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2025 (6) TMI 94 - HC - GSTSeeking grant of refund alongwith interest - amount deposited inadvertently in the Electronic Cash Ledger (ECL) under the GST regime - requirement of physical submission of refund application along with all the requisite documents - HELD THAT - A refund application is to be filed under Rule 89 of the Central Goods and Services Tax Rules 2017(CGST Rules). As per Rule 90 of the CGST Rules the proper officer shall within 15 days of the application scrutinize the application and if found to be proper issue an acknowledgement in FORM GST RFD-02. However if any deficiency is found the deficiency memo ought to be issued under FORM GST RFD-03. If the deficiency memo is issued the deficiencies would have to be cured by the party concerned and in such a case Rule 93 could be invoked by the Department. From a perusal of the records it is clear that from the date of filing of refund application the mandate for scrutinizing and issuance of deficiency memos within 15 days has not been adhered to by the Department. However after issuance of the deficiency memo on 3rd March 2020 the Petitioner withdrew the application for refund on 17th March 2020. Thereafter the case of the Petitioner is that it regularly followed up with the department but there is no written communication. The first written communication is of 29th August 2023 when the Petitioner stated that it could not file a reply to the Deficiency Memo due to the Covid-19 pandemic. Vide this letter the refund was once again sought by the Petitioner. The entire scheme for grant of refunds has been considered by this Court in BANSAL INTERNATIONAL VERSUS COMMISSIONER OF DGST AND ANR. 2023 (11) TMI 958 - DELHI HIGH COURT wherein the Court has clearly held that a party would be entitled to interest on the amount of refund commencing from the date immediately after the expiry of 60 days from the date when an application has been received. The efficacy of the said scheme is contingent upon the Department adhering to the specific timelines prescribed under the Act and the Rules which in the present case have evidently not been complied with. For whatever reason the refund or acknowledgment has not taken place till date and the Department has continued to retain the amount - However even as per the counter affidavit it is clear that the amount can no longer be retained by the Department. Therefore in the opinion of this Court the amount would be liable to be refunded and cannot be enjoyed by the Department in this manner. Thus the Petitioner is entitled to the refund. The only remaining question would be of interest. Even if a 60 days period is counted from the date of refund application the Petitioner would be entitled to interest for a substantial period of time. The refund application being dated 12th April 2018 60 days from there would take the Petitioner to 11th June 2018. Petition disposed off.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered by the Court in this matter are:
2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Entitlement to Refund of the Inadvertently Deposited Amount Legal Framework and Precedents: The refund mechanism under the CGST Act, 2017, particularly Sections 54 and 56, and Rules 89 to 93 of the CGST Rules, 2017, govern the procedure and timelines for refund claims. The refund is permissible where amounts have been erroneously deposited or paid. The Court referred to a recent precedent which elaborates on the entitlement to interest on delayed refunds. Court's Interpretation and Reasoning: The Petitioner had inadvertently deposited Rs. 3,39,79,974/- in its ECL, under a mistaken understanding that cash deposits could not be distributed through the ISD account. The refund application was filed on 12th April 2018. The Department debited the amount from the ECL but failed to credit it to the Petitioner's bank account. The Court noted that the Department itself admitted that the amount cannot be retained indefinitely and must be refunded. Key Evidence and Findings: The Petitioner's refund application, the Department's debit from ECL, the deficiency memo issued on 3rd March 2020, and the withdrawal of the refund application by the Petitioner on 17th March 2020 were critical facts. The Petitioner's repeated follow-ups and submission of documents on 13th May 2025 further supported its claim. Application of Law to Facts: The Court observed that the refund application was validly filed, and the Department's failure to process the refund within the statutory timeline was a breach of the prescribed procedure. The withdrawal of the refund application by the Petitioner was considered but did not negate the underlying entitlement to the refund of the inadvertently deposited amount. Treatment of Competing Arguments: The Department argued non-compliance with the physical submission requirement and the withdrawal of the refund application as reasons for non-processing. The Court found the Department's willingness to re-credit the amount to the ECL as an acknowledgment of the Petitioner's entitlement. The Department's procedural objections were not sufficient to deny the refund. Conclusion: The Petitioner is entitled to refund of the