6% or 9% Interest on Late GST Refunds: Decoding Section 56 with Judicial Rulings

There is often confusion about the applicable interest rates on delayed refunds. Many taxpayers have approached the courts seeking 9% interest due to huge delays in receiving refunds. However, in most cases, the courts have clearly clarified that the 9% rate applies only where the refund is granted pursuant to an order of the tribunal or any final adjudication order.

Section 56 CGST Act

“If any tax ordered to be refunded under sub-section (5) of section 54 to any applicant is not refunded within sixty days from the date of receipt of application under sub-section (1) of that section, interest at such rate not exceeding six per cent. as may be specified in the notification issued by the Government on the recommendations of the Council shall be payable in respect of such refund ¹[for the period of delay beyond sixty days from the date of receipt of such application till the date of refund of such tax, to be computed in such manner and subject to such conditions and restrictions as may be prescribed:”

6% Interest for GST Delayed Refund

Section 56 states that tax ordered to be refunded under Section 54(5) must be refunded within 60 days of receipt of the refund application. If not, interest at a rate not exceeding 6% as specified by government notification must be paid for the period of delay beyond 60 days until refund.

Proviso of Section 56 - Refund Directed from an Appellate or Judicial Order

According to the proviso, if the refund follows an adjudicatory, appellate, tribunal, or court order that has attained finality, and is not refunded within 60 days from the application made pursuant to such order, interest at a rate not exceeding 9%, as may be notified by the Government on the recommendations of the Council becomes payable from the 61st day until refund.

There is an additional explanation to the Section 56 which states that “Refund orders passed by appellate forums are deemed orders under Section 54(5), hence triggering interest under Section 56’s proviso.”

Section 54:

● Refund of tax, interest, or any other amount paid by the taxpayer.

● Refund of unutilised input tax credit (ITC) in specified cases.

● Special provisions for certain entities such as UN agencies, embassies, and notified organisations.

● Refund on account of export of goods or services, deemed exports, and inverted duty structure.

The provision applies to both registered and unregistered persons in certain cases, and it is applicable across intra-State and inter-State supplies.

Any refund application must be filed within two years from the ‘relevant date’.

● For electronic cash ledger refunds under Section 49(6), a registered person can claim such refunds as prescribed without the two-year bar.

● For special entities (UN bodies, embassies), the period is also two years from the last day of the quarter in which the supply was received.

Thus, when the application is made under Section 54 for the GST refund, and if it gets delayed from the part of the department, the refund shall be made with interest 6% or 9% according to circumstances.

Differentiated Rates under Section 56: 6% vs 9%

6% interest : applies when refunds are delayed post-60 days from initial application.

9% interest : applicable for delays in refunds following final appellate/judicial orders. Mere delay even if prolonged does not trigger the higher rate absent this finality.

Judicial Rulings

Lupin Limited vs Union of Union of India, CITATION : 2025 TAXSCAN (HC) 1629

The Bombay High Court Bench at Goa has held that Lupin Limited is entitled to 9% interest per annum on delayed GST refunds if not released within 60 days from the date of the First Appellate Authority’s (FAA) order.

A Bench of Justices Bharati Dangre and Nivedita P. Mehta observed that once an FAA order allowing refund attains finality, revenue authorities must release the amount within the statutory period, failing which higher interest under Section 56 of the CGST Act applies.

Lupin, a Goa-based pharmaceutical company, had its refund claim initially rejected but succeeded before the FAA. Despite the order, the refund was delayed, leading to the writ petition. The company argued that statutory provisions mandate interest on delayed refunds and that courts have granted 9% where delays are unjustified. The revenue claimed the delay was due to administrative processes and that 6% is the general rate absent mala fides.

The court ruled that administrative reasons could not justify non-compliance with the statutory time frame and directed payment of 9% interest from the 61st day after the FAA’s order until the actual refund date.

Union of India v. Willowood Chemicals Pvt. Ltd. & Anr, CITATION : 2022 TAXSCAN (SC) 135

In this case, the Supreme Court has held that in cases of delay in granting Integrated GST refunds, the interest rate cannot exceed 6% as prescribed under the principal provision of Section 56 of the CGST Act, 2017, particularly where the delay is not inordinate.

A Bench of Justices U.U. Lalit and S. Ravindra Bhat allowed appeals by the Union of India against a Gujarat High Court order granting 9% interest on delayed IGST refunds to two exporters. The High Court had awarded the higher rate citing arbitrariness and adverse impact on the companies’ working capital, but the Centre sought reduction to the statutory 6%.

The apex court observed that Section 16 of the IGST Act read with Section 54 of the CGST Act governs such refunds, and where the statute prescribes a specific interest rate, here, 6%, it must be followed. Accordingly, the Supreme Court reduced the interest rate from 9% to 6%.

Raghav Ventures v. Commissioner of Delhi Goods and Services Tax, 2024, CITATION: 2024 TAXSCAN (HC) 519

The Delhi High Court has held that interest on delayed IGST refunds under Section 56 of the GST Act, 2017 cannot be denied merely because it was not claimed in the refund application.

In this case, the petitioner, an exporter of mobile phones and accessories, sought a direction for release of IGST refund of ₹2.44 crore for December 2022, February 2023, March 2023, and May 2023, along with statutory interest. The refunds were sanctioned but without interest. The department argued that since the petitioner did not claim interest in Form GST-RFD-01, no interest was payable.

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The Division Bench of Justice Sanjeev Sachdeva and Justice Ravinder Dudeja rejected this contention, observing that Section 56 mandates payment of 6% interest if refund is not issued within 60 days from the receipt of the application, and such payment is automatic, requiring no separate claim.

The court clarified that interest is a statutory right and cannot be denied on the basis of non-mention in the refund application. Accordingly, it directed that interest be paid from the 61st day after the refund applications until the actual date of refund credit.

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