GST Refund Cannot Be Denied on Limitation After Demand Set Aside: Gujarat HC

Summary: The Gujarat High Court in Panila Chem Ltd. v. State of Gujarat, R/Special Civil Application No. 4610 of 2025, decided on 23 October 2026, directed refund of ₹5,41,032 with interest notwithstanding a delayed application under Section 54 of the CGST Act. The dispute arose after a vehicle carrying the chemical manufacturer’s goods was intercepted in November 2019 and tax and penalty were paid for release. On 28 February 2022, the appellate authority set aside the demand, finding the e-way bill active and no intent to evade tax, and directed refund. The petitioner received the physical appellate order on 8 March 2022, but Form GST APL-04 was uploaded only on 3 June 2024. The petitioner filed Form GST RFD-01 the next day; the department rejected the claim as time-barred and the appellate authority upheld that rejection. The High Court accepted that communication of the physical order ordinarily started the two-year limitation period and that portal upload was not a statutory prerequisite to filing. Nevertheless, applying constitutional protections under Articles 265 and 300A and the procedural-justice principle discussed in Sambhaji v. Gangabai, it treated the upload date as the relevant date for the limited purpose of this case. The Court quashed both refund-rejection orders and directed processing of the claim, allowing offline filing if necessary. It awarded 6% interest from 15 August 2024 until payment and directed compliance within twelve weeks, with 9% interest thereafter in case of default. The decision does not generally waive the statutory limitation period.

Procedure Is a Servant, Not a Master
Gujarat High Court revives a refund rejected as time-barred: Panila Chem Ltd. v. State of Gujarat

Why this judgment matters

Many of us have seen this situation in practice. The client wins the appeal. The appellate order directs refund of the amount paid. But the refund never comes, and when the refund application is finally filed, the department rejects it as time-barred.

The Gujarat High Court has dealt with exactly this problem in Panila Chem Ltd. v. State of Gujarat (R/Special Civil Application No. 4610 of 2025, decided on 23.10.2026, Coram: A.S. Supehia and Vaibhavi D. Nanavati, JJ.).

The Court agreed with the department on the strict reading of the law. Still, it allowed the refund with interest. The reason was an old and settled principle laid down by the Supreme Court in Sambhaji v. Gangabai, (2008) 17 SCC 117: procedure is meant to help justice, not to defeat it.

Facts in brief

The petitioner is a chemical manufacturer. The dates are important, so they are given in order:

The department’s stand was simple. The order was communicated on 08.03.2022. Two years from that date had already passed when the application was filed in June 2024.

The department also explained that the APL-04 was uploaded in June 2024 only because of an administrative direction (letter dated 27.05.2024) to upload old manually passed appellate orders on the portal. According to the department, RFD-01 has an option for orders received offline, and the petitioner could have used it at any time.

On the strict law, the Court sided with the department

Under Section 54(1) of the CGST Act, a refund application has to be filed within two years from the “relevant date”. As per Explanation 2(d), where tax becomes refundable because of an order of the Appellate Authority, Tribunal or court, the relevant date is the date of communication of that order.

The petitioner argued that communication was complete only when APL-04 was uploaded on 03.06.2024. The High Court did not accept this. Its reasons were:

1. APL-04 under Rule 113 is only a summary of the appellate order. The order itself had already been received on 08.03.2022.

2. Neither Rule 89 nor Form RFD-01 says that the taxpayer must wait for APL-04 to be uploaded. RFD-01 has a ground for refund “on account of order”, and a taxpayer holding a physical copy of the order can file the claim.

So, the Court held that 08.03.2022 would ordinarily be the relevant date, and on that basis the application was late.

Had the matter stopped here, the petitioner would have lost Rs. 5.41 lakh, even though the demand itself had been set aside by the department’s own appellate authority.

The principle from Sambhaji v. Gangabai (2008)

Sambhaji v. Gangabai was a civil matter decided by the Supreme Court on 20.11.2008 (Civil Appeal No. 6731 of 2008, Dr. Arijit Pasayat and Dr. Mukundakam Sharma, JJ.). It had nothing to do with tax.

The question there was whether a written statement filed after the 90-day limit under Order VIII Rule 1 of the CPC must be refused. The Supreme Court held that the provision is procedural and not part of substantive law. It is directory, not mandatory, and the court keeps the power to accept a late written statement in suitable cases. At the same time, the Court cautioned that this discretion should not be used routinely, otherwise the time limit itself would lose meaning.

