INTEREST ON DELAYED REFUND OF IGST

[Mr. M. GOVINDARAJAN]

In MS. ANITA AGARWAL (SOLE PROPRIETOR OF M/S. SHANKER INTERNATIONAL) , VERSUS UNION OF INDIA, CENTRAL BOARD OF INDIRECT TAX AND CUSTOM, MINISTRY OF FINANCE, DEPARTMENT OF REVENUE, NEW DELHI, THE ADDITIONAL COMMISSIONER (NHAVA SHEVA – II) MAHARASHTRA - 2024 (11) TMI 785 - BOMBAY HIGH COURT, the petitioner is an exporter.  He exported Ethyl Alcohol Liquid Packaging Film, Iodized Salt etc.  The petitioner paid integrated tax (IGST) on his exports and claimed refund under the provisions of Central Goods and Services Tax Act, 2017 (‘CGST’ for short) and Integrated Goods and Services Tax Act, 2017 (‘IGST’ for short).  The petitioner filed various shipping bills during the period from August 2018 to July 2019.  The shipping bills will be treated for application for refund of IGST.  The petitioner claimed a refund to the tune of Rs.3.21 crore.  After the follow up made by the petitioner, the refund was granted by the Department only during August 2020.  However, the interest on belated refund has not been given to her.  Therefore, the petitioner filed the present writ petition before the High Court. 

The petitioner submitted the following before the High Court-

• the delay in the grant of refund is not attributable to her. 
• The petitioner, in this regard, made enquiries with the Department.  It was informed to her that her name was red flagged on the portal of the Department on the risky exporters list. 
• Therefore, there was a delay on the part of the Respondents in granting the refund.
• The Petitioner was never informed about her name being red-flagged on the portal of Department, and it is only through enquiry from Respondents that she was informed about the same.
• As per Circular No.16 of 2019, dated 17.06.2019, the investigation in cases of names appearing “names red flagged” is to be completed within 30 days and, therefore, at the most, the interest for 30 days during which the investigation ought to have been completed can be excluded for computing interest. 

Therefore, the petitioner prayed before the High Court for issuing a direction to the Department to grant interest for the delay following Section 56 of the CGST Act.

The Department contended that ‘No objection Certificate’ was received during August 2020 from the Risk Management Centre for Customs, the red flag was removed and immediately the refund was granted to the petitioner. Therefore, there was no delay in granting the refund to the petitioner. 

The High Court considered the submissions of both parties.  The question for the consideration of the High Court is as to whether the petitioner is entitled to interest under Section 56 of the CGST Act for the period starting from the expiry of 60 days from the date of filing the shipping bill up to the date of grant of refund, although during the interregnum, the Petitioner’s name was red flagged on the respondents' portal.

The High Court analysed the provisions of Section 56 of the CGST Act.  The High Court observed that on 25.06.2019, an alert was inserted in the system of Department to keep the refund of IGST of the Petitioner in abeyance.  However, according to the Circular dated 17.06.2019 the Chief Commissioner of Central Tax shall get the verification of IGST refund claims and other related aspects in accordance with the standard operating procedure to be issued by the CGST policy wing.    A report shall be furnished within 30 days specifying clearly whether the amount of IGST paid and claimed as a refund is in accordance with the law or not, and after that, the Chief Commissioner shall comply and forward the report within five working days after that to the concerned Customs Port of Export.

The High Court further observed that as per the Circular No. 131/1/2020 dated 23.01.2020, the verification shall be completed by jurisdictional CGST office within 14 working days of furnishing of information in proforma by the exporter and if the verification is not completed within 14 days, the same shall be brought to the notice of the jurisdictional Chief Commissioner and exporter may also bring the same to the notice of the jurisdictional Principal Chief Commissioner. After that, the jurisdictional Chief Commissioner / Chief Commissioner of Central Tax should take appropriate action to complete the verification within seven working days. If the exporter does not get the refund within one month, then the exporter may register his grievance on the department's portal, giving all the details.

The High Court observed that both the circulars were issued by the Board to ensure that the investigation in case of a suspicious refund claim is completed within the time frame provided therein so that the exporters can get the refund within the time specified.  The refund plays a very important role in the working capital of an exporter, and therefore, any delay in the grant of the refund would affect the day-to-day running of the business.   Therefore, the investigations shall be completed within the specified period as contained in the said circulars.

As per Section 54 of the CGST Act the refund application shall be processed within 60 days from the date of receipt of the refund claim.  There was no delay on the part of the petitioner since there was no adverse comment against the Petitioner insofar as non-compliance of any information sought by the Respondent is concerned or deficiency in any documents to be produced for the grant of refund.  Therefore, the High Court came to the conclusion that the delay is squarely attributable to the inaction of the Department in not completing the investigation within the time frame specified in the Circular, nor is any explanation given as to why the time limit specified in the Circular could not be complied with or same attributable to the Petitioner.  Therefore, there is no reason for denying the refund to the petitioner. 

Section 56 of the CGST Act did not provide for the exclusion of the period during which the Respondents are investigating the grant of refund.  Since there was a delay in granting the refund to the petitioner is on the inactive attitude of the Department, there is no justification to the Department for the denial of the interest on the belated refund.  The delay in refund has not bee properly explained by the Department.  If the contentions of the department are accepted, the High Court was of the view, that the same would amount to rewriting the provisions of Section 56 of the CGST Act by this Court, which certainly is not permissible.

The High Court held that the Petitioner is entitled to interest under Section 56 of the CGST Act for the period beginning with the expiry of 60 days from the date of the shipping bill up to the date of grant of refund after reducing 30 days from the period.  The High Court directed the Department to pay the interest to the petitioner within 8 weeks from the date of uploading in the web site of the High Court.