Case Law Details
Messrs Aculife Health Care Pvt. Ltd. & Anr. Vs Union of India & Ors. (Gujarat High Court)
Conclusion: Since GST on of salary or payment of the bond amount in the event of an employee leaving employment before the minimum agreed period was not taxable as per Circular No.178/10/2022-GST dated 03.08.2022, therefore, assessee-company was entitled to claim refund of GST on the amount of notice pay recovery which was deposited by assessee and the calculation of period of two years would be from the date from which assessee were informed by the Government through the aforesaid Circular.
Held: During July, 2017 to July, 2022, assessee-company had 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 had been deposited by assessee from its own pockets and the GST on the amount of notice pay recovery was deposited by assessee as and when such recovery was made. The amount deposited as GST, or any part thereof, had not been recovered by assessee 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 assessee as GST were therefore, not “tax”. Assessee filed a refund claim for Rs.13,91,114/- deposited as GST for the period of July 2017 to August 2018 and 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 Jurisdictional Deputy Commissioner, where two orders were passed by the Respondent pertaining to the above referred two refund claims, after show cause notices and conducting adjudication. Accordingly, he 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. Assessee company therefore filed two appeals before the Appellate Authority contending that the amount recovered as tax had to be returned to the assessee. 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, the State has collected a total sum of Rs.45,14,300/- as tax and returned a sum of Rs.29,24,012/- but a sum of Rs. 15,90,288/-collected as tax was retained and the refund thereof was refused only on the ground of the same being time-barred. It was held that since the aforesaid Circular came out on 03.08.2022, it had to be said that assessee could not have had the opportunity of filing of the refund claims in respect of the GST deposited by assessee company, till such date. Therefore, the period of two years, for filing a claim, within the meaning of Section 54 had to be computed from the date of the Circular i.e. from 03.08.2022. In that view of the matter, the refund claims dated 05.11.2022 and 07.11.2022, for whatever period of tax de-posited, could not be said to be time barred. In other words, the calculation of period of two years would not be from September, 2018 as wrongly held by the authorities below, but from 03.08.2022, i.e the date from which assessee were informed by the Government through the aforesaid Circular, that assessee need not pay tax on the transaction in question, which was clarified not to be a “Service” under the CGST Act.
FULL TEXT OF THE JUDGMENT/ORDER OF GUJARAT HIGH COURT
Learned advocate Mr. Param V. Shah for the respondent No.3 does not press this speaking to minutes.
Speaking to minutes accordingly stands disposed of.
1. Heard learned Advocate Mr. Parth Rachchh with learned Advocate Mr. Paresh M. Dave for the peti-tioners, and learned Advocate Mr. Param Shah for the respondents.
2. Rule returnable forthwith. Learned advocate Mr.Param V.Shah waives service of notice of rule on be-half of the respondent No.3. With the consent of learned advocates for the respective parties, the matter is taken up for final hearing, as the issue involved is very short.
3. The petition is filed under Article 226 of the Constitution of India with the following prayers :
“(A) That Your Lordships may be pleased to issue a Writ of Manda-mus or any other appropriate writ, order or direction directing Respondent No.3 i.e. the Deputy Com-missioner of CGST, to sanction and pay the Petitioner’s refund claim for Rs.15,90,288/- with interest @9% per annum;
(B) That Your Lordships may be pleased to issue a Writ of Certiorari or any other appropriate writ, order or direction quashing and setting aside OIA No.AHM-002-APP-ADC-30-31/2023-24 dated 28.07.2023 (Annexure-"F"), with consequential re-lief of payment of refund of Rs.15,90,288/- with interest @9% per nnum for the period commencing from the date of refund application till the actual payment of the refund of Rs. 15,90,288/- to the Peti-tioner;
(C) Pending hearing and final disposal of the present petition, Your Lordships may be pleased to direct the 3rd Respondent herein to forthwith pay the Petitioner a refund of Rs.15,90,288/- on such terms and conditions that may be deemed fit by this Hon’ble Court:
(D) An ex-parte ad interim relief in terms of Para 17(C) above may kindly be granted:
(E) Any other further relief as may be deemed fit in the facts and circumstances of the case may also please be granted.
4. The brief facts of the case are as follows:-
4.1 The Petitioner (Messrs Aculife Healthcare Pvt. Ltd.) is a Private Limited Company engaged in the business of manufacture of chemicals and pharmaceuticals, which were goods in the nature of “excisa-ble 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 reg-istered person with the GST Department from 01.07.2017.
4.2 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 thereof, has not been recovered by the Petitioner-Company from any of the employees leaving the employment.
4.3 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. At para 7.5 of this circular, 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”.
4.4 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.
