2025 (5) TMI 2084 - HC - GST

Applicability of limitation period for filing the refund application - excess tax payments - relevant date - scope of Explanation 2 (h) of Section 54 of CGST Act - effect of a conciliation agreement - Reduction of rent as per the settlement agreement subsequent to the payment of tax - HELD THAT - When a dispute arose between the parties a Conciliator was appointed who had then held various meetings. Finally vide the minutes of the meeting dated 24th July 2020 the terms were broadly agreed by the parties which included a reduction of the lease amount by 40% and a reduction of maintenance charges as well. These minutes were approved by the Managing Director DMRC on 8th September 2020. Finally on 9th October 2020 the Conciliation Agreement was entered into between the parties. It is relevant to note that under Section 89 of the CPC the Arbitration Conciliation Act applies to conciliation proceedings. The settlement agreement in this case is one which is therefore recognised under Section 73 of the Arbitration and Conciliation Act. As per the above provisions the settlement agreement becomes binding and final between the parties upon them signing it. The status of such a settlement is set out in Section 74 of the Arbitration and Conciliation Act. Thus the conciliation agreement is like an arbitral award which is in effect equivalent to a decree of the Civil Court as per Section 36 of the Arbitration and Conciliation Act. Therefore the date of finalisation of the settlement agreement shall be the deemed date of communication of the judgment/decree under Section 54 explanation 2 (d) of the CGST Act. In view thereof this Court is of the opinion that Section 54 explanation 2 (d) of the CGST Act would be the correct provision that would apply in this case as against explanation 2 (d) which is clearly a residual provision that is to be applied only when none of the other explanations are applicable. Therefore in the present case the refund applications could be filed within two years from 03rd August 2021 or even 09th October 2020. The refund applications filed by DMRC are dated 17th January 2021 and 21st March 2021 and thus are well within time. Thus the impugned orders are set aside. Let the refund of the DMRC be processed along with applicable interest in accordance with the statute. The refund be credited to DMRC within one month. The petition is disposed of in the aforesaid terms.

Summary

The core legal questions considered in this judgment revolve around the applicability of limitation periods for filing refund claims under the Central Goods and Services Tax Act, 2017 (CGST Act), specifically:

1. Whether the refund applications filed by the Petitioner were within the prescribed limitation period under Section 54 of the CGST Act.

2. Whether the 'relevant date' for computing limitation should be determined under Explanation 2(d) or Explanation 2(h) of Section 54 of the CGST Act.

3. The legal effect of a conciliation agreement executed under the Arbitration and Conciliation Act, 1996, on the determination of the 'relevant date' for refund claims under the CGST Act.

4. The applicability of the provisions of the Arbitration and Conciliation Act, 1996, particularly Sections 73 and 74, to the conciliation agreement and its equivalence to a decree or arbitral award.

Issue 1: Applicability of Limitation Period under Section 54 of the CGST Act

The legal framework under Section 54 of the CGST Act mandates that any person claiming a refund of tax must file an application within two years from the 'relevant date'. The 'relevant date' is defined by various explanations, including Explanation 2(d) and 2(h). Explanation 2(d) applies when the tax becomes refundable as a consequence of a judgment, decree, order, or direction of an appellate authority or court, while Explanation 2(h) is a residual clause applying to any other case, typically the date of payment of tax.

Precedents emphasize strict adherence to limitation periods unless a specific exception applies. The Department relied on Explanation 2(h), contending that the limitation period commenced from the date of tax payment in 2017, thus rejecting the refund application as time-barred.

The Petitioner contended that due to a dispute regarding the contractual value and tax liability, the exact refundable amount could not be ascertained until the conciliation agreement was executed, thus invoking Explanation 2(d) as the 'relevant date' for limitation.

The Court reasoned that Explanation 2(h) is a residual clause applicable only where no other explanation fits. Since the tax refund arose from a dispute resolved by a binding conciliation agreement, Explanation 2(d) was the appropriate provision. The Court found that the limitation period should run from the date of communication of the conciliation agreement, not from the initial tax payment date.

