The Gujarat High Court ruled that while directing the department to refund the Goods and Service Tax (GST) wrongly paid by the assessee along with the 9% interest held that GST is not applicable on forfeiture of salary or payment of bond amount in the event of an employee leaving the employment before the minimum agreed period.
The bench of Justice Bhargav D. Karia and Justice D.N.Ray has observed that just as citizens have to diligently pay tax which are legally due to the State, equally, as a corollary of the aforesaid statement, the State is not entitled to unjustly enrich itself with amounts collected from citizens which are not sanctioned as “Tax” within the meaning of Article 265 of the Constitution of India.
The Petitioner, M/s Aculife Healthcare Pvt. Ltd. is engaged in the business of manufacture of chemicals and pharmaceuticals, which were goods in the nature of “excisable goods” when levy of central excise duty was in force till June 30, 2017 for manufacture of excisable goods.
After the enactment of Goods and Services Tax, the Petitioner-Company is an assessee and a registered person with the GST Department from 01.07.2017.
During July, 2017 to July, 2022, the Petitioner -Company has deposited a total sum of Rs.45,14,300 as tax on notice pay recovery, in lieu of various employees who left the employment. This amount of tax has been deposited by the Petitioner from its own pockets and the GST on the amount of notice pay recovery was deposited by the Petitioner as and when such recovery was made.
The amount deposited as GST, or any part, has not been recovered by the Petitioner-Company from any of the employees leaving the employment.
The Union Government issued a Circular No.178/10/2022-GST dated 03.08.2022, and clarified that such amount and such recovery was not chargeable to GST. The Government clarified that forfeiture of salary or payment of the bond amount in the event of an employee leaving employment before the minimum agreed period was not taxable. Hence, the amount of Rs.45,14,300 deposited by the Petitioner- Company as GST were therefore, not “tax”.
Since the Government clarified that the transactions/activities in question were not at all taxable and the Petitioner-Company had borne the entire burden of Rs.45,14,300 deposited as tax on recoveries made from outgoing employees, the Petitioners, on 05.11.2022 filed a refund claim for Rs.13,91,114 deposited as GST for the period of July 2017 to August 2018 and, on 07.11.2022, filed another refund claim of Rs.31,23,186 deposited as GST during the period of September 2018 to July 2022.
On these refund claims, notices proposing to reject the claims were issued by the Jurisdictional Deputy Commissioner, where two orders were passed pertaining to the two refund claims, after show cause notices and conducting adjudication.
The Jurisdictional Deputy Commissioner rejected the first claim of Rs.13,91,114/- entirely as time-barred, but allowed the second claim to the extent of Rs.29,24,012/- and rejected the remaining claim of Rs.1,99,174/- as time-barred.
The Petitioner -Company therefore filed two appeals before the Appellate Authority contending that the amount recovered as tax had to be returned to the assessee.
The Appellate Authority rejected both the appeals and upheld the decision of the Deputy Commissioner in rejecting refund claims for sums of Rs.13,91,114/- and Rs.1,99,174/-. The Appellate Authority held that the claims were barred by limitation of two years provided under Section 54 of the CGST Act, and therefore, the rejection of the claims on the ground of limitation in lodging the refund claims was proper.
Thus, according to the petitioners, the State has collected a total sum of Rs.45,14,300/- as tax and returned a sum of Rs.29,24,012/- therefrom because there was no levy of tax on the Petitioner’s transactions in question; but a sum of Rs. 15,90,288/- collected as tax is retained and the refund thereof is refused only on the ground of the same being time-barred.
The court noted that since the Circular came out on 03.08.2022, it has to be said that the petitioners could not have had the opportunity of filing of the refund claims in respect of the GST deposited by the Petitioner-Company, till such date. Therefore, the period of two years, for filing a claim, within the meaning of Section 54 of the CGST Act has to be computed from the date of the Circular i.e. from 03.08.2022.
The court held that the refund claims dated 05.11.2022 and 07.11.2022, for whatever period of tax deposited, cannot be said to be time barred.
Case Details
Case Title: Messrs Aculife Health Care Pvt. Ltd. & Anr. Versus Union Of India & Ors.
Case No.: R/Special Civil Application No. 17800 Of 2023
Date: 09/01/2025
Counsel For Petitioner: Amal Paresh Dave
Counsel For Respondent: Param V Shah
Read More: TDS Threshold Increased From April 2025: Check New Limits