4.5 On these refund claims, notices proposing to reject the claims were issued by the Respondent No.3 i.e., the Jurisdictional Deputy Commissioner, where two orders were passed by the Respondent No.3 pertaining to the above referred two refund claims, after show cause notices and conducting adjudica-tion. The respondent No.3, accordingly, 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.
5. The Petitioner -Company therefore filed two appeals before the Appellate Authority i.e., the Re-spondent No.2 contending that the amount recovered as tax had to be returned to the assessee. On 28.07.2023, the Appellate Authority has rejected both the appeals and upheld the decision of the Dep-uty Commissioner in rejecting refund claims for sums of Rs.13,91,114/- and Rs.1,99,174/-. The Appel-late 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.
6. 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 trans-actions 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.
7. Mr. Paresh Dave, learned advocate appearing with Mr.Parth Rachchh for the petitioners submits that, it is now a settled position that the Petitioners were not liable to pay any tax in the present case. The col-lection and retention of the monies under the guise of tax is in violation of the mandate of Article 265 of the Constitution of India. Therefore, such actions of the Respondents and also the order of the Appel-late Authority are liable to be quashed, set aside and consequent refunds must be directed to be paid to the petitioners. Mr. Dave, learned advocate further submitted that the Petitioner-Company kept on pay-ing the Tax in question in lieu of services under the mistaken belief that the petitioner was liable to pay the tax. The respondents-authorities have accepted the Tax for all these years also under the mistaken belief that they were authorized to collect the tax. It was only when the Government finally clarified the position through its Circular No.178/10/2022-GST, that it became apparent to both the citizen and the State that the “Tax” paid thus far, was not sanctioned under Article 265 of the Constitution of India. Fur-ther, as a matter of fact, it is inconceivable how any refund application could be filed before 03.08.2022. Therefore, the limitation in respect of such refund applications could only be calculated from 03.08.2022 and the respondents-authorities have erred in rejecting the refund applications filed by the petitioners soon after the aforesaid Circular dated 03.08.2022.
8. Mr. Param V. Shah, learned advocate appearing for the respondent No.3 has submitted the petition-ers filed their first refund claim for the period of July, 2017 to August-2018 seeking a refund of the amount Rs.13,91,114/- on 05.11.2022 and thereafter, filed a second refund claim for the period of Sep-tember-2018 to July-2022 seeking refund of Rs.31,23,186/- on 07.11.2022. It was submitted that a show cause notice dated 19.12.2022 read with corrigendum dated 21.12.2022 and 23.12.2022 re-spectively were issued by the Respondent No.3 and after hearing the petitioners, two refund orders dated 06.01.2023 and 10.01.2023 were passed, inter alia, rejecting partial refund of the petitioners amounting to total Rs.15,90,288/-(First claim Rs.13,91,114/- plus Rs.1,99,174/-out of 2nd claim Rs. 31,23,186/-) as being time barred.
8.1 Mr. Shah, learned advocate after referring to Section 54 of the CGST Act further submitted that the petitioners ought to have submitted the claim of refund within two years from the date of payment of the Tax, whereas both the claims filed by the petitioners have been filed beyond the period of two years and therefore, both the refund claims are time barred in the light of Section 54 of the Act, and under Notification No.13/2022 dated 05.07.2022, the CBIC excluded the period commencing from 01.03.2020 to 28.02.2022 for the purpose of calculation of limitation. Even taking into account the effect of the aforesaid Notification, the partial rejection out of the total claim of Rs.31,23,186/- is rightly done by the authorities below.
9. DISCUSSION & FINDINGS:–
The relevant provision of Circular No.178/10/2022-GST dated 03.08.2022 is quoted hereinbelow :-
“7.5 An employer carries out an elaborate selection process and incurs expenditure in recruiting an employee, invests in his training and makes him a part of the organi-zation, privy to its processes and business secrets in the expectation that the recruited employee would work for the organization for a certain minimum period. Premature leaving of the employment results in disruption of work and an undesirable situation. The provisions for forfeiture of salary or recovery of bond amount in the event of the employee leaving the employment before the minimum agreed period are incorporated in the employment contract to discourage non-serious candidates from taking up em-ployment. The said amounts are recovered by the employer not as a consideration for tolerating the act of such premature quitting of employment but as penalties for dissuading the non-serious employees from taking up employment and to discourage and deter such a situation. Further, the employee does not get anything in return from the employer against payment of such amounts. Therefore, such amounts recovered by the employer are not taxable as consideration for the service of agreeing to toler-ate an act or a situation.
