HC interprets relevant date and applicable rate for interest computation on delayed refund under GST

This Tax Alert summarizes a recent judgement of the Delhi High Court (HC) interpreting relevant date and applicable rate for interest computation on delayed refund under Section 56 of the Central Goods and Services Tax Act, 2017 (CGST Act).

Assessee filed a refund application for unutilized input tax credit (ITC) under Section 54 of the CGST Act. Against the partial rejection order of adjudicating authority, Appellate authority allowed assessee’s appeal by sanctioning the refund. Assessee filed second application for claiming the said refund along with interest. While refund was allowed, interest claim was denied by the adjudicating authority. Aggrieved, assessee filed writ petition before the HC.

Section 56 provides for interest @ 6% for the period of delayed refund beyond sixty days from the date of receipt of application till the date of payment. Further, as per the proviso, interest shall be payable @ 9% where refund claim arises pursuant to the orders of the appellate fora.

HC observed that the object of providing interest is to ensure that a taxpayer is adequately compensated for denial of its legitimate dues. 

Interest @ 6% is payable for the period commencing from the 61st day of first application till the date of payment or the expiry of sixty days from the date of filing second application (i.e., the application filed pursuant to the orders of the appellate fora), whichever is earlier.

Interest @ 9% would run from the date immediately after the expiry of sixty days of the filing of second application till the date of payment. 

Thus, HC held that the proviso merely enhances the interest payable to a person for the period commencing from the date immediately after sixty days of the second application filed pursuant to its entitlement to refund claim attaining finality.

Comments

• The decision provides much needed clarity on the relevant date and applicable rate of interest in case of delayed refunds. There were divergent views prevailing in the industry on this matter.
  
  
• This judgement is likely to benefit the taxpayers having similar pending litigations before lower authorities wherein either the interest was rejected or granted at lower rate instead of enhanced rate.