Statutory interest under Section 56 GST Act is mandatorily payable on undisputed refund delayed beyond 60 days

The Hon’ble Gujarat High Court in the case of  Vineet Polyfab Pvt. Ltd. & Anr. Versus Union Of India & Ors. - 2025 (10) TMI 103 - GUJARAT HIGH COURT held that interest under Section 56 of the CGST Act is compulsory for delayed refunds exceeding 60 days from application, regardless of reason for delay, including technical errors in the GSTN-ICEGATE system, unless the taxpayer is at fault. The provision has a compensatory character and is triggered purely by the lapse of the statutory timeline.

Facts:

Vineet Polyfab Pvt. Ltd. ('the Petitioner') is a manufacturer-exporter of polyester yarn, having filed multiple shipping bills at Hazira Port in March 2020 after paying IGST of ₹7.53 lakh. Even though the export was successful and the ICEGATE system showed a success status (SB000), the refund was not processed due to a technical error. The Petitioner repeatedly represented for redress, and by court intervention, the Principal Commissioner, Ahmedabad, manually sanctioned the refund—admitting the technical glitch and Petitioner’s eligibility.

The Union of India and GST/customs officials ('the Respondent') declined to pay statutory interest, alleging the delay stemmed from errors in the Petitioner’s shipping bills and returns.

The Petitioner contended the refund delay was attributable solely to a system error for which there was official acknowledgement, and no specific fault was recorded against the Petitioner’s documentation. The Petitioner sought statutory interest under Section 56 for such delayed refund.

The Respondent contended the system processes IGST refunds automatically via the ICEGATE-EDI platform after validating shipping bills and GST returns. They deflected responsibility for the delay to possible Petitioner errors but admitted in official affidavits and orders that the failure was from technical integration issues.

Aggrieved by the non-payment of interest, the Petitioner approached the Gujarat High Court by writ petition under Article 226.

Issue:

Whether interest under Section 56 of the CGST Act is automatically payable for delayed refund beyond 60 days?

Held:

The Hon’ble Gujarat High Court in Vineet Polyfab Pvt. Ltd. & Anr. Versus Union Of India & Ors. - 2025 (10) TMI 103 - GUJARAT HIGH COURTheld as under:

• Observed that, per Section 56 of the CGST Act, delayed refund beyond 60 days from application receipt must always attract mandatory interest; the provision is compensatory and not discretionary.
• Noted that, on facts, the Petitioner’s refund delay was attributable to a technical glitch, not to any proven documentation inaccuracy or taxpayer omission.
• Further relied on M/s. PANJI ENGINEERING PRIVATE LIMITED Versus UNION OF INDIA - 2023 (7) TMI 533 - GUJARAT HIGH COURT reiterating the mandatory nature of such interest and directed the respondents to grant interest, as per Section 56, on the delayed refund, within 12 weeks of the order.

Our Comments:

This ruling reinforces the strict statutory timeline for GST refunds and the non-discretionary nature of compensatory interest for revenue delay. The judgment is in line with the ratio of Ranbaxy Laboratories Ltd. Versus Union Of India and Ors. - 2011 (10) TMI 16 - Supreme Court, where the Supreme Court held that interest for delayed refund is payable from the expiry of the prescribed period, regardless of administrative justification, unless taxpayer fault is affirmatively established.  This approach aligns with constitutional principles of equity and fair compensation for deprivation of the taxpayer’s money.

Relevant Provision:

Section 56 of the CGST Act, 2017:

“56. Interest on delayed refunds.-

If any tax ordered to be refunded under sub-section (5) of section 54 to any applicant is not refunded within sixty days from the date of receipt of application under sub-section (1) of that section, interest at such rate not exceeding six per cent. as may be specified in the notification issued by the Government on the recommendations of the Council shall be payable in respect of such refund or the period of delay beyond sixty days from the date of receipt of such application till the date of refund of such tax, to be computed in such manner and subject to such conditions and restrictions as may be prescribed:

Provided that where any claim of refund arises from an order passed by an adjudicating authority or Appellate Authority or Appellate Tribunal or court which has attained finality and the same is not refunded within sixty days from the date of receipt of application filed consequent to such order, interest at such rate not exceeding nine per cent. as may be notified by the Government on the recommendations of the Council shall be payable in respect of such refund from the date immediately after the expiry of sixty days from the date of receipt of application till the date of refund.

Explanation.-For the purposes of this section, where any order of refund is made by an Appellate Authority, Appellate Tribunal or any court against an order of the proper officer under sub-section (5) of section 54, the order passed by the Appellate Authority, Appellate Tribunal or by the court shall be deemed to be an order passed under the said sub-section (5).”

 (Author can be reached at [email protected])