High Court Orders GST Pre-Deposit Refund Despite Section 54 Limitation

The Hon'ble High Court of Jharkhand at Ranchi in M/S. GTL Infrastructure Limited vs The State of Jharkhand & Others W.P. (T) No. 5035 of 2024 dated August 20, 2025 held that refund of pre-deposit amount cannot be rejected on ground of limitation under Section 54 of GST Act when appeal is allowed in favor of assessee. The Court directed refund of pre-deposit amount within four weeks with 6% interest for delay, ruling that withholding statutory refund would constitute unjust enrichment and violate Article 265 of Constitution.

Facts of the Case

The Petitioner M/S. GTL Infrastructure Limited, a company incorporated under the Companies Act, 2013, with its registered office at 3rd Floor, H/O Pradip Kumar Jain, Kutchery Road, Ranchi, filed the present writ petition seeking refund of pre-deposited amount with the government exchequer. The Petitioner had made pre-deposit to maintain an appeal under Section 107 of the GST Act. After the appeal was allowed in favor of the Petitioner, the Petitioner filed an application for refund of the pre-deposited amount.

The application for refund of pre-deposit amount was rejected through an automated order dated June 7, 2024 on the ground of limitation as prescribed under Section 54 of the CGST/Jharkhand GST Act. The Respondents issued deficiency memos in Form GST RFD-03 dated June 7, 2024 and August 2, 2024, which the Petitioner challenged as wholly illegal and arbitrary.

The Petitioner contended that once the appeal preferred by the assessee is allowed, withholding of the pre-deposit amount without any reasonable cause would be hit by Article 265 of the Constitution of India, which mandates that no tax shall be levied or collected except by authority of law. The Petitioner argued that the refund application could not have been automatically rejected on the ground of being time barred, as the refund of statutory pre-deposit is a right vested on an assessee after an appeal is allowed in its favor.

The Petitioner sought issuance of appropriate writ directing the Respondents to show cause as to why the refund application had not been processed, and consequent direction for refund of the pre-deposit amount forthwith along with statutory interest. The Petitioner also sought quashing of the deficiency memos and declaration that withholding pre-deposit amount without reasonable cause violates Article 265 of the Constitution. The Petitioner was aggrieved by the automatic rejection of refund application despite having succeeded in the appeal proceedings and fulfilling all statutory requirements for obtaining refund of the pre-deposited amount.

Issue

Whether the limitation period prescribed under Section 54 of GST Act is mandatory for refund of pre-deposit amount when the appeal of the assessee has been allowed in their favor.

Held by the Court

The Hon'ble High Court of Jharkhand at Ranchi in W.P. (T) No. 5035 of 2024 held that:

The Court observed that the moot question is whether Section 54 of GST Act is mandatory, and noted that this question is no longer res-integra as regards this Court and has been authoritatively decided by the Division Bench of this Court in W.P.(T) No. 6527 of 2024, M/s.BLA Infrastructure Private Limited v. The State of Jharkhand and others. The Court held that there is no dispute to the effect that once refund is by way of statutory exercise, the same cannot be retained neither by the State, nor by the Centre, taking into consideration that the language couched in Section 54 is "may make an application before the expiry of 2 years from the relevant date".

The Court opined that the word 'may' has been interpreted by the Hon'ble Supreme Court in numerous cases, and the Supreme Court has held that the word 'may' as would appear in different statutes, is normally directory in nature and not mandatory. The Court relied on the recent Supreme Court judgment in Muskan Enterprises & Anr. vs. State of Punjab & Anr. reported in 2024 SCC Online SC 4107, which held that user of the verbs 'may' and 'shall' in a statute is not a sure index for determining whether such statute is mandatory or directory in character, and that legislative intent has to be gathered looking into other provisions of the enactment.

