GST Deposited On Erroneous Belief That Payment For Services Rendered Were Chargeable To Tax Cannot Be Retained By Dept: Delhi High Court

The Delhi High Court has ruled in favour of the Delhi Metro Rail Corporation (DMRC), allowing them to claim a refund of Rs. 2,90,520, which it had mistakenly deposited as GST for services related to the preparation of a Detailed Project Report for the Surat Metro Rail Project.

The High Court held so while considering a case where the refund request of DMRC was denied by the GST authorities, citing that it was filed beyond the stipulated two-year period prescribed by Section 54(1) of the Central Goods and Services Tax Act, 2017 (CGST Act).

The Division Bench of Justice Vibhu Bakhru and Justice Tara Vitasta Ganju observed that “Article 265 of the Constitution of India proscribes any levy or collection of tax except by authority of law. Concededly, GST is not payable by the DMRC in respect of the service of preparation of Detailed Project Report for respondent no.3. Thus, the amount of ₹2,90,520/- deposited by the DMRC on an erroneous belief that payment for services rendered by it were chargeable to tax, cannot be retained by the respondents.”

Advocate Adarsh Tripathi appeared for the Petitioner, whereas Advocate Atul Tripathi appeared for the Respondent.

The brief facts of the case were that the DMRC had been engaged by the Surat Municipal Corporation to prepare a project report for the development of the Surat Metro Rail Project in Gujarat. As part of its engagement, DMRC provided services for the preparation of a Detailed Project Report for the project, invoicing a total of Rs. 19,04,520/- for their services. This invoice included a GST component of Rs. 2,90,520, calculated at an 18% rate. While the Surat Municipal Corporation paid Rs. 16,14,000 against the invoice, they did not remit the GST amount included in it. To ensure compliance with statutory provisions, DMRC deposited the sum of Rs. 2,90,520 with the GST Authorities. Following these events, the Surat Municipal Corporation informed DMRC that, according to Notification no.12/2017 - Central Tax (Rate) dated June 28, 2017 issued by the Ministry of Finance, the services billed were not subject to GST. Accordingly, DMRC filed an application for refund.

After considering the submission, the Bench pointed out that Section 54 of the CGST Act applies exclusively to claiming refunds for taxes paid under the CGST Act, and consequently, any amount collected by the Revenue without the legal authority is not considered as tax collected by them, rendering Section 54 inapplicable.

The Bench observed that DMRC was not liable to pay GST for the services related to the preparation of the Detailed Project Report, and therefore, the sum of Rs. 2,90,520, which DMRC had deposited under the erroneous belief that the services were subject to taxation, could not be retained by the GST Department.

The Bench further clarified that the period of limitation for applying for a refund, as prescribed under Section 54 of the CGST Act, does not apply when GST is not chargeable, and when it is established that an amount has been deposited due to a mistake of law.

Accordingly, the High Court directed the GST Department to process DMRC's refund claim.

Cause Title: Delhi Metro Rail Corporation Ltd v. The Additional Commissioner, Central Goods and Services Tax Appeals II and Ors. [Neutral Citation: 2023: DHC: 6874-DB]

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