"No Tax Without Authority": How AP High Court Re-centres Due Process in Refunds of GST Paid on Exempt Student Accommodation
Executive summary.
When GST is paid on an exempt service, can the department short-circuit adjudication and snuff out a refund claim through a deficiency memo by invoking limitation? The Andhra Pradesh High Court in M/s Nspira Management Services Pvt. Ltd. v. Assistant/Deputy Commissioner of Central Tax, Nellore & Ors., [2025(09)LCX0305], answers with a firm no. Any tax collected without authority offends Article 265; therefore, refund entitlement and limitation must be decided by a speaking order after following the procedure under Rule 92(3) (RFD-08 → RFD-09 → RFD-06). Defect memos are not substitutes for adjudication.
Background: the student housing fact pattern
The petitioner, engaged in education management and consultancy, leased residential dwellings from individual landlords to house students. Landlords raised invoices with GST, which the petitioner paid. Subsequently, the petitioner realized that such services qualified for exemption under Entry 12 of Notification No. 12/2017-Central Tax (Rate), dated 28.06.2017 (covering services relating to education under Headings 9963/9972 in specified circumstances).
Armed with the exemption, the petitioner filed refund applications:
Period 1: July 2017 – January 2020
Period 2: February 2020 – June 2022
The primary filing was made in April/May 2024 (the petitioner referred to 01.05.2024; the Department asserted an initial filing on 01.04.2024). On 21.05.2024, the department issued deficiency memos. Among other "defects," the memos said the claims were time-barred under Section 54 (even after giving effect to the COVID exclusion under Notification 13/2022-CT, dated 05.07.2022). The department contended that, factoring the exclusion (01.03.2020 to 28.02.2022), the last date was 19.01.2024; hence the April/May 2024 filing was beyond time.
The petitioner approached the High Court, arguing that limitation and eligibility cannot be decided through a deficiency memo; rather, the department must issue RFD-08 (SCN), accept RFD-09 (reply), and pass a reasoned RFD-06 order per Rule 92(3) of the CGST Rules, 2017.
The legal issues framed
1. Due process: Can a deficiency memo under Rule 90/acknowledgement stage be used to reject a refund on limitation?
2. Constitutional overlay: Does Article 265 ("no tax shall be levied or collected except by authority of law") displace the strict rigours of Section 54 limitation when the tax itself lacks authority?
3. Adjudication architecture: Must the department route such disputes through RFD-08 → RFD-09 → RFD-06, culminating in a speaking order?
Statutory & procedural frame
Article 265, Constitution of India: Prohibits collection of tax without authority of law.
Section 54(1), CGST Act: "Any person" may claim refund of any tax and interest or any other amount paid.
Rule 90 & deficiency memos (RFD-03): Technical/informational rectification mechanism prior to admission; not a determination on merits.
Rule 92(3): For proposed rejection (wholly/partly), the proper officer must issue RFD-08 (SCN), consider RFD-09 (reply), and pass RFD-06 (speaking order).
Notification 13/2022-CT: Excludes 01.03.2020–28.02.2022 from limitation computation for refund under Sections 54/55 (COVID relief).
Section 54(8) & unjust enrichment: Refunds ordinarily go to Consumer Welfare Fund unless the applicant establishes that incidence has not been passed on; certain categories are exceptioned (e.g., tax borne and not passed through price).
Section 56 (interest): Interest is payable if refund is not made within the prescribed timeline after a complete application.
The Court's analysis
(a) Article 265 takes primacy where tax lacks authority
The Court reiterated that when GST is collected without authority, refund cannot be stymied by a mere technical objection. It relied on Gujarat High Court decisions, including:
Binani Cement Ltd. v. Union of India (2013): Collection without authority violates Article 265; special law limitation does not bar restitutionary refund; Limitation Act norms may apply in such cases.
Comsol Energy Pvt. Ltd. v. State of Gujarat (2021): Section 54 limitation cannot be applied mechanically where the very levy is unauthorized.
Gokul Agro Resources Ltd. v. Union of India (2020(02)LCX0061): Courts have directed officers to process refunds without raising technical hurdles when genuine claims are blocked by portal glitches.
These precedents underscore that constitutional commands cannot be diluted by procedural shortcuts.
(b) Deficiency memo ≠ adjudication
A deficiency memo is designed to cure defects, not to decide core issues like limitation and eligibility. When the department takes a view that a claim is time-barred or otherwise not payable, it must:
1. Issue RFD-08 (SCN),
2. Grant opportunity via RFD-09 (reply), and
3. Pass a speaking RFD-06 order that can be appealed.
Short-circuiting this sequence deprives the taxpayer of natural justice and appellate remedies.
(c) Direction issued
The High Court set aside the deficiency memo and directed the department to reconsider the refund claim strictly in accordance with law, without raising limitation as a threshold bar, and to follow the Rule 92(3) pathway.
Why this ruling matters (beyond student housing)
Although the fact pattern relates to student accommodation, the ruling resonates across sectors where exemptions or zero-rating exist (healthcare, certain educational services, residential dwelling renting in specific contexts, etc.). The judgment delivers three systemic messages:
1. Due process is non-negotiable. Defect memos are administrative aids, not adjudicatory devices.
2. Article 265 trumps mechanical limitation. Where levy/collection lacks authority, restitution should not be thwarted by procedural hedges.
