Excess GST Paid by Mistake Cannot Be Retained by Government
Merely on Limitation Grounds: Orissa High Court
(Rajendra Narayan Mohanty v. Joint Commissioner of State Tax / Court:
Orissa High Court / Date of Judgment: 12 February 2026)
In a significant ruling
concerning refund of tax deposited under mistake, the Orissa High Court has
held that the Government cannot retain tax which was never legally payable
merely on the ground that the refund application was filed beyond the limitation
period prescribed under the GST law. The Court emphasized that constitutional
principles override procedural limitations and any tax collected without
authority of law must be returned to the taxpayer.
The judgment arose from a
situation where the taxpayer had inadvertently paid GST twice for the same
liability. While the department rejected the refund claim citing the limitation
under Section 54 of the CGST Act, the High Court intervened and directed that
the refund be processed, reiterating that the State cannot unjustly enrich
itself by retaining amounts that were paid due to mistake.
Background
of the Dispute
The petitioner, Rajendra
Narayan Mohanty, was a registered taxpayer under the GST regime. The
controversy began during the scrutiny of his GST returns for the financial year
2019-20. During the scrutiny process, the department noticed that certain Tax
Deducted at Source (TDS) credits were reflected in the petitioner’s electronic
cash ledger during multiple months of the financial year, including April 2019,
May 2019, June 2019, September 2019 and October 2019. However, the petitioner
had filed GSTR-3B returns for those periods showing nil tax liability.
Based on this
discrepancy, the department formed a prima facie opinion that there had been
suppression of taxable turnover and consequently initiated proceedings under Section
74 of the CGST Act, 2017, which deals with cases involving alleged fraud,
wilful misstatement or suppression of facts for the purpose of evading tax. A
show cause notice was issued on 02 February 2022 requiring the petitioner to
explain the discrepancy and pay the applicable tax along with interest and
penalty.
In response to the show
cause notice, the petitioner submitted that the tax liability had already been
discharged while filing the annual return for the financial year 2019-20. The
petitioner explained that the tax was paid on 08 February 2021 through Form
DRC-03 by utilizing the available balance in the electronic credit ledger. The
interest component was also discharged accordingly. After examining the
explanation and verifying the records, the department accepted that the
liability had already been paid and accordingly dropped the proceedings
initiated under Section 74.
Subsequent
Discovery of Double Payment
Although the proceedings
were dropped, the petitioner later realized that another payment had been made
for the same liability. According to the petitioner, due to incorrect
professional advice he again deposited the same tax amount through Form DRC-03
on 18 September 2022, this time using the electronic cash ledger instead of the
credit ledger. As a result, the tax liability that had already been discharged
earlier stood paid once again.
The amount that was paid
twice consisted of ₹6,01,645 towards CGST and ₹6,01,645 towards SGST, making a
total excess payment of ₹12,03,290. Since the liability had already been
discharged earlier, the second payment effectively became an excess deposit made
under mistake.
After identifying this
mistake, the petitioner filed a refund application on 23 August 2025 in Form
GST RFD-01 seeking refund of the excess amount paid.
Rejection
of Refund by the Department
The refund application
was examined by the tax authorities, and a show cause notice was issued in Form
GST RFD-08 proposing rejection of the claim. The department took the view that
the refund application had been filed beyond the time limit prescribed under
the GST law.
The authority relied on
the provisions of Section 54 of the CGST Act, 2017, which provides that any
claim for refund must be filed within two years from the relevant date. Since
the second payment had been made on 18 September 2022 and the refund
application was filed in August 2025, the department concluded that the claim
was barred by limitation.
Consequently, the Joint
Commissioner rejected the refund claim through an order dated 22 October 2025
issued in Form GST RFD-06.
Petition
Before the High Court
Aggrieved by the
rejection of his refund claim, the petitioner approached the Orissa High Court
by filing a writ petition under Articles 226 and 227 of the Constitution of
India. The petitioner challenged the refund rejection order and requested the
Court to direct the tax authorities to refund the excess amount that had been
mistakenly paid.
