Interest on Delayed GST Refunds to Accrue from Original Application Date, Not from Post-Appeal Refiling: Bombay HC [Read Order]

In a recent ruling, the Bombay High Court held that interest on delayed GST refunds must be calculated from 60 days after the original refund application and not from a re-application filed after an appellate order.

Altisource Business Solutions India Pvt. Ltd., the petitioner, filed a refund application on 23 April 2020 for Rs. 2.85 crore, claiming a refund of unutilized input tax credit on exports. The application was rejected by the adjudicating authority on 14 September 2020.

The petitioner appealed against the rejection, and on 27 October 2023, the Appellate Authority allowed the appeal and directed that the refund be granted.

Acting on this order, the petitioner reapplied for the refund on 28 November 2023, and the refund was sanctioned on 15 January 2024. The amount was credited to the petitioner’s account on 5 February 2024, but no interest was paid on the delayed refund.

The petitioner’s counsel argued that under Section 56 of the Central Goods and Services Tax (CGST) Act, 2017, interest at 6 percent per annum is payable if a refund is not issued within 60 days from the date of the original refund application.

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The department’s counsel argued that the refund became due only after the appellate order was passed and that the refund was paid within 60 days of the petitioner’s re-application made on 28 November 2023. They submitted that no interest was payable under Sections 54 and 56 of the CGST Act as the department had complied with the statutory timeline following the appellate order.

The Division Bench comprising Justices M. S. Sonak and Advait M. Sethna observed that the issue was already settled in Lupin Limited, where it was explained that the scheme of Sections 54 and 56 compensates a taxpayer for delay beyond 60 days from the original refund application.

The court observed that once the refund rejection order is set aside, it is deemed that the original application subsists, and the department cannot avoid paying statutory interest on the delayed refund.

The court pointed out that the department’s approach of counting the 60-day period from the re-application filed after the appeal was inconsistent with the intent of the law. The court explained that interest must run from the expiry of 60 days from the date of the original refund application under Section 54(1).

The court quashed the order dated 9 September 2024, which had denied interest, and directed the department to pay interest at 6 percent per annum from 60 days after 23 April 2020 until the date of actual refund. The respondents were given six weeks to comply with the order. The writ petition was accordingly allowed.

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