9.1 From the aforesaid Circular, it is clear that the Government of India has clarified that the forfeiture of salary or payment of bond amount in the event of an employee leaving the employment before the minimum agreed period, was not taxable, inasmuch as, there was no supply of service by the employer in this situation and therefore, the recovery of notice pay by the employer was not taxable under the CGST Act. Since the aforesaid 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. In that view of the matter, the refund claims dated 05.11.2022 and 07.11.2022, for whatever period of tax de-posited, cannot be said to be time barred. In other words, the calculation of period of two years will not be from September, 2018 as wrongly held by the authorities below, but from 03.08.2022, i.e the date from which the petitioners were informed by the Government through the aforesaid Circular, that the petitioners need not pay tax on the transaction in question, which was clarified not to be a “Service” un-der the CGST Act.
9.2 This Court in the judgment of Joshi Technologies Internation vs. Union of India reported in 2016 (339) E.L.T.21 (Guj.) held as under:-
“11.1 At this juncture, it may be apposite to refer to the decision of the Supreme Court in U.P. Pollution Control Board v. Kanoria Industrial Ltd. (supra), wherein it has been held thus:
“9. In H.M.M. Ltd. v. Administrator, Bangalore City Corpn., 1997 (91) ELT. 27 (S.C.), it is held that a tax or money realised without authority of law is bad under Article 265 of the Constitution and that the money or tax so collected is refundable. In that case octroi was levied and collected in respect of goods on their mere physical entry into the city limits, which were not used or consumed or sold within the municipal limits. This Court, dealing with the refund in para 12 of the judgment, held thus:
“We see no ground as to why amount should not be refunded. Realisation of tax or money without the authority of law is bad under Article 265 of the Constitution. Octroi cannot be levied or collected in respect of goods which are not used or consumed or sold within the municipal limits. So these amounts become collection without the authority of law. The respondent is a statutory authority in the present case. It has no right to retain the amount, so far and so much. These are refundable within the period of limitation. There is no question of limitation. There is no dis-pute as to the amount. There is no scope of any possible dispute on the plea of undue enrichment of the petitioners. We are, therefore, of the opinion that the Division Bench was in error in the view it took. Where there is no question of undue enrichment, in respect of money collected or retained, refund, to which a citizen is entitled, must be made in a situation like this.”
“15. The learned counsel for the petitioners strongly relied on a Constitution Bench judgment of this Court in Mafatlal Industries Ltd. v. Union of India, 1997 (89) ELT. 247 (S.C.). That was a case where refund was claimed on the ground that tax/duty had been collected by misinterpreting or misapplying the provisions of the Central Excises and Salt Act, 1944 read with Central Excise Tariff Act, 1985 or Customs Act, 1962 and the Rules and Regulations or the notifications issued under such enactments. In such cases claims for refund had to be preferred un-der, and in accordance with, the provisions of the respective enactments before the authorities specified and within the period of limitation prescribed therein. Hence it was held that petition under Article 226 of the Constitution could not be entertained having regard to the legislative intention evidenced by the provisions of the said Act and the writ petition, if any, would be considered and disposed of in the light of and in accordance with the provisions of Section 11B of the Central Excises and Salt Act, 1944 stating that power under Article 226 has to be exercised to effectuate the rule of law and not to abrogate it. In the present cases there is no corresponding section to Section 11B of the Central Excises and Salt Act, 1944 for making claim for refund of money and, therefore, the respondents could maintain the writ pe-titions under Article 226 of the Constitution. Further in para 108(ii) of the judgment it is held that where, however, a refund is claimed on the ground that the provisions of the Act under which it was levied is or has been held to be unconstitutional, such a claim, being a claim outside the purview of the enactment, can be made either by way of suit or by wave of writ petition.
‘6. In support of the submission that a writ petition seeking man-damus for mere refund of money was not maintainable, the decision in Suganmal v. State of M.P., AIR 1965 SC 1740, was cited. In AIR para 6 of the said judgment, it is stated that-
“we are of the opinion that though the High Courts have power to pass any appropriate order in the exercise of the powers conferred under Article 226 of the Constitu-tion, such a petition solely praying for the issue of a writ of mandamus directing the State to refund the money is not ordinarily maintainable for the simple reason that a claim for such a refund can always be made in a suit against the authority which had illegally collected the money as a tax”.
Again in AIR para 9, the Court held:
“We, therefore, hold that normally petitions solely praying for the refund of money against the State by a writ of mandamus are not to be entertained. The aggrieved party has the right of going to the civil court for claiming the amount and it is open to the State to raise all possible defences to the claim, defences which cannot, in most cases, be appropriately raised and considered in the exercise of writ jurisdiction.