While holding so, the Supreme Court repeated a line from its earlier decisions, which the Gujarat High Court has quoted in para 14.2:

“Procedural law is not to be a tyrant but a servant, not an obstruction but an aid to justice. A Procedural prescription is the handmaid and not the mistress, a lubricant, not a resistant in the administration of justice.”

In simple words, rules of procedure exist to help the court reach a fair result. They should not become a reason to take away a right which a person otherwise has.

How the High Court applied it to GST refund

The High Court asked one direct question: can a refund already ordered by the Appellate Authority remain unpaid only because the application was filed late?

The answer was no, on the facts of this case. The main reasons given by the Court are:

• Article 265: No tax can be collected except by authority of law. Once the demand was set aside, there was no law left to support the State keeping the money.

• Article 300A: The refund amount is “property” of the taxpayer. No person can be deprived of property except by authority of law.

• Article 19(1)(g): Denial of refund also affects the right to carry on business.

• No revival of a set-aside order: If the State keeps the money, it would indirectly bring back the MOV-09 order of 29.11.2019, which the appellate authority had already quashed. The Court said statutory provisions cannot be used in a way that revives an illegal action.

• The word “may” in Section 54(1): The Court clarified that “may” does not make the time limit optional. But it added that a rigid reading cannot be used to validate an illegal action.

• Duty of the State: The Court observed that the department should take steps to implement appellate orders on time, which may include informing the taxpayer to apply for refund. The authorities should help the process and not create hurdles.

The petitioner had applied on the very next day after APL-04 was uploaded. Considering this, the Court treated 03.06.2024 as the relevant date, for the limited purpose of this case. The application dated 04.06.2024 thus fell within two years, and the petitioner was held entitled to the refund of Rs. 5,41,032.

Interest and final directions

Section 56 provides interest at up to 6% where refund is not paid within 60 days of the application. Its proviso provides up to 9% where the refund arises from an order of the Appellate Authority, Tribunal or court which has attained finality.

The Court noted that this case falls under the proviso. Sixty days from 04.06.2024 ended on 03.08.2024. However, the petitioner had restricted the claim to 6%. The Court also said that interest cannot run from the date of the appellate order, since the petitioner could have applied after receiving the physical copy and did not do so.

Balancing both sides, the High Court directed as under:

1. The RFD-06 order dated 10.07.2024 and the appellate order dated 30.01.2025 are quashed.

2. The refund application dated 04.06.2024 is to be processed. If the portal does not allow it, the petitioner may file a fresh offline application.

3. Refund of Rs. 5,41,032 to be paid with interest at 6% from 15.08.2024 till actual payment.

4. All this to be done within 12 weeks. If not done, interest at 9% per annum will apply after 12 weeks.

Practical points for professionals

1. Do not wait for APL-04. The Court has clearly said that the date of physical receipt of the appellate order is the relevant date. Note that date in your records and file RFD-01 using the offline order option well within two years.

2. Relief here was fact-specific. The Court used the words “peculiar circumstances” and “limited purpose”. The quick filing on the very next day of the upload worked in the petitioner’s favour. A taxpayer who sits idle even after the upload may not get the same benefit.

3. Old manual orders deserve a review. Many appellate orders passed manually before the portal practice was streamlined may still be unimplemented. Check such files now and apply without delay.

4. Useful in writ petitions. Where an appellate order directing refund is in your favour but the claim is rejected on limitation, this judgment, read with Sambhaji, supports the argument that the State cannot keep money after the demand itself is set aside.

5. Claim interest correctly. For refunds arising from an appellate order, the proviso to Section 56 permits interest up to 9% after 60 days from the date of application. Mention the rate and the period clearly in the application and in the prayer.

Cases Discussed

• Sambhaji v. Gangabai — (2008) 17 SCC 117 (Supreme Court), Civil Appeal No. 6731 of 2008, decided 20 November 2008. Cited for the principle that procedural rules should aid rather than obstruct justice; the High Court applied it to the exceptional refund facts.

To conclude

The judgment does not dilute the time limit under Section 54. It accepts that the relevant date was 08.03.2022. What it refuses to accept is that a time limit can be used to keep money which the State had no right to collect in the first place.

A principle laid down by the Supreme Court in 2008 in a civil suit about a late written statement has now helped a GST taxpayer recover a refund with interest. It is a good reminder for all of us that procedure serves justice, and not the other way round.

Views are personal. Readers may refer to the full text of the judgment before relying on it in any matter.

****

Author: CA Tirthraj Monpara, Casemate Legal Advisory, Surat