2025 (5) TMI 2072 - HC - GST

Rejection of interest on the refund claim of the Petitioner - stand of Petitioner is that the deficiency memo was not issued within 15 days in terms of Rule 90 of Central Goods Services Tax Rules - Prescribed Period u/s 54 and u/s 56 from grant of interest - HELD THAT - This Court is of the view that the Petitioner cannot be denied the benefit of interest for delay caused due to the deficiency memo not having been issued within the stipulated period i.e. between 4th/9th July 2019 and 29th November 2019. At the same time the Petitioner also took about 74 days to respond to the deficiency memo i.e. between 29th November 2019 and 11th February 2020. In view thereof the interest would be liable to be paid for a period from 7th September 2019 and 9th September 2019 (i.e. 60 days from the date of refund applications) till 9th June 2023 (i.e. date of sanction of refund). However fromthis entire period the number of days between 29th November 2019 and 11th February 2020 (i.e. 74 days) which was the period taken for responding to the deficiency memo by the Petitioner shall be deducted. The interest that shall be liable to be paid at the rate of 6% in the initial period between 7th September 2019 to 4th April 2022 (i.e. 60 days from the date of second refund application dated 4th February 2022). However it is again made clear that the interest for the period of 74 days shall be deducted from this period. The interest for the subsequent period between 5th April 2022 to 9th June 2023 shall be 9% per annum. Petition is disposed of.

Summary

1. ISSUES PRESENTED and CONSIDERED

- Whether the Petitioner is entitled to interest on delayed refund claims under the Central Goods and Services Tax Act, 2017 (CGST Act), specifically under Sections 54 and 56.

- Whether interest is payable for the entire period of delay, including the period prior to issuance of deficiency memos, especially when such memos were not issued within the stipulated 15 days as per Rule 90 of the CGST Rules.

- The applicable rate of interest for delayed refunds: whether 6% or 9% per annum applies, particularly in the context of appellate orders and subsequent refund applications.

- Whether the period taken by the Petitioner to respond to deficiency memos should be excluded from the interest calculation.

- The correct computation of interest on refund amounts in light of the Petitioner's multiple refund applications and the Department's delayed processing.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Entitlement to Interest on Delayed Refunds under Sections 54 and 56 of the CGST Act

The legal framework governing refund claims and interest on delayed refunds is primarily Sections 54 and 56 of the CGST Act. Section 54 prescribes the procedure for claiming refunds and mandates issuance of refund orders within 60 days from receipt of a complete application. Section 56 mandates payment of interest at a notified rate if refunds are delayed beyond this period.

The Court referenced the statutory provisions verbatim, emphasizing the requirement of refund orders within 60 days and the consequent interest liability on delayed refunds. The Court also relied on its prior decision in a similar matter, which clarified the differential interest rates applicable under Section 56.

Application of law to facts revealed that the Petitioner's refund applications were not processed within the stipulated 60-day period, and thus, interest was payable. The Department's delay in sanctioning refunds triggered the Petitioner's entitlement to interest.

The Department's argument that deficiencies justified delay was considered but balanced against the statutory timelines and procedural fairness.

Issue 2: Applicability of Differential Interest Rates (6% and 9%) and Their Computation

The Court extensively analyzed the distinction between the 6% and 9% interest rates under Section 56, as elucidated in the earlier judgment. The main provision provides for 6% interest on delayed refunds from the date immediately after 60 days from the initial refund application. The proviso enhances this rate to 9% for delays in refund applications filed consequent to appellate or judicial orders that have attained finality.

The Court interpreted that the 9% rate applies only to the period following the filing of a second refund application made pursuant to the appellate order. The 6% rate applies to the period from expiry of 60 days after the first refund application till the filing of the second refund application.

Applying this to the facts, the Petitioner filed initial refund applications in July 2019, followed by appellate proceedings culminating in a favorable order on 3rd January 2022. Subsequently, a second refund application was filed on 4th February 2022. The Court held that 6% interest applies from 60 days after the first application till 60 days after the second application, and 9% interest applies thereafter until refund sanction.

The Department's contention that only limited interest was payable was rejected as inconsistent with the statutory scheme and prior judicial pronouncements.