This judgment cannot be read as laying down the law that no writ petition at all can be entertained where claim is made for only refund of money consequent upon decla-ration of law that levy and collection of tax/cess as unconstitutional or without the authority of law. It is one thing to say that the High Court has no power under Article 226 of the Constitution to issue a writ of mandamus for making refund of the money illegally collected. It is yet another thing to say that such power can be exercised sparingly depending on facts and circumstances of each case. For instance, in the cases on hand where facts are not in dispute, collection of money as cess was itself without the authori-ty of law; no case of undue enrichment was made out and the amount of cess was paid under protest; the writ petitions were filed within a reasonable time from the date of the declaration that the law under which tax/cess was collected was unconstitutional. There is no good reason to deny a relief of refund to the citizens in such cases on the principles of public interest and equity in the light of the cases cited above. However, it must not be understood that in all cases where collection of cess, levy or tax is held to be unconstitutional or invalid, the refund should necessarily follow. We wish to add that even in cases where collection of cess, levy or tax is held to be unconstitutional or invalid, refund is not an automatic consequence but may be refused on several grounds depending on facts and circumstances of a given case.”
11.2 Reference may also be made to the decision of the Delhi High Court in Hind Agro Industries Limited v. Commissioner of Customs, 2008 (221) E.L.T. 336 (Del.), wherein it has been held thus :
“10. There can be no doubt that the above provision applies to a claim for refund of ‘any duty’ within the meaning of that Act. A word ‘duty’ has been defined under Sec-tion 2(15) of the Act means, ‘a duty of customs leviable under this Act. The entire Section 27 of the Act can, therefore, obviously apply if and only if, the refund that is being sought is of customs du-ty otherwise leviable under the Act.”
“13. It is clear that in Mafatlal Industries the Hon’ble Supreme Court had only talked of refund of duty payable within the meaning of either the Central Excises and Salt Act, 1944 (‘Excise Act’) or the Customs Act, 1962, as the case may be. In other words when the Hon’ble Supreme Court said that all claims for refund ought to be filed only in accordance with the Customs Act or Excise Act, it obviously did not include payment made under some enactment, which for some reason, had erroneously been made to the Customs authorities. Nowhere did Mafatlal Industries talk of a situation where the refund of a cess paid under the Cess Act, 1985 albeit erroneously, was required to be made under the Excise Act or the Customs Act and under no other enactment. Consequently, the observation in para 4 of the judgment of the Hon’ble Supreme Court in Anam Electrical Manufacturing Co. has also to be understood in the same manner. Para 4 of the said judgment it has been explained that the rules pertaining to refund would not apply where refund is sought of a ‘duty levied and recovered under an unconstitutional provision. It was explained that the period of limitation in such cases would be in terms of the law laid down in Mafatlal Industries. It is obvious that when the Hon’ble Supreme Court talked of ‘duty levied and recovered under an unconstitutional provision’ the reference was not to a duty of customs or excise. Therefore, to rely upon either Mafatlal Industries or Anam Electrical Manufacturing Co. to deny the claim of the Appellants in this case is entirely misconceived.”
“16. There can be no manner of doubt that the customs authorities in the instant case were bound to refund the cess erroneously paid by the Appellants for the period from 15th January, 2001 till 19th February, 2002 under a mistake of law. They had paid the cess when in fact no such cess was payable. There is no question of processing a claim of refund of such amount in terms of the Customs Act at all because the payment made mistakenly was not under that Act. In the circumstances, the period of limitation under Section 27 of the Act would not apply, as explained in Salonah Tea Company Limited. The applications for refund having been made well within the period of three years’ after discovery of mistake by the Appellants, are not barred by limitation. Ques-tion (a) in para 7 above is accordingly answered in favour of the Appellants. Consequently, the need to answer question (b) does not arise.”
11.3 In the light of the principles enunciated in the above decisions, having regard to the fact that in the facts of the present case, the refund is claimed on the ground that the amount was paid under a mistake of law and such claim being outside the purview of the enact-ment, can be made either by way of a suit or by way of a writ petition. Under the circumstances, the petitioner is justified in filing the present petition before this court against the order passed by the adju-dicating authority rejecting its claim for refund of the amount paid under a mistake.
9.3 This Court in the case of M/S Gujarat State Police Housing Corporation Ltd. Versus Union of India & Anr [Special Civil Application No.11221 of 2022 and allied matters], further opined as under:-
“Considering the above dictum of law, the amount of GST paid by the petitioner is admittedly paid as a self-assessment, which the petitioner was not required to pay as per the Notification No.32/2017. Accordingly, in the facts of the case, the amount paid by the petitioner from electronic cash ledger is required to be refunded by the respondent authority and could not have been rejected on the ground of limitation under Section 54(1) of the CGST Act.”
10. To sum up, 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.
11. In the result, the petition succeeds and the impugned order dated 28.07.2023 being OIA No.AHM-002-APP-ADC-30-31/2023-24 is hereby quashed and set aside. Consequently, the respondent No.3 is directed to sanction and pay the petitioners a sum of Rs.15,90,288/- with interest @ 9% per annum from the date of filing the refund application till the date of actual payment. The aforesaid exercise is to be completed within a period of Twelve (12) weeks from the date of receipt of a copy of this order.
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