The Court held that in the Supreme Court case of Rakesh Ranjan Shrivastava Vs. State of Jharkhand & Anr. reported in (2024) 4 SCC 419, it was observed that there is no doubt that the word "may" ordinarily does not mean "must", but this is not an inflexible rule, and the use of the word "may" in certain legislations can be construed as "shall" depending on the nature of the power conferred and the effect of its exercise. The Court observed that legislative intent and context in which the word "may" has been used is also relevant.

The Court held that taking into consideration that the refund of statutory pre-deposit is a right vested on an assessee after an appeal is allowed in its favour, there is no reason to say that the pre-deposit made by an assessee can be forfeited taking aid of section 54 of the Act, and the same cannot be the intent of the Act of 2017. The Court noted that learned counsel for the State contended that a contrary view has been taken by the Delhi High Court in Sethi Sons (India) v. Assistant Commissioner and Others reported in 2023 SCC OnLine Del 8351, but observed that the view taken by the Division Bench of this Court is binding on this Bench and the Delhi High Court view has only persuasive value.

The Court opined that the action of the State in retaining the amount of the petitioner would amount to undue enrichment of the State, which otherwise, is impermissible. The Court concluded that in view of the aforesaid discussions and reasons, there was no option but to allow the petition by directing the respondents to refund the pre-deposit amount to the petitioner within four weeks, failing which the respondents shall be liable to pay interest at 6% per annum from the date it was due till the date of actual payment.

Relevant Sections

Section 54(1) of the CGST/Jharkhand GST Act - "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 in such form and manner as may be prescribed"

Section 107 of the GST Act - "Appeal to Appellate Authority"

Article 265 of the Constitution of India - "No tax shall be levied or collected except by authority of law"

Explanation 2(d) of Section 54 - "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"

Pari Materia / Cases Referred

1. M/s.BLA Infrastructure Private Limited v. The State of Jharkhand and othersCitation: W.P.(T) No. 6527 of 2024Court: High Court of Jharkhand Facts: Similar case involving refund of pre-deposit amount and interpretation of Section 54 Held: Section 54 limitation is directory, not mandatory; refund of statutory pre-deposit is a right vested on assessee after appeal is allowed in favor

2. Muskan Enterprises & Anr. vs. State of Punjab & Anr.Citation: 2024 SCC Online SC 4107Court: Supreme Court of India Facts: Interpretation of word 'may' in statutory provisions. Held: Use of verbs 'may' and 'shall' is not sure index for determining mandatory or directory character; legislative intent must be gathered from other provisions; 'may' ordinarily directory while 'shall' and 'must' are mandatory

3. Rakesh Ranjan Shrivastava Vs. State of Jharkhand & Anr.Citation: (2024) 4 SCC 419Court: Supreme Court of India Facts: Interpretation of word 'may' in Section 143-A of Negotiable Instruments Act Held: Word 'may' ordinarily does not mean 'must' but rule not inflexible; depends on nature of power conferred and effect of exercise; legislative intent and context relevant

4. Reserve Bank of India v. Peerless General Finance & Investment Co. Ltd.Court: Supreme Court of India Facts: Statutory interpretation principles Held: Enactment must be looked at as a whole to discover what each section, clause, phrase and word means; every word has place and everything is in its place

5. Surinder Singh Deswal v. Virender GandhiCitation: (2019) 11 SCC 341Court: Supreme Court of India Facts: Interpretation of Section 148 of Negotiable Instruments Act Held: Word 'may' in Section 148 construed as 'rule' or 'shall'; appellate court must record reasons when deciding not to direct deposit

6. Jamboo Bhandari v. M.P. SIDC Ltd.Citation: (2023) 10 SCC 446Court: Supreme Court of India Facts: Purposive interpretation of Section 148 NI Act Held: Purposive interpretation should be made; normally appellate court justified in imposing deposit condition but exception can be made where unjust

7. Sethi Sons (India) v. Assistant Commissioner and OthersCitation: 2023 SCC OnLine Del 8351 Court: Delhi High Court Facts: Contrary view on GST refund limitation Held: Different interpretation of Section 54 limitation period (persuasive value only as per Jharkhand High Court)

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