Case Digest: Interest on Delayed GST Refund

It has been a trite law that interest on delayed refund is the assessee’s right, so much so that it has even gone ahead to grant interest over delayed payment of interest although there is no provision for payment of interest over interest, observing that it is allowable because there is no prohibition in law. However, the date from which the interest shall be computed has always been an area of dreary litigation.

Section 56 of the CGST Act, 2017 lays down that if any tax, ordered to be refunded is not refunded within sixty days from the date of receipt of application, the applicant becomes entitled to interest at an applicable rate from the date immediately after the expiry of sixty days from the date of receipt of application till the date of refund of the tax.

The explanation to this section further lays down that where any order of refund is made by an Appellate Authority, Appellate Tribunal or any court against an order of the proper officer, the said order will be deemed to be an order passed by the proper officer in this regard.

Thus, it is lucid that the liability of the Revenue to pay interest under the provisions of this section originates from the date of expiry of sixty days from the date of receipt of application for refund and not on the expiry of the said period from the date on which refund order is made.

Therefore, the provisions relating to the grant of interest on delayed refunds are to be interpreted so that they neither exploit the position of the applicant nor do they grant any undue advantage to the applicant.

The intention of the provision is eloquent to construe that the computation of interest shall be from the date of filing a “proper” refund application, i.e. the subsequent filing of fresh application in case the deficiencies/discrepancies are noticed and communicated to the applicant. The language of the Section is precise, clear and unambiguous.

The incorporation of a similar provision in GST law is to ensure timely and speedy disposal of the refund claims, which would ultimately aid the applicants in keeping up with the working capital requirements.

Now lets analyse the judicial interpretations on the concept of ‘Interest on Delayed GST Refund’ with reference to the stories published in Taxscan.in

M/S Alok Traders vs Commissioner Commercial Taxes And 2 Others 2022 TAXSCAN (HC) 364

The division bench of Allahabad High Court presided by Mr Justice Surya Prakash Kesarwani and Mr Justice Jayant Banerji has directed the department to refund the amount unlawfully collected along with interest on the delayed refund.
The High court further observed that as per the proviso to Section 56 of the Act, 2017, where the appellate order has attained finality and refund arisen therefrom is not refunded within sixty days from the date of receipt of the application filed consequent to such order, interest at such rate not exceeding 9% as may be notified by the Government on the recommendations of the Council shall be payable in respect of such refund from the date immediately after the expiry of sixty days from the date of receipt of application till the date of refund.

UNION OF INDIA & ORS vs M/S. WILLOWOOD CHEMICALS PVT. LTD. & ANR 2022 TAXSCAN (SC) 135

The Supreme Court has observed that in case of delay in granting Integrated GST refund cannot exceed 6% as per the principal provisions of section 50 of the Central GST Act, 2017, especially when the delay was not inordinate. A Bench comprising Justices U.U. Lalit and S. Ravindra Bhat allowed appeals filed by the Union of India to reduce the interest granted by the Gujarat High Court for the delay in refunds of integrated tax paid on the export of goods from 9% to 6%.
The Apex Court observed that “the relevant provision has prescribed rate of interest at 6 per cent where the case for refund is governed by the principal provision of Section 56 of the CGST Act. As has been clarified by this Court in Modi Industries Ltd.9 and Godavari Sugar Mills Ltd. 7 wherever a statute specifies or regulates the interest, the interest will be payable in terms of the provisions of the statute. Wherever a statute, on the other hand, is silent about the rate of interest and there is no express bar for payment of interest, any delay in paying the compensation or the amounts due, would attract an award of interest at a reasonable rate on equitable grounds.”

M/S SARAF NATURAL STONE vs UNION OF INDIA 2019 TAXSCAN (HC) 107

In a significant ruling, a two-judge bench of the Gujarat High Court has directed the GST department to pay 9% interest on for the default of delayed refund of IGST.

While hearing the petition, Justice J B Pardiwala and Justice A C Rao observed that “the position of law appears to be well settled. The provisions relating to an interest of delayed payment of refund have been consistently held as beneficial and non-discriminatory. It is true that in the taxing statute, the principles of equity may have little role to play, but at the same time, any statute in taxation matter should also meet with the test of the constitutional provision.”

M/s. SARAF NATURAL STONE vs UNION OF INDIA 2018 TAXSCAN (HC) 113

The Gujarat High Court has issued the notice to the Centre and GSTN on a petition challenging the provisions of the Central Goods and Services Tax (CGST) Act,  seeking interest for delayed IGST Refunds.