3. Substance over form. Officers must decide merits via a reasoned order, rather than resorting to portal forms to foreclose claims.
Practical roadmap: how to assert a refund for exempt services
Here's a disciplined approach for taxpayers who discover that GST was wrongly paid on exempt supplies:
Step 1: Map the exemption precisely
Identify the notification entry (here, Entry 12, Notif. 12/2017-CTR).
Marshal documents showing how your supply matches the wording and scope (nature of service, recipient, use/purpose, dwelling status, education linkage, etc.).
Step 2: Compute the period and amounts
Prepare period-wise workings: taxable value, GST paid, interest (if any), and refund quantum.
Step 3: Choose the right refund bucket in RFD-01
For "tax paid though not due," the safe bucket is Section 54(1): ‘any other amount paid' / ‘excess balance' depending on the facts.
Support with a legal note invoking Article 265 and case law.
Step 4: Evidence pack
Supplier invoices showing GST charged.
Contract/lease and proof of actual use (e.g., student housing).
CA certificate/undertaking on unjust enrichment-explain pricing to show the incidence not passed to students/end users, or deal with consequences under Section 54(8).
Ledger extracts, payment proofs, and reconciliation statements.
Copies of relevant notifications/circulars and any advisories.
Step 5: Procedural vigilance
If a deficiency memo (RFD-03) is issued on limitation/merit grounds, respond that such issues require RFD-08 and adjudication under Rule 92(3); cite Nspira, Binani Cement, Comsol Energy, Gokul Agro.
Seek a speaking order (RFD-06) to preserve appellate rights.
Step 6: Limitation posture
While Section 54's two-year period and COVID exclusion exist, emphasize that where tax is without authority, limitation under the special law does not defeat refund-Article 265 and general limitation principles apply.
Argue that portal/technical impediments (if any) should not prejudice rights.
Step 7: Interest on refund
Invoke Section 56 for interest where statutory timelines are breached after a complete application is on record (date disputes often turn on whether an application was treated as complete).
Departmental lens: issues the officer will examine
Even with Nspira in your corner, expect scrutiny on:
Exemption fitment: Is the service squarely within Entry 12? Who is the recipient? What is the dominant purpose?
Unjust enrichment: Was GST cost embedded in student fees? If yes, a cash refund may be barred and the amount may be credited to the Consumer Welfare Fund unless you demonstrate otherwise.
Vendor dynamics: Did landlords issue credit notes? If not, how is the chain cleansed? (Note: refund to the person who actually bore the burden is possible, but facts must establish incidence).
Quantum verification: Reconciliations with returns and books; absence of double benefit.
Timelines: While Nspira de-emphasizes Section 54 limitation for unauthorized levy, officers may still debate the relevant date, COVID exclusion, and completeness of the application; having a clear timeline memo helps.
Five compliance takeaways for taxpayers
1. Don't accept deficiency memos as final. If the memo pontificates on limitation or merits, respond that only RFD-08 → RFD-06 can decide.
2. Build the Article 265 narrative. Frame the refund as restitution of an unconstitutional collection, not a discretionary concession.
3. Front-load unjust enrichment evidence. A crisp pricing/fee-structure note can be outcome-determinative.
4. Document the portal journey. Screenshots, acknowledgements, ARN trail, and correspondence blunt "incomplete application" objections.
5. Ask for a speaking order. A well-reasoned RFD-06 preserves appellate remedies and reduces the risk of perfunctory rejection.
Where does this leave deficiency memos?
Deficiency memos remain procedural tools to fix curable defects (missing annexures, wrong category, arithmetical errors). They are not adjudicatory vehicles to foreclose claims on limitation or eligibility. After Nspira, if an officer believes a claim is time-barred or fails on substance, the proper course is:
RFD-08 (show-cause) laying out limitation calculations and merits,
RFD-09 (your detailed rebuttal with Nspira and other precedents), and
RFD-06 (speaking order) capable of appellate review.
A note on strategy for educational institutions & aggregators
Upstream alignment: Engage with landlords to correct tax treatment prospectively; consider contractual clauses that prohibit GST charging where exemptions apply and allocate responsibility for historical errors.
Downstream clarity: Ensure your brochures/fee circulars and student contracts reflect that accommodation is supplied as part of education-related services qualifying for exemption.
Audit loop: Periodic reviews of exemption entries and usage conditions avert costly retro-fixes.
Conclusion
Nspira restores first principles to GST refunds where tax was never due: no tax without authority, and no rejection without adjudication. It tells field officers to decide on the merits via Rule 92(3) and tells taxpayers that defect memos cannot slam the door on legitimate restitutionary claims. For anyone who discovers that GST has been paid on an exempt service, the path is now clearer:
Precisely map the exemption,
Prove non-passing of incidence,
Demand adjudication (not administrative side-stepping), and
Secure a speaking order that can stand-or fall-on judicial scrutiny.
In a regime that aspires to be system-driven and fair, Nspira is a timely reminder that due process is not a defect to be memo-ed away.
Disclaimer: The information given in this article is solely for purpose of understanding the law. It is completely based on the interpretation of the author and cannot be constituted as a legal advise, the author of this article and Lawcrux team is not responsible for any legal issues if arises on the basis of the interpretation given above.