amount of Rs. 3,39,79,974/-. Issue 2: Compliance with Procedural Requirements and Impact of Deficiency Memo and Withdrawal Legal Framework and Precedents: Circular No. 17/17/2017 mandates physical submission of refund applications and supporting documents. Rule 90 requires scrutinizing the refund application within 15 days and issuance of acknowledgement or deficiency memo (FORM RFD-03). Rule 93 provides for processing upon rectification of deficiencies. Court's Interpretation and Reasoning: The Court noted that the Department failed to issue the deficiency memo within the stipulated 15 days from the refund application date. The deficiency memo was issued nearly two years later, on 3rd March 2020, requesting specific documents. The Petitioner withdrew the refund application shortly thereafter, which the Department cited as a procedural lapse. Key Evidence and Findings: The deficiency memo listed four documents required to cure the application. The Petitioner's withdrawal of the refund application and delayed follow-up (first written communication after withdrawal was in August 2023) were significant facts. The Court also considered the impact of the COVID-19 pandemic on the Petitioner's ability to respond timely. Application of Law to Facts: The Court found that the Department's delay in issuing the deficiency memo and the procedural requirements were not complied with in a timely manner. However, the Petitioner's withdrawal of the refund application did not permanently bar refund entitlement, especially given the Department's readiness to re-credit the amount to the ECL despite procedural non-compliance. Treatment of Competing Arguments: The Department emphasized procedural non-compliance and the need for a fresh refund application. The Petitioner contended that re-crediting to the ECL should suffice without a fresh application. The Court directed the Petitioner to submit documents physically and allowed the Department to consider the refund, balancing procedural formalities with substantive justice. Conclusion: While procedural compliance is necessary, the Department's failure to adhere to timelines and the Petitioner's bona fide actions mitigate the procedural lapses. The refund process is to be facilitated without insisting on fresh application where not warranted. Issue 3: Entitlement to Interest on Refund and Applicable Rate Legal Framework and Precedents: Section 56 of the CGST Act provides for interest on delayed refunds. The main provision stipulates interest at a rate not exceeding 6% per annum from the expiry of 60 days from the refund application date. The proviso to Section 56 provides for a higher rate of 9% per annum where refund claims are upheld after appellate or judicial proceedings. The Court relied on a recent authoritative judgment interpreting these provisions. Court's Interpretation and Reasoning: The Court held that the Petitioner is entitled to interest at 6% per annum from 11th June 2018 (60 days after refund application) until 2nd March 2020 (date of deficiency memo). No interest was awarded for the period from 3rd March 2020 to 28th August 2023 due to the Petitioner's withdrawal of the refund application and non-filing of a reply to the deficiency memo. Interest was again awarded at 6% per annum from 29th August 2023 to 20th May 2025 (date of judgment). The Court also imposed a penal interest rate of 18% per annum from 1st June 2025 if the refund is not credited by the specified date. Key Evidence and Findings: The timing of the refund application, issuance of deficiency memo, withdrawal of application, and delayed follow-ups were critical in computing interest periods. The Court's reliance on the precedent clarified the differential interest rates applicable under Section 56. Application of Law to Facts: The Court applied the statutory provisions and precedent to the facts, distinguishing periods where the Petitioner was entitled to interest and periods where interest was not payable due to procedural defaults. The penal interest provision was invoked to ensure compliance by the Department. Treatment of Competing Arguments: The Department denied liability for interest citing procedural non-compliance. The Court rejected this argument insofar as the delay was attributable to the Department and awarded interest accordingly. Conclusion: The Petitioner is entitled to interest at 6% per annum for the specified periods, with a penal interest of 18% per annum if refund is delayed beyond the Court's deadline. 3. SIGNIFICANT HOLDINGS The Court crystallized the following principles and made key determinations: "The amount can no longer be retained by the Department. Therefore, in the opinion of this Court, the amount would be liable to be refunded and cannot be enjoyed by the Department in this manner." "A party would be entitled to interest on the amount of refund commencing from the date immediately after the expiry of 60 days from the date when an application has been received." "If the Department does not credit the said amount to the bank account of the Petitioner, interest would be liable to be paid @ 18% per annum from 1st June 2025." Core principles established include:
Final determinations:
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