Rule 91 of CGST Rules, 2017 inter-alia provides that the provisional refund is to be granted within 7 days from the date of acknowledgement of the refund claim. Section 56 of the CGST Act further provides that if any tax ordered to be refunded under sub-section (5) of section 54 to any applicant is not refunded within 60 days from the date of receipt of application under subsection (1) of that section, interest at such rate not exceeding 6% p.a as may be specified in the notification issued by the Government on the recommendations of the GST Council shall be payable in respect of such refund from the date immediately after the expiry of 60 days from the date of receipt of application under the said sub-section till the date of refund of such tax.

M/s.A.Rangasamy Engineers (Pvt.)Ltd vs Comercial Tax Officer 2017 TAXSCAN (HC) 101

In the case of M/s A. Rangasamy Engineers (Pvt.)Ltd v. CTO, the Madras High Court held that the assessee is entitled to interest for delayed payment of refund in case of excess payment of tax. While dismissing the order of the assessing officer, Justice Vaidyanathan said that section 24(4)of the Tamil Nadu General Sales Tax Act, 1959 provides for interest on delayed refund even if the assessee had not made a separate claim for the same.

Commissioner of Central Excise, Panchkula vs M/s Riba Textiles Limited 2022 TAXSCAN (HC) 178

In a significant ruling, a two-judge bench of the Punjab and Haryana High Court comprising Justice Ajay Tewari and Justice Pankaj Jain, while dealing with an appeal relating to refund and interest on central excise duty worth Rs. 54 lacs, rejected the department’s plea of transfer of jurisdiction due to the GST regime.

Analysing the provision, the bench held that “Section 142 of the Act, when read with Section 2(48) of the Act, is a complete answer to the plea raised by the appellant qua the issue of jurisdiction. The provision explicitly provides that every claim of refund shall be dealt with under the existing law i.e. Central Excise Act, 1944, and not by the provisions of the Act. Thus the plea of transfer of jurisdiction due to the GST regime is not available to the appellant.”

Astrazeneca India Pvt. Ltd. vs Commissioner Of Central Tax 2021 TAXSCAN (CESTAT) 212

The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Bangalore bench allowed an appeal filed by Astrazeneca India where the Company’s refund for service tax paid to the Department was allowed along with interest.

Regarding the issue of interest, the Tribunal said that “since the issue of interest on delayed refund has been settled by the apex court in the case of Ranbaxy Laboratories Ltd. (supra) wherein Hon’ble Supreme Court has held that interest on delayed refund under Section 11BB is payable on expiry of three months from the date of receipt of applicationunder Section 11B(1) and not from the date of the order of refund or appellate order allowing such refund. Hence, I hold that appellant is entitled for interest as per the apex court decision in the case of Ranbaxy Laboratories Ltd.”

M/s. Maansarovar Motors Private Limited vs The Assistant Commissioner 2020 TAXSCAN (HC) 271

The Madras High Court while quashing levy of interest on Input Tax Credit (ITC), directed the authority to refund recoveries effected through the bank. The batch of writ petitions was filed which revolved around the interpretation of Section 50 of the Central Goods and Services Tax Act, 2017, particularly the effective date of application of the proviso inserted vide Section 100 of Finance (No.2) Act of 2019.

The single judge bench of Justice Anita Sumanth clarified that the Board has yet again reiterated that the amendment by insertion of proviso of Section 50 of the CGST Act is intended to be retrospective. “To my mind, the Centre, the State and the CBIC are in agreement that the operation of the proviso of Section 50 should only be retrospective and the interpretation to the contrary by the authorities constituted under the Board is, in my view, clearly misplaced as is the consequential coercive recovery,” the court while allowing the appeal said.

TMA INTERNATIONAL PVT. LTD. & ORS. vs UNION OF INDIA & ANR. 2021 TAXSCAN (HC) 686

The Delhi High Court directed the GST Authority to sanction the refund of the IGST paid in regard to zero-rated supplies, along with 7% interest. A detailed order was passed by the Court wherein the Court agreed with the submission of the petitioners, subject to respondent authority verifying as to whether duty drawback/CENVAT credit had been availed of by the petitioners, with regard to Central Excise and Service Tax component.

The division bench of Justices Rajiv Shakdher and Talwant Singh held that the respondents are directed to immediately sanction the refund of the IGST paid in regard to the goods exported, i.e. “zero-rated supplies”, with 7% simple interest from the date of shipping bills till the date of actual refund.

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