Kerala High Court Clarifies Limitation for Kerala Flood Cess Refund Claims

Background and context

The Kerala High Court in Narayanan Manikantan & Co. Vs State Tax Officer has clarified how the statutory time limit under Section 54 of the CGST Act is to be applied in refund claims relating to Kerala Flood Cess that was initially paid in an incorrect manner.

The assessee, registered under the CGST/KGST Act, 2017, had discharged Kerala Flood Cess liability for a specified period through Form GSTR-3B, whereas the State mechanism prescribed payment via Form KFC-A. When this lapse was pointed out and the amount was later remitted correctly to the designated account, the assessee applied for refund of the earlier payment made through GSTR-3B. The department rejected this refund on the ground that it was time-barred under Section 54.

The Kerala High Court, following its earlier decision in Pushpagiri Medical Society v. State of Kerala and Others, held that where Kerala Flood Cess was first paid wrongly along with GSTR-3B and subsequently paid to the proper account, the “relevant date” for the two-year limitation under Section 54 is the date of the correct payment into the Kerala Flood Cess account, and not the earlier mistaken payment date.

Facts of the case

Introduction of Kerala Flood Cess

  • Kerala Flood Cess was introduced by the State Government under the Finance Act, 2019, effective from June 2019.
  • The cess was brought in to mobilise additional resources to address the financial impact of the 2018 floods in Kerala.
  • Post-notification, there was uncertainty among assessees on the precise mode and form through which the cess was to be paid.

Payment error and subsequent correction

  1. The assessee, Narayanan Manikantan & Co., was registered under the CGST/KGST Act, 2017.
  2. For the period from August 2019 to May 2020, the assessee remitted Kerala Flood Cess along with its periodic return in Form GSTR-3B.
  3. However, the prescribed mode required payment of Kerala Flood Cess through Form KFC-A, specifically meant for cess remittance into the appropriate State account.
  4. Since the payment had not been made through the correct form and account, proceedings were initiated against the assessee for non-payment of Kerala Flood Cess in accordance with the notified procedure.
  5. On realising the error, the assessee remitted the Kerala Flood Cess correctly on 27.06.2025, as indicated in Ext.P3.

Refund application and rejection

  • After making the proper payment on 27.06.2025, the assessee filed a refund application Ext.P4 on 30.07.2025 under Section 54 of the CGST Act seeking refund of the amount that had earlier been paid along with Form GSTR-3B.
  • The competent authority rejected the refund claim through Ext.P5, reasoning that the application was filed beyond the two-year limitation period prescribed in Section 54 of the CGST Act.
  • According to the department, the two-year period should be computed from the date of the original, though erroneous, payment made along with GSTR-3B.
  • Aggrieved by the rejection order, the assessee approached the Kerala High Court by filing WP(C) No. 5521 of 2026.

Submissions before the Court

Petitioner’s stand

The assessee’s position, in substance, was: