2025 (4) TMI 1316 - HC - VAT / Sales Tax

Interest on delayed refunds - entitlement for enhanced rate of interest - relevant date for calculation of interest - HELD THAT - As per the provisions of the JVAT Act 2005 the amount of interest starts accruing automatically after 90 days from the date of submission of application of refund which was submitted by the petitioner on 16.09.2020 and 90 days therefrom expired on 15.12.2020 hence interest will start accruing w.e.f. 16.12.2020. In the instant case the interest is calculated as per Rule-19 (2) (a) of the Jharkhand Value Added Tax Rules 2006. However taking a clue from the order of Alok Shankar Pandey 2007 (2) TMI 329 - SUPREME COURT that had the Revenue paid the interest to the Petitioner at the right time the Petitioner could have invested that amount. Thus the Petitioner is certainly entitled for enhanced rate of interest. Accordingly the Petitioner is entitled for the interest @ 9% p.a. which comes to Rs. 72, 14, 351/ for the period from 16.12.2020 to 20.03.2023 i.e. for 826 days delay on the refund of the amount of Rs. 3, 54, 21, 551.00. The ground of the respondents with regard to payment of less interest in the background of Suo Moto Writ Petition (C) No. 3 of 2020) 2022 (1) TMI 385 - SC ORDER that the period from 15.03.2020 to 28.02.2022 excluded while calculating the interest amount is untenable and without any legs to stand in the eye of law. The Petitioner is entitled for the interest @ 9% p.a. which comes to Rs. 72, 14, 351/ for the period from 16.12.2020 to 20.03.2023 i.e. for 826 days delay on the refund of the amount of Rs. 3, 54, 21, 551.00. The Respondent Department is directed to pay the differential amount of interest @ 9% p.a. to the petitioner on account of interest accrued on the principal amount of Rs. 3, 54, 21, 551/- after deducting Rs. 20, 43, 775/- which was refunded belatedly to the petitioner on 21.03.2023 i.e. after delay of 826 days from the date of refund application filed by the Petitioner. It is made clear that the Respondent department shall make payment of such interest @ 9% after proper calculation within a period of 10 weeks from the date of receipt/production of a copy of this order. Conclusion - i) Application for refund was submitted by the petitioner on 16.09.2020 and 90 days therefrom expired on 15.12.2020 hence interest will start accruing w.e.f. 16.12.2020. ii) The Petitioner is certainly entitled for enhanced rate of interest. The instant writ application stands allowed.

Summary

The core legal questions considered by the Court are:

(i) From which date is the petitioner entitled to interest on the refunded amount of Rs. 3,54,21,551/- under the Jharkhand Value Added Tax Act, 2005 (JVAT Act)?

(ii) Whether the petitioner has rightly claimed interest at the rate of 9% per annum amounting to Rs. 72,14,351/- on account of delay in refund, instead of the statutory 6% per annum?

(iii) Whether the respondent department was justified in excluding the period from 15.03.2020 to 28.02.2022 while calculating interest, based on the Apex Court's order in Suo Moto Writ Petition (C) No. 3 of 2020?

(iv) Whether the respondent department was obligated to pay the differential interest amount after having paid Rs. 20,43,775/- out of the total claimed interest?

Issue-wise Detailed Analysis

Issue 1: Date from which interest is payable on the refunded amount

The relevant legal framework comprises Sections 52 and 55 of the JVAT Act, 2005, and Rule 19(2)(a) of the Jharkhand Value Added Tax Rules, 2006. Section 52 mandates refund of excess tax paid, while Section 55 entitles a registered dealer to simple interest at 6% per annum on the refund amount, commencing after ninety days from the date of the refund application until the refund is granted. Rule 19(2)(a) requires the refund claim to be made within ninety days from receipt of the excess demand notice, using Form JVAT 206.

The petitioner received a revised excess demand notice dated 27.07.2020 for Rs. 3,54,21,551/-. The refund application was filed online on 16.09.2020. The Court held that interest starts accruing after 90 days from the refund application date, i.e., from 16.12.2020.

The Court emphasized that the conditions for refund were fulfilled: the excess demand notice was issued, the refund application was filed timely, and the refund amount was eventually paid on 21.03.2023 after a delay of 826 days from the date interest began to accrue.

The respondent's contention that interest should be calculated from the date of filing Form JVAT 206 on 04.03.2024 was rejected, as the refund application was initially filed on 16.09.2020. The Court also rejected the respondent's reliance on the Apex Court's order excluding the period from 15.03.2020 to 28.02.2022 for interest calculation, holding that the limitation exemption related only to judicial or quasi-judicial proceedings, not refund claims.