The primary contention of
the petitioner was that the amount had been deposited due to a genuine mistake
and the Government had no authority to retain such amount. It was argued that
procedural limitations contained in the GST statute cannot override the
constitutional mandate that prohibits the State from collecting or retaining
taxes without authority of law.
Observations
of the High Court
After examining the
record and hearing the arguments of both sides, the High Court observed that
the fact of double payment was not in dispute. The Court noted that the
department itself had acknowledged that the tax liability for the relevant
period had already been discharged earlier through the electronic credit ledger
and that the subsequent payment made in September 2022 was therefore redundant.
The Court further
examined the constitutional principle embodied in Article 265 of the
Constitution of India, which clearly states that no tax shall be levied or
collected except by authority of law. The Court emphasized that once it is
established that the tax was not legally payable, the Government cannot retain
the amount merely because the taxpayer approached the authorities after the
limitation period prescribed in the statute.
According to the Court,
the refund provisions contained in the GST law are procedural in nature and
cannot be interpreted in a manner that allows the State to unjustly enrich
itself by retaining money which it was never entitled to collect in the first place.
Consideration
of Judicial Precedents
While arriving at its
conclusion, the High Court also referred to earlier judicial decisions that had
dealt with similar situations. In particular, reliance was placed on the
decision in Delhi Metro Rail Corporation Ltd. v. Additional Commissioner, CGST,
where the Court had held that when tax is paid by mistake and was never legally
payable, the limitation period prescribed for refund claims cannot be rigidly
applied.
The Court also took note
of the judgment delivered by the Gujarat High Court in Comsol Energy Private
Limited v. State of Gujarat, where it was held that the Government cannot
retain amounts collected without authority of law and that such amounts must be
refunded even if the refund application is filed beyond the statutory
limitation period.
These precedents
reinforced the principle that the constitutional prohibition under Article 265
takes precedence over procedural provisions contained in tax statutes.
Incorrect
Observation Regarding Supporting Documents
Another aspect considered
by the Court was the observation made in the refund rejection order that the
petitioner had not submitted supporting documents along with the refund
application. Upon examining the record, the Court found that this observation was
factually incorrect.
The petitioner had indeed
submitted copies of the DRC-03 payments reflecting the earlier payment made
through the credit ledger and the subsequent payment made through the cash
ledger. Additional documents such as a cancelled cheque and other relevant records
had also been provided to substantiate the refund claim.
The Court therefore
concluded that the rejection order had been passed without proper appreciation
of the documents on record.
Decision of
the Court
In light of the above
findings, the Orissa High Court held that the rejection of the refund claim
solely on the ground of limitation was unsustainable. The Court set aside the
refund rejection order dated 22 October 2025 and directed the department to process
the petitioner’s refund claim in accordance with law.
The Court clearly stated
that when the State has received money that it was not legally entitled to
collect, such amount cannot be retained and must be returned to the taxpayer.
Significance
of the Judgment
This judgment carries
important implications for taxpayers under the GST regime. Situations involving
excess payments, duplicate tax deposits, or payments made under mistake are not
uncommon in tax administration. The ruling clarifies that procedural limitations
under the GST law cannot be used as a tool to deny refund of amounts that were
never legally payable.
The decision reinforces
the principle that tax authorities must act in accordance with constitutional
mandates and cannot enrich the State at the expense of taxpayers who have made
genuine mistakes.
For businesses and tax
professionals, the ruling provides strong judicial support when seeking refunds
of taxes that were deposited inadvertently or due to incorrect advice.
Conclusion
The decision of the
Orissa High Court in Rajendra Narayan Mohanty v. Joint Commissioner of State
Tax reiterates a fundamental principle of fiscal jurisprudence: the State
cannot retain money collected without authority of law. Even though the GST
statute prescribes a limitation period for filing refund claims, such
procedural provisions cannot override the constitutional guarantee contained in
Article 265.
Where it is established
that tax was paid twice or was never legally payable, the Government is under
an obligation to refund the excess amount. The judgment therefore strengthens
taxpayer rights and ensures that the GST system operates in accordance with
both statutory provisions and constitutional principles
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