Limitation Under Section 54 for GST Refund - Time Excluded for Deficiency Memo Processing

The Gujarat High Court has ruled that the time taken to process a deficiency memo (Form GST RFD-03) after an initial GST refund application should be excluded from the two-year limitation period. This means that if a refund claim is rectified and resubmitted with supporting documents after receiving a deficiency memo, it will be considered a continuation of the original claim, not a fresh one. The court's decision aims to ensure genuine refund claims are not rejected solely on technical grounds of limitation.

The Hon'ble Gujarat High Court in the case of Varidhi Cotspin Private Limited v. Union of India & Ors. [Special Civil Application No. 3595 of 2024, order dated October 07, 2025] held that under Section 54 of the CGST Act, the period between the original refund application and the communication of a deficiency memo (Form GST RFD-03) must be excluded from the limitation period of two years, allowing rectified refund claims within this extended period to be considered as timely filed, provided supportive documentation is submitted.​

Facts:

Varidhi Cotspin Private Limited ("the Petitioner") is engaged in textiles and registered under the CGST Act. It procured capital goods for export and claimed IGST refund by filing Form RFD-01 on November 13, 2018.

The Respondent, Union of India & Ors. ("the Respondent"), issued deficiency memos after initial and rectified refund claims, citing missing declarations and documents, and maintained that every rectified claim is a fresh claim subject to the original two-year limitation from the "relevant date."

The Petitioner contended that the initial refund application was filed well within the limitation period as per Section 54 and subsequent rectified claims were only a continuation post-deficiency memo, not fresh claims.

The Respondent contended that rectified applications after deficiency memos are fresh proceedings and must independently comply with the two-year deadline, as per Circular No. 125/44/2019-GST and alignment with Rule 90(3) CGST Rules.

The Petitioner approached the High Court under Article 226 after rejection of its refund claim on limitation ground, seeking quashing of the rejection and restoration of claim for fresh adjudication.

Issue:

Whether, for the purpose of the two-year limitation under Section 54 of the CGST Act, the time between filing the original refund application and the communication of a deficiency memo should be excluded, and whether rectified refund claims post-deficiency satisfy limitation when supportive documents are submitted?

Held:

The Hon'ble Gujarat High Court in Special Civil Application No. 3595 of 2024 held as under:

· Observed that, the time elapsed between the filing of the original refund claim (Form GST RFD-01) and the issuance of deficiency memo (Form GST RFD-03) must be excluded from the calculation of the two-year limitation, as clarified by Notification No. 15/2021-CT dated May 18, 2021.

· Noted that, rectified refund applications, when filed within this extended limitation period after deficiency memo, are not to be treated as fresh proceedings, but continuation of the original refund claim.

· Held that, the relevant notification and objective of Section 54 support this inclusion and quashed the rejection order dated November 24, 2023.

Our Comments:

The judgment directly aligns with previous judicial interpretation in M/s. La-Gajjar Machineries Private Limited v. Union of India & Ors. [Special Civil Application No. 15782 of 2022 order dated 27.09.2023], affirming substantive continuity between original and rectified refund claims, especially where genuine deficiencies are corrected in good faith rather than new refund causes arising.

This approach signals consistency with Delhi High Court's view in Bharat Sanchar Nigam Limited v. Union of India & Ors. [2023:DHC:2482-DB], which similarly held that relevant date for limitation calculation is linked to the original, substantially complete claim and not repeatedly reset by corrective procedure unless substantive deficiencies exist.

Relevant Provisions:

Section 54(1), CGST Act, 2017

"54. Refund of tax.-

(1) Any person claiming refund of any tax and interest, if any, paid on such tax or any other amount paid by him, may make an application before the expiry of two years from the relevant date in such form and manner as may be prescribed:

Provided that a registered person, claiming refund of any balance in the electronic cash ledger in accordance with the provisions of sub-section (6) of section 49, may claim such refund in such form and manner as may be prescribed…

(15) Notwithstanding anything contained in this section, no refund of unutilised input tax credit on account of zero rated supply of goods or of integrated tax paid on account of zero rated supply of goods shall be allowed where such zero rated supply of goods is subjected to export duty.

Explanation.- For the purposes of this section,-

(1) "refund" includes refund of tax paid on zero-rated supplies of goods or services or both or on inputs or input services used in making such zero-rated supplies, or refund of tax on the supply of goods regarded as deemed exports, or refund of unutilised input tax credit as provided under sub-section (3).

(2) "relevant date" means-

(a) in the case of goods exported out of India where a refund of tax paid is available in respect of goods themselves or, as the case may be, the inputs or input services used in such goods,-

(i) if the goods are exported by sea or air, the date on which the ship or the aircraft in which such goods are loaded, leaves India; or

(ii) if the goods are exported by land, the date on which such goods pass the frontier; or

(iii) if the goods are exported by post, the date of despatch of goods by the Post Office concerned to a place outside India;

(b) in the case of supply of goods regarded as deemed exports where a refund of tax paid is available in respect of the goods, the date on which the return relating to such deemed exports is furnished

…;"

OFFICIAL JUDGMENT COPY HAS BEEN ATTACHED