Issue 2: Rate of interest applicable on delayed refund

Statutory interest under Section 55 of the JVAT Act is 6% per annum. However, the petitioner claimed interest at 9% per annum, amounting to Rs. 72,14,351/-, citing a Gujarat High Court judgment dated 21.10.2021, subsequently affirmed by the Supreme Court, which allowed enhanced interest in a similar refund context.

The Gujarat High Court judgment clarified that interest is not a penalty but an accretion on capital, compensating for the loss of use of money that should have been refunded earlier. The Court quoted the Supreme Court decision in Alok Shanker Pandey v. Union of India, explaining that when a sum is paid late, the payer has effectively earned interest on the amount, which equity demands be paid to the payee.

Applying this principle, the Court held that the petitioner was entitled to interest at 9% per annum, rather than the statutory 6%, for the 826 days delay from 16.12.2020 to 20.03.2023. The Court reasoned that had the refund been paid timely, the petitioner could have invested the amount and earned such interest, thus justifying the enhanced rate.

Issue 3: Exclusion of period from 15.03.2020 to 28.02.2022 in interest calculation

The respondent department argued that the period from 15.03.2020 to 28.02.2022 should be excluded from interest computation based on the Apex Court's order in Suo Moto Writ Petition (C) No. 3 of 2020, which granted limitation exemption during the COVID-19 pandemic.

The Court rejected this contention, clarifying that the Apex Court's order applied to the institution of judicial or quasi-judicial proceedings, not to refund claims. The Central Board of Indirect Taxes and Customs' Circular No. 157/13/2021-GST dated 20.07.2021 was cited, which confirmed that tax authorities could continue to dispose of refund applications during the pandemic period.

Therefore, the period from 15.03.2020 to 28.02.2022 was not excluded from the interest calculation, and the petitioner was entitled to interest for the entire period of delay.

Issue 4: Payment of differential interest amount

The respondent department had credited Rs. 20,43,775/- to the petitioner's bank account on 27.03.2024, part of the claimed interest amount. The petitioner sought the balance differential interest of Rs. 51,70,576/- but no action was taken.

The Court directed the respondent department to pay the differential interest amount at 9% per annum after deducting the amount already paid, within ten weeks from receipt of the order. The Court emphasized that the differential payment was due and must be made after proper calculation.

Competing Arguments and Court's Treatment

The respondent department's argument that interest should be calculated only from the date of filing Form JVAT 206 on 04.03.2024 was dismissed as factually incorrect and legally untenable, given the initial refund application was filed on 16.09.2020.

The department's reliance on the Apex Court's limitation exemption order was also rejected, as refund claims do not constitute judicial or quasi-judicial proceedings. The Court distinguished the facts and clarified the scope of the limitation exemption.

The petitioner's claim for enhanced interest at 9% was accepted based on persuasive precedent and equitable principles, overruling the statutory 6% rate in the circumstances of delayed payment.

Conclusions

The Court concluded that the petitioner was entitled to interest on the refunded amount from 16.12.2020, after expiry of ninety days from the refund application date. The rate of interest payable was held to be 9% per annum, not 6%, based on the principle that delayed payment unjustly enriched the respondent department.

The period from 15.03.2020 to 28.02.2022 was not excluded from interest calculation. The petitioner was entitled to the full interest amount for the 826 days delay until refund on 21.03.2023.

The respondent department was directed to pay the differential interest amount of Rs. 51,70,576/- within ten weeks, after deducting the Rs. 20,43,775/- already paid.

Significant Holdings

"As per the provisions of the JVAT Act, 2005, the amount of interest starts accruing automatically after 90 days from the date of submission of application of refund, which was submitted by the petitioner on 16.09.2020 and 90 days therefrom expired on 15.12.2020, hence interest will start accruing w.e.f. 16.12.2020."

"We are of the view that the Petitioner is certainly entitled for enhanced rate of interest. Accordingly, we hold that the Petitioner is entitled for the interest @ 9% p.a. which comes to Rs. 72,14,351/, for the period from 16.12.2020 to 20.03.2023 i.e. for 826 days delay on the refund of the amount of Rs. 3,54,21,551.00."

"The contention of the Revenue that the refund application claiming refund of interest was filed by the petitioner on-line on 04.03.2024 and thus the interest is calculated accordingly from the date of filing of such application of refund is not correct on facts and is also untenable on two folds."

"The ground of the respondents with regard to payment of less interest in the background of Suo Moto Writ Petition (C) No. 3 of 2020) that the period from 15.03.2020 to 28.02.2022 excluded while calculating the interest amount, is untenable and without any legs to stand in the eye of law."

"The Respondent Department is directed to pay the differential amount of interest @ 9% p.a. to the petitioner on account of interest accrued on the principal amount of Rs. 3,54,21,551/- after deducting Rs. 20,43,775/- which was refunded belatedly to the petitioner on 21.03.2023 i.e., after delay of 826 days from the date of refund application filed by the Petitioner."