Author: Ashwarya Sharma, Advocate, Co-Founder & Legal Head, RB LawCorp
Published on: 21/05/2026
1. Introduction
The decision of the Division Bench of the Hon’ble Karnataka High Court in Assistant Commissioner of Central Taxes, Bengaluru v. Merck Life Science Pvt. Ltd. (2026-VIL-284-KAR) is an important pronouncement on the evolving jurisprudence surrounding refund claims under the GST regime. The judgment addresses one of the most recurring and contentious issues under indirect tax law — whether genuine refund claims involving admitted excess payment of tax can be denied solely on the ground of limitation prescribed under Section 54 of the CGST Act, 2017.
The ruling assumes considerable importance because refund disputes under GST frequently involve situations where taxpayers have either paid tax under a mistake of law, made double payment of tax, or discharged liability under an incorrect tax head. In many such cases, the substantive entitlement to refund is often undisputed, yet the refund claims are rejected on account of procedural timelines prescribed under the statute.
The judgment therefore examines a fundamental constitutional tension between two competing principles. On one hand lies the need for procedural certainty and strict adherence to timelines within the GST framework, which is designed as a comprehensive time-bound legislation. On the other hand lies the broader constitutional principle flowing from Article 265 of the Constitution of India — namely that the State cannot unjustly retain taxes which are not legally due.
What makes the ruling particularly significant is that the Court has attempted to evolve a balanced and nuanced approach. While upholding the mandatory nature of limitation under Section 54 for departmental authorities, the Court simultaneously recognised that constitutional courts exercising jurisdiction under Article 226 may still intervene in exceptional cases involving manifest injustice, genuine hardship, or unlawful retention of taxes.
The judgment therefore becomes an important precedent not only on refund limitation under GST, but also on the larger constitutional relationship between statutory tax procedures and equitable constitutional remedies.
2. Factual Background
The dispute arose from a situation involving double payment of tax on the same transaction. The respondent taxpayer had initially discharged tax liability as IGST and subsequently paid CGST and SGST on the same supply. Consequently, the taxpayer sought refund of the excess amount paid.
However, the refund application came to be rejected on the ground that it had been filed beyond the limitation period of two years prescribed under Section 54 of the CGST Act.
The controversy therefore centered around a narrow yet important legal issue — whether refund of admittedly excess tax paid could still be denied solely because the refund application was filed beyond the statutory limitation period.
The matter eventually reached the Karnataka High Court where substantial questions arose regarding:
- the nature of limitation under Section 54;
- the constitutional implications of retaining taxes not legally due; and
- the extent to which constitutional remedies under Article 226 survive despite statutory limitations.
3. Submissions on Behalf of the Revenue Department
3.1 Mandatory Nature of Section 54
The Department strongly argued that Section 54 specifically prescribes a limitation period of two years from the relevant date for filing refund applications and that the said timeline is mandatory in nature.
According to the Revenue, once the legislature has consciously prescribed a limitation period, courts cannot dilute or rewrite the statutory provision through equitable interpretation. Any attempt to treat the limitation as merely directory would amount to judicial legislation.
The Department emphasised that the GST framework is fundamentally a structured and time-bound enactment where certainty and finality of tax positions constitute an essential legislative objective.
3.2 Refund Mechanism Must Strictly Follow Statutory Procedure
It was further argued that refund claims are creatures of statute and therefore must necessarily comply with the procedure prescribed by the legislation itself.
The Revenue contended that once the taxpayer failed to invoke the statutory remedy within the prescribed period, no equitable relaxation could subsequently be sought merely because the refund claim appeared genuine.
According to the Department, permitting delayed refund claims would seriously undermine the procedural discipline underlying the GST regime.
3.3 Interplay with Sections 73 and 74
A particularly important argument advanced by the Revenue concerned the interrelationship between refund limitation under Section 54 and adjudicatory timelines prescribed under Sections 73 and 74 of the CGST Act.
The Department submitted that if refund claims are permitted indefinitely beyond limitation, corresponding statutory timelines available to the Department for initiating proceedings relating to short payment, erroneous refunds, or wrongful availment would become unworkable.
Thus, according to the Revenue, the limitation under Section 54 cannot be viewed in isolation and must be understood as part of the integrated statutory architecture of GST.
4. Submissions on Behalf of the Taxpayer
4.1 Refund Arising from Double Payment of Tax
The taxpayer argued that the present case involved admitted double payment of tax on the same transaction.
Since the Department itself did not dispute that excess tax had been paid, the State could not retain such amount merely by relying upon procedural limitation.
The taxpayer emphasised that refund claims involving excess or mistaken payments stand on a different footing from ordinary refund claims arising from exemptions or zero-rated supplies.
4.2 Limitation under Section 54 Is Directory
The taxpayer further contended that the limitation prescribed under Section 54 ought to be treated as directory rather than mandatory, particularly in cases involving genuine excess payment of tax.
According to the assessee, procedural prescriptions cannot defeat substantive rights, especially where retention of tax itself lacks legal justification.
It was argued that refund provisions must receive liberal interpretation in cases where the State is admittedly retaining amounts which are not lawfully due.
4.3 Reliance on Article 265
Heavy reliance was placed upon Article 265 of the Constitution of India, which mandates that:
“No tax shall be levied or collected except by authority of law.”
The taxpayer argued that once the State accepts that excess tax has been paid, continued retention of such amount becomes constitutionally impermissible.
Thus, denial of refund merely on technical limitation grounds would effectively amount to unconstitutional enrichment by the Revenue.
