was like an arbitral award, which was in effect, equivalent to a decree of the Civil Court as per Section 36 of the Arbitration and Conciliation Act.

The Court concluded that therefore, the date of finalisation of the settlement agreement shall be the deemed date of communication of the judgment/decree under Section 54 Explanation 2(d) of the CGST Act. The Court held that Section 54 Explanation 2(d) of the CGST Act would be the correct provision that would apply in this case as against Explanation 2(h) which was clearly a residual provision that was to be applied only when none of the other explanations were applicable.

The Court held that in the present case, the refund applications could be filed within two years from August 3, 2021 or even October 9, 2020. The refund applications filed by DMRC were dated January 17, 2021 and March 21, 2021 and thus were well within time. The Court set aside the impugned orders and directed that the refund of DMRC be processed along with applicable interest in accordance with the statute, and the refund be credited to DMRC within one month.

RELEVANT SECTIONS

Section 54 of the CGST Act, 2017 - Refund of tax - Provides that any person claiming refund may make an application before the expiry of two years from the relevant date.

Section 54 Explanation 2(d) of the CGST Act, 2017 - "in case where the tax becomes refundable as a consequence of judgment, decree, order or direction of the Appellate Authority, Appellate Tribunal or any court, the date of communication of such judgment, decree, order or direction"

Section 54 Explanation 2(h) of the CGST Act, 2017 - "in any other case, the date of payment of tax"

Section 73 of the Arbitration and Conciliation Act, 1996 - Settlement agreement - Provides that when parties sign the settlement agreement, it shall be final and binding on the parties and persons claiming under them respectively.

Section 74 of the Arbitration and Conciliation Act, 1996 - Status and effect of settlement agreement - Provides that the settlement agreement shall have the same status and effect as if it is an arbitral award on agreed terms rendered by an arbitral tribunal under Section 30.

Section 36 of the Arbitration and Conciliation Act, 1996 - Provides that arbitral award has the effect equivalent to decree of Civil Court.

Section 30 of the Arbitration and Conciliation Act, 1996 - Settlement by arbitral tribunal on agreed terms.

Section 89 of the Code of Civil Procedure - Settlement of disputes outside the court - Provides that the Arbitration & Conciliation Act applies to conciliation proceedings.

Section 34 of the CGST Act, 2017 - Credit Notes for reducing tax liability.

Section 9 of the CGST Act, 2017 - Levy and collection of tax on intra-State supply of goods or services or both.

PARI MATERIA / CASES REFERRED

No specific cases were directly cited or referred to by the Court in this judgment. The Court relied primarily on the statutory provisions of the CGST Act, 2017 and the Arbitration and Conciliation Act, 1996 to arrive at its conclusion regarding the interpretation of limitation period for refund applications in cases involving conciliation agreements.