Issue 2: Effect of the Conciliation Agreement on the 'Relevant Date'

The conciliation agreement was executed pursuant to a dispute arising from a rental agreement between the parties. The dispute resolution clause mandated amicable resolution through conciliation, culminating in a settlement that reduced the payment liability of the respondent by 40%, thereby establishing that the Petitioner had made excess tax payments.

The Court examined the nature of the conciliation agreement, noting that it was executed under the Arbitration and Conciliation Act, 1996, particularly under Section 73, which provides that a signed settlement agreement is final and binding.

Section 74 of the Arbitration and Conciliation Act equates such a settlement agreement to an arbitral award on agreed terms, conferring upon it the status and effect of a decree of a civil court under Section 36 of the Act.

Accordingly, the Court held that the conciliation agreement operates as a judicially recognized decree, and the date of its execution constitutes the 'relevant date' for the purposes of Section 54 Explanation 2(d) of the CGST Act.

The Court emphasized that until the dispute was resolved, the exact amount of tax refundable was not ascertainable, making the limitation period inapplicable from the date of initial tax payment.

Issue 3: Application of Arbitration and Conciliation Act Provisions

The Court analyzed Sections 73 and 74 of the Arbitration and Conciliation Act, 1996, which govern the conciliation process and the status of settlement agreements. Section 73 mandates the conciliator to formulate terms of settlement, which upon signing by parties, become final and binding. Section 74 equates the settlement agreement to an arbitral award, giving it the same status and effect as an arbitral tribunal's award.

By virtue of these provisions, the conciliation agreement in this case is treated as an arbitral award, effectively a decree, thereby triggering Explanation 2(d) of Section 54 of the CGST Act as the 'relevant date' for refund claims.

This interpretation aligns with the principle that limitation for refund claims should commence only when the tax amount refundable becomes ascertainable as a consequence of a binding order or agreement.

Issue 4: Competing Arguments and Department's Standpoint

The Department argued that the Petitioner had opportunities to adjust the excess tax by issuing credit notes under Section 34 of the CGST Act and failed to do so within the prescribed time. They contended that the refund claim was time-barred as it was not filed within two years from the date of tax payment.

The Court rejected this argument, holding that the existence of a bona fide dispute over the tax liability, resolved only through conciliation, precluded the application of the residual Explanation 2(h). The Department's reliance on the limitation period commencing from the date of payment was therefore misplaced.

The Court also noted that the conciliation agreement, being final and binding, conclusively determined the tax liability, thus enabling the Petitioner to file a timely refund claim within two years from the date of the settlement.

Conclusions

The Court concluded that the refund applications filed by the Petitioner were within the prescribed limitation period under Section 54 of the CGST Act, as the 'relevant date' for limitation computation is the date of communication of the conciliation agreement, falling under Explanation 2(d).

The impugned orders rejecting the refund applications on the ground of limitation were set aside, and the refund was directed to be processed along with applicable interest within one month.

Significant Holdings

"It is a reasonable assertion that the exact extent of tax payable is not ascertainable at the initial stages in situations where the value of the subject matter contract is disputed. In such circumstances, the tax payments to the Department are made in advance by the concerned Assessee, and it is only when the dispute is subsequently resolved/settled that the exact extent of tax payable/refundable becomes ascertainable."

"The conciliation agreement is like an arbitral award, which is in effect, equivalent to a decree of the Civil Court as per Section 36 of the Arbitration and Conciliation Act. Therefore, the date of finalisation of the settlement agreement shall be the deemed date of communication of the judgment/decree under Section 54 explanation 2 (d) of the CGST Act."

"Section 54 explanation 2 (d) of the CGST Act would be the correct provision that would apply in this case as against explanation 2 (h) which is, clearly, a residual provision that is to be applied only when none of the other explanations are applicable."

Core principles established include the recognition that limitation for refund claims under the CGST Act may appropriately commence from the date of a binding settlement agreement or judicial order that conclusively determines the refundable amount, rather than the date of initial tax payment, especially in cases involving bona fide disputes resolved through conciliation or arbitration.