5. Findings and Observations of the Karnataka High Court
5.1 Section 54 as a Self-Contained Code
The Division Bench observed that Section 54 constitutes a comprehensive and self-contained code governing refund claims under GST.
The Court noted that refund processing under GST is not merely a mechanical exercise and may involve examination of multiple issues, including wrongful availment, short payment, taxability disputes, and adjudicatory considerations under Sections 73 and 74.
Therefore, limitation under Section 54 cannot be interpreted independently of the broader statutory framework.
5.2 GST as a Time-Bound Legislation
One of the most significant observations of the Court was its emphasis that GST is fundamentally a time-bound enactment where timelines form the backbone of the legislative framework.
The Court observed that indefinite relaxation of refund limitation could disturb the delicate balance maintained by the statute between taxpayer rights and departmental powers.
The judgment therefore recognised procedural certainty as an important legislative objective under GST.
5.3 Mandatory Nature of Limitation under Section 54
The Division Bench categorically held that the limitation period of two years prescribed under Section 54 is mandatory in nature.
Importantly, the Court noted that the statute does not contain any enabling provision empowering departmental authorities to condone delay or extend limitation.
Consequently, in the absence of express statutory power, proper officers cannot entertain refund claims filed beyond the prescribed limitation period.
This finding effectively overturned the earlier view of the learned Single Judge who had treated the limitation as directory.
5.4 Constitutional Remedies under Article 226 Remain Preserved
Despite holding the limitation under Section 54 to be mandatory for departmental authorities, the Court simultaneously recognised that constitutional courts exercising writ jurisdiction under Article 226 are not similarly constrained.
The Court observed that exceptional cases involving genuine hardship, manifest injustice, or unconstitutional retention of taxes may still justify exercise of writ jurisdiction by High Courts.
Significantly, the Court clarified that the statutory limitation under Section 54 restricts only the powers of departmental authorities and does not curtail constitutional powers of High Courts under Article 226.
This aspect of the judgment represents perhaps its most important constitutional contribution.
5.5 Equitable Balancing Mechanism Evolved by the Court
A particularly remarkable feature of the ruling is the balancing mechanism evolved by the Division Bench.
The Court held that whenever delay in refund claims is condoned through writ jurisdiction, corresponding extension of limitation should also be available to the Department under Sections 73 and 74 wherever necessary.
This approach attempts to maintain parity between taxpayer rights and departmental safeguards.
The judgment therefore reflects judicial sensitivity towards preserving the integrity of the statutory framework while simultaneously preventing injustice.
6. Implications of the Judgment
The ruling is likely to have substantial implications for GST refund jurisprudence across India.
First, the judgment settles an important controversy by clearly holding that limitation under Section 54 is mandatory for departmental authorities.
Secondly, the judgment preserves the constitutional remedy under Article 226, thereby ensuring that procedural rigidity does not entirely defeat substantive justice in exceptional cases.
Thirdly, the ruling reflects a mature constitutional balancing exercise where both taxpayer rights and statutory safeguards are simultaneously protected.
However, the decision may also create practical difficulties. Taxpayers who miss the statutory limitation — even in genuine cases involving admitted excess payment — may now be compelled to approach constitutional courts for relief.
This could potentially increase:
- GST litigation before High Courts;
- compliance costs for taxpayers; and
- judicial burden on constitutional courts.
At the same time, the ruling may encourage taxpayers to exercise far greater diligence while monitoring refund timelines under GST.
7. Relevance in Broader GST Jurisprudence
The judgment also carries wider constitutional significance within GST jurisprudence.
It reinforces the continuing importance of Article 265 as a constitutional safeguard against unauthorised taxation and unjust retention of revenue by the State.
Further, the ruling demonstrates that even highly technical tax statutes must ultimately operate within broader constitutional principles of fairness, legality, and equity.
The decision may therefore influence future litigation involving:
- mistaken tax payments;
- wrong tax head payments;
- excess tax collections;
- unconstitutional retention of taxes; and
- procedural limitation versus substantive entitlement disputes.
8. Conclusion
The decision in Assistant Commissioner of Central Taxes, Bengaluru v. Merck Life Science Pvt. Ltd. represents an important contribution to the evolving jurisprudence surrounding GST refunds and constitutional remedies.
The Karnataka High Court has carefully balanced two equally important principles — the need to preserve statutory discipline under a time-bound GST framework and the constitutional imperative that the State cannot unjustly retain taxes not legally due.
By holding Section 54 limitation to be mandatory for departmental authorities while simultaneously preserving constitutional remedies under Article 226, the Court has evolved a pragmatic and constitutionally balanced solution.
The ruling ultimately reflects a deeper constitutional philosophy that taxation statutes, however technical in nature, must continue to operate within the larger boundaries of fairness, legality, and justice.
As refund disputes continue to remain one of the most heavily litigated areas under GST, this judgment is likely to emerge as an important precedent shaping future jurisprudence on the intersection between procedural limitation and constitutional remedies.
At the same time, the issue remains far from settled nationally, particularly in light of contrary views expressed by other High Courts treating limitation under Section 54 as directory in cases involving mistaken payments and deposits in the nature of tax.
Given the substantial constitutional and fiscal implications involved, the controversy may eventually require authoritative resolution by the Supreme Court of India.
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(The author is a practicing advocate, Co-Founder and Legal Head of RB LawCorp.
He specializes in GST law. Suggestions or queries can be directed to
ashsharma@rblawcorp.in. The views expressed in this article are strictly
personal.)