Issue 3: Effect of Delay in Issuance of Deficiency Memos and Petitioner's Delay in Responding

Rule 90 of the CGST Rules requires deficiency memos to be issued within 15 days of receipt of refund application. The Petitioner contended that since deficiency memos were issued beyond this period, interest should be payable for the entire delay.

The Court acknowledged that the deficiency memos were issued late (on 29th November 2019, beyond the 15-day window from July 2019 applications). Hence, the Department could not claim exemption from interest liability for this period.

However, the Petitioner took approximately 74 days to respond to the deficiency memos, which the Court found to be a reasonable delay attributable to the Petitioner. On principles of equity, the Court held that interest should not be payable for this 74-day period, effectively excluding it from the interest calculation.

This balanced approach ensured that neither party was unfairly prejudiced by procedural delays.

Issue 4: Computation and Quantum of Interest Payable

The Court meticulously charted the timeline of events, refund applications, deficiency memos, appellate orders, and refund sanction dates to compute interest payable. The timeline was as follows:

• Refund applications filed on 4th and 9th July 2019.
• Deficiency memos issued on 29th November 2019 (beyond 15 days).
• Petitioner responded on 11th February 2020 (74 days delay).
• Appellate order allowing refund dated 3rd January 2022.
• Second refund application filed on 4th February 2022.
• High Court order directing refund including interest on 28th March 2023.
• Refund sanctioned on 9th June 2023, but interest granted only for 74 days post High Court order.

The Court held interest at 6% per annum was payable from 7th/9th September 2019 (60 days after first refund applications) to 28th November 2019 (date of deficiency memo issuance), then interest was not payable for the 74-day period of Petitioner's delay in responding. Interest at 6% continued from 12th February 2020 to 4th April 2022 (60 days after second refund application). Thereafter, interest at 9% per annum applied from 5th April 2022 to 9th June 2023 (date of refund sanction).

The Court ordered that interest already paid be deducted from the total amount payable.

Issue 5: Treatment of Competing Arguments

The Department argued that deficiencies justified delay and limited interest should be granted only for the period post High Court order. The Petitioner argued for interest on the entire period excluding no days.

The Court balanced these by excluding the period of Petitioner's delay in responding to deficiency memos but holding the Department liable for interest on all other delayed periods including the initial delay in issuing deficiency memos.

This approach ensured adherence to statutory timelines while recognizing practical delays on both sides.

3. SIGNIFICANT HOLDINGS

"The proviso to Section 56 of the CGST Act expressly provides that an interest at the rate of 9% per annum would be payable from the date immediately after the expiry of sixty days from the receipt of an application, which is filed as a consequent to an order passed by the Appellate Authority, Adjudicating Authority, Appellate Tribunal or court that has attained finality."

"If such application for refund filed by the person consequent to succeeding before the Appellate Authority, Appellate Tribunal or court, is not processed within a period of sixty days of filing the application, the applicant would be entitled to a higher rate of 9% per annum commencing from the date immediately after the expiry of sixty days of his application filed pursuant to the appellate orders."

"The Petitioner cannot be denied the benefit of interest for delay caused due to the deficiency memo not having been issued within the stipulated period."

"Interest shall not be payable for the period of 74 days taken by the Petitioner to respond to the deficiency memo, on grounds of equity."

Core principles established include:

• Interest on delayed refunds accrues only after 60 days from the date of a complete refund application.
• Two-tier interest rates apply: 6% for initial delayed refunds, and 9% for delays in refunds following appellate orders.
• Delay in issuance of deficiency memos beyond the prescribed 15 days attracts interest liability on the Department.
• Reasonable delay by the applicant in responding to deficiency memos can be excluded from interest computation.
• Interest already paid must be deducted from the total payable interest amount.

Final determinations:

• The Petitioner is entitled to interest on delayed refunds from 7th/9th September 2019 to 9th June 2023, excluding the 74-day period of delay in responding to deficiency memos.
• Interest is payable at 6% per annum from 7th/9th September 2019 to 4th April 2022, and at 9% per annum from 5th April 2022 to 9th June 2023.
• The Department's partial interest payment is inadequate; the balance interest must be paid after adjusting the amount already disbursed.
• The writ petition is disposed of accordingly with all pending applications also disposed.