Untimely Issuance of Deficiency Memo not Grounds to Refuse Interest on Delayed GST ITC Refund: Delhi HC [Read Order]

20th May, 2025The Delhi High Court recently clarified that a delay by the tax authorities in issuing a deficiency memo to a taxpayer cannot be used as a reason to refuse or limit the payment of interest on delayed refunds on Input Tax Credit (ITC) on Goods and Services Tax (GST).

The decision was rendered by the Delhi High Court against a Civil Writ Petition filed by M S G S Industries against the Commissioner of Central Tax and GST Delhi West.

The petitioner had filed two refund applications on claiming refund amounts of ₹23,10,333 and ₹14,46,417 on July 4 and July 9, 2019 respectively.

Despite statutory provisions requiring the department to promptly undertake necessary action, the department failed to issue deficiency memos within the prescribed period of 15 days. Instead, the memos in FORM GST RFD-03 were issued only on November 29, 2019, prompting the petitioner to file replies to memos in January 2020.

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Even after acknowledgments under FORM GST RFD-02 were generated, the refund and interest were not disbursed to the petitioner within the 60-day period specified under Section 54(7) of the CGST Act, 2017. Repeated follow-ups with the department yielded no results, leading M S G S Industries to approach the High Court.

Despite receiving a favourable ruling, the petitioner's refund application stood rejected, which led to another writ petition which granted relief to the petitioner, albeit without granting complete interest, leading to the present petition.

Counsel for the petitioner, Siddharth Malhotra contended that the deficiency memo was not issued within 15 days in terms of Rule 90 of Central Goods Services Tax Rules (CGST Rules) and hence, contended that the interest is liable to be granted for the entire period.

Aakarsh Srivastava, Senior Standing Counsel, assisted by Anand Pandey and Anugya Gupta, representing the Revenue contended that deficiencies in the application were genuine and that interest should only be calculated from the date the petitioner responded to the deficiency memo and the same were duly acknowledged, i.e., on 11th February, 2020.

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The Division Bench comprising Justice Prathiba M. Singh and Justice Rajneesh Kumar Gupta observed that the Petitioner cannot be denied the benefit of interest for delay caused due to the

deficiency memo not having been issued within the stipulated period. Furthermore, the Bench also observed that the Petitioner had taken about 74 days to respond to the deficiency memo.

In light of the observations, the Delhi High Court ruled that the Department pay interest at 6% per annum for the initial period of delay. For the period following the second set of refund applications, the Court ordered the payment of interest 9% per annum. However, the Bench clarified that no interest shall be payable for the period of 74 days which the petitioner had taken to reply to the deficiency memo.

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