Delayed refund of excess input tax attracts statutory interest when the Department retains amounts beyond the permitted period.

Excess input tax retained beyond the period permitted under the Karnataka Value Added Tax Act, 2003 had to be refunded with interest under section 50 read with rule 128. The Karnataka HC noted that the Department was entitled to retain only tax lawfully due and consequential amounts, and could not keep the excess or the interest collected from the seller on the refunded sum. On that basis, delayed refund attracted statutory interest, and refusal to pay such interest was not sustainable.

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Issues: Whether interest was payable on delayed refund of excess input tax under the Karnataka Value Added Tax Act, 2003.

Analysis: The excess input tax had been recovered by the Department and retained beyond the period permissible under the statute. The Court noted that the respondents were entitled to retain only the tax legally due, together with consequential amounts, and were bound to refund the excess with interest under section 50 of the Karnataka Value Added Tax Act, 2003 read with rule 128. The interest collected from the seller on the refunded amount could not be retained by the respondents.

Conclusion: Interest was payable on the delayed refund, and the refusal to pay such interest was not sustainable.

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