2023 (11) TMI 958 - HC - GST

Rejection of claim for interest, on the refund of GST already granted - calculation of relevant period - refund was initially denied but subsequently allowed. Whether the period for which the interest is payable under Section 56 of the DGST Act commences from the date immediately after expiry of sixty days from the receipt of an application for refund or from a later date, in case the refund is initially denied but subsequently allowed by the Appellate Authority, Appellate Tribunal, or a court? HELD THAT - It is clear from a plain reading of Section 56 of the CGST Act that whereas the main provision of Section 56 of the CGST Act refers to the rate of interest applicable on the amount of refund due, which remains unpaid even after sixty days from the date of application for refund; the proviso provides for an increased rate of interest for the period that commences from the date immediately after the expiry of sixty days from the date of application which is filed pursuant to the claim for refund attaining finality in appellate proceedings. Section 56 of the CGST Act, thus, works as follows. The applicant claiming a refund is entitled to interest at the rate of 6% per annum from a date immediately after the expiry of sixty days from making an application under Section 54(1) of the CGST Act. However, if a person s claim is denied (or if granted is not accepted by the Revenue) and the order of the Adjudicating Authority is carried in appeal to the Appellate Authority or to the Appellate Tribunal/High Court, which finally upholds the claim, the applicant may have to file a second application to secure the refund - the proviso merely enhances the interest payable to a person for the period commencing from the date immediately after sixty days from the date of his application filed pursuant to its entitlement to refund claim attaining finality. Once an application for refund under Section 54(1) of the CGST Act has been filed, the same requires to be carried to its logical conclusion. If the said claim is denied by the Adjudicating Authority and the applicant prevails before the Appellate Authority, the order of the Appellate Authority is required to be implemented. However, in one sense, the subsequent application filed by a person pursuant to succeeding before the Appellate Authority, is solely for the purposes of giving a nudge to the process of disbursal of the refund claim and for the proper officer to determine and disburse the interest as payable. The Adjudicating Authority is directed to process the petitioner s application for refund filed on 16.05.2023 - Petition allowed.

Summary

Issues Involved:
1. Interpretation of Section 56 of the DGST Act regarding the commencement of the interest period for delayed refunds.
2. Entitlement of the petitioner to interest on the refund amount from the date of the first application for refund.

Summary:

Issue 1: Interpretation of Section 56 of the DGST Act regarding the commencement of the interest period for delayed refunds.

The petitioner challenged the order rejecting their claim for interest on the refund of GST already granted. The Adjudicating Authority held that interest was payable only if the refund was not made within sixty days from the receipt of the application filed pursuant to the order passed by the Appellate Authority. The petitioner contended that interest should be calculated from the date immediately after the expiry of sixty days from the first application for a refund, not from the application filed after succeeding in the appellate proceedings.

Issue 2: Entitlement of the petitioner to interest on the refund amount from the date of the first application for refund.

The court examined Section 56 of the CGST Act (identically worded as Section 56 of the DGST Act), which stipulates that interest is payable if the refund is not made within sixty days from the date of receipt of an application. The court clarified that the interest period commences from the date immediately after the expiry of sixty days from the first application for refund, even if the refund is initially denied but subsequently allowed by an appellate authority. The court emphasized that the appellate proceedings are a continuation of the original proceedings, and an order passed by the Adjudicating Authority merges with the order passed by the Appellate Authority or Appellate Tribunal/High Court.

The court rejected the Revenue's contention that a separate application for refund was required after the appellate order and that interest would run from the date of this subsequent application. The court stated that such an interpretation would lead to an absurd result and deny the taxpayer's right to interest for the period spent in appellate proceedings. The court held that the taxpayer is entitled to interest from the date immediately after the expiry of sixty days from the first application for refund, and the proviso to Section 56 does not dilute this right but provides for an increased rate of interest (9%) if the refund is not processed within sixty days of an application filed pursuant to appellate orders.

The petition was allowed, and the Adjudicating Authority was directed to process the petitioner's application for interest on the refund in accordance with this decision.