2024 (4) TMI 365 - HC - GST

Interest on Delayed Refund - Entitlement for interest u/s 54 of the Central Goods and Services Tax Act 2017 on the delayed granting of refund of Input Tax Credit - HELD THAT - There is a catena of decisions of the Hon ble Supreme Court and also practically of every High Court wherein it has been consistently held that in the event of there being a delay on the part of the Department in making necessary refund as quantified by the Department themselves within a stipulated period or within a reasonable period of time the said amount shall carry interest. Such decisions have been passed even under the other statutes dealing with tax. As regards the issue whether for differing the payment of interest or for delaying the period from which interest would become applicable deficiencies memos being issued it would be relevant to take note of a decision of the Delhi High Court in the case of Jian International vs. Commissioner of Delhi Goods and Services Tax 2020 (7) TMI 611 - DELHI HIGH COURT wherein it was held that To allow the respondent to issue a deficiency memo today would amount to enabling the Respondent to process the refund application beyond the statutory timelines as provided under Rule 90 of the CGST Rules referred above. This could then also be construed as rejection of the petitioner s initial application for refund as the petitioner would thereafter have to file a fresh refund application after rectifying the alleged deficiencies. The respondents are directed to forthwith take steps for payment of interest on the delayed refund of ITC released to the petitioners in terms of sub-section (1) of Section 56 and the proviso thereto - petition allowed.

Summary

Issues Involved:
1. Entitlement to interest u/s 54 of the CGST Act, 2017 on delayed refund of Input Tax Credit (ITC).

Summary:

Entitlement to Interest u/s 54 of the CGST Act, 2017 on Delayed Refund of ITC:

The petitioners filed for a refund of unutilized ITC, which was initially rejected by the respondents but later allowed on appeal. Despite the refund, the petitioners sought interest on the delayed amount, which the Department denied. The court examined Section 56 of the CGST Act, 2017, which mandates interest on delayed refunds beyond sixty days from the application date. The court noted that there was no ambiguity in the statute's intention to provide interest on delayed refunds, emphasizing that interest accrues automatically if the refund is delayed.

The court referred to various precedents, including the Gujarat High Court's decision in Saraf Natural Stone vs. Union of India, which held that interest on delayed refunds is a beneficial and non-discriminatory provision. The Bombay High Court in National Leather Cloth Mfg. Co. vs. Union of India reiterated that interest must be paid if refunds are delayed without any preventive or prohibitory orders. The court also cited the Supreme Court's decision in Ranbaxy Laboratories Ltd. vs. Union of India, which clarified that interest liability commences from three months after the refund application date, not from the date deficiencies are rectified.

The court further referenced the Delhi High Court's rulings in Jian International vs. Commissioner of Delhi Goods and Services Tax and Bansal International vs. Commissioner of DGST, which supported the view that interest should be paid from the original application date, even if deficiencies were later rectified. The court concluded that the petitioners were entitled to interest on the delayed refund of ITC as per Section 56 of the CGST Act, 2017, and directed the respondents to pay the interest forthwith.

Order:
The writ petitions were allowed, directing the respondents to pay interest on the delayed refund of ITC to the petitioners as per Section 56 of the CGST Act, 2017. No order as to costs, and any pending miscellaneous applications were closed.