Interest on Delayed Refund Under GST- Recent Court Rulings and Practical Implications

Relevant Section & Rule

Section 56: Interest on delayed refunds

“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 or 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”

Provided that where any claim of refund arises from an order passed by an Adjudicating authority or Appellate Authority or Appellate Tribunal or court which has attained finality and the same is not refunded within sixty days from the date of receipt of application filed consequent to such order, interest at such rate not exceeding nine per cent. 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.”

The heading of the above section itself says ‘Interest on delayed refund’ which by itself leads to the only conclusion that can be drawn that of interest automatically accruing on the delayed refund made by the Department.

The very Section starts with the wordings that of any tax ordered to be refunded is not refunded within the stipulated period of time, interest at such rate shall be payable on the said refund amount.

Similarly, the proviso also to the said Section clearly envisages that of any claim of refund which arises from an order passed by the Adjudicating Authority or Appellate Authority or Appellate Tribunal or for that matter any Court of law and if the refund is not made within sixty (60) days, the said amount of refund would also carry interest at such rates notified by the Government.

Key Points:

Time limit for Refund— Refund must be sanctioned within 60 days from the date of receipt of the complete refund application.

Interest Rate— If a refund claim is delayed beyond a prescribed time limit i.e. 60 days, the taxpayer is entitled to interest on delayed refund, rate of interest is as follows-

Period of Interest— it may be noted that any tax shall be considered to have been refunded only when the amount has been credited to the bank account of the applicant.

Therefore, interest will be calculated starting from the date immediately after the expiry of sixty days from the date of receipt of the application till the date on which the amount is credited to the bank account of the applicant.

As per Circular No. 125/44/2019–GST, all tax authorities are advised to issue the final sanction order in FORM GST RFD-06 and the payment order in FORM GST RFD-05 within 45 days of the date of generation of ARN, so that the disbursement is completed within 60 days.

Rule 94: Order sanctioning interest on delayed refunds

Where any interest is due and payable to the applicant under Section 56, the Proper officer shall make an order along with a payment order in FORM GST RFD-05, specifying therein the amount of refund which is delayed, the period of delay for which interest is payable and the amount of interest payable, and such amount of interest shall be electronically credited to any of the bank accounts of the applicant mentioned in his registration particulars and as specified in the application for refund.

The following periods shall not be included in the period of delay under sub-rule (1), namely:-

(a) Any period of time beyond fifteen days of receipt of notice in FORM GST RFD-08 under sub-rule (3) of rule 92, that the applicant takes to-

(i) Furnish a reply in FORM GST RFD-09, or

(ii) Submit additional documents or reply; and

(b) Any period of time taken either by the applicant for furnishing the correct details of the bank account to which the refund is to be credited or for validating the details of the bank account so furnished, where the amount of refund sanctioned could not be credited to the bank account furnished by the applicant.

Recent Judicial proceedings—

• DELHI HIGH COURT in case of J.M. Plastic Industries V/s Deputy Commissioner of Central Tax [2024] 79 TAXLOK.COM 132 (Delhi), quashed the impugned order denying statutory interest and directed the respondents to compute and remit the interest under Section 56 of the CGST Act without further delay.

• BOMBAY HIGH COURT in case of Anita Agarwal V/s Union of India [2024] 78 TAXLOK.COM 028 (Bombay), held that the Petitioner is entitled to interest under Section 56 of the CGST Act for the delayed refund of IGST. The period for interest calculation starts 60 days after the date of the shipping bill and continues until the refund is granted, excluding a 30-day period for investigation as per Circular No. 16 of 2019. The Respondents must grant the calculated interest within eight weeks.

• DELHI HIGH COURT in case of Raghav Ventures V/s Commissioner of Delhi Goods & Services Tax [2024] 70 TAXLOK.COM 001 (Delhi) held that Payment of interest does not depend on the claim made by petitioner and therefore cannot be denied on the ground of waiver on the claim of interest in FORM GST-RFD-01. Thus, even though, the petitioner may not have claimed interest in his refund applications, his claim of interest cannot be denied under Section 56 of the Act as the same is mandatory and payable automatically in terms of the provisions of the Act. This court is of the opinion that petitioner is entitled to statutory interest at the rate of 6% starting from the date immediately after the expiry of sixty days from the date of receipt of refund applications till the date on which the refund is credited to the bank account of the petitioner.

• DELHI HIGH COURT in case of Bansal International V/s Commissioner of DGST [2023] 66 TAXLOK.COM 052 (Delhi), held that The petitioner’s entitlement for interest cannot be defeated merely because the proper officer passed an incorrect order, which is subsequently rectified in the appellate proceedings. The petition is accordingly allowed and the impugned order is set aside directing the Adjudicating Authority to process the petitioner’s application for refund filed in accordance with this decision.

• In case of Venus Jewel V/s Union of India [2024] 71 TAXLOK.COM 033 (Bombay) he petitioner assails the refusal of the respondents-GST authorities to grant to the petitioner refund of IGST paid by the petitioner, in respect of confirmed exports. It is the case of the petitioner that the IGST amount has been wrongly withheld by the respondent due to non-alignment of export data between the ICEGATE Portal maintained by the Customs Department and the Common Portal. The petitioner is correct in its contention that as to what was followed by the respondent in the case of Star Rays also needs to be followed in the case of the petitioner and accordingly the petitioner would become entitled to maintain its refund applications and grant of the refund amounts. The refund due and payable to the petitioner has been retained for no fault of the petitioner.