Refund interest runs until actual payment, and the later VAT rate applies after repeal of the sales tax law.

Interest on refund of tax recovered during pendency of an appeal was held to run from the date of recovery until the date of actual refund, because the appellate order merely modified the original assessment and the refund remained linked to that assessment under the doctrine of merger. The court also held that the applicable rate was governed by the later VAT regime in force when the recovery and refund arose, not the repealed sales tax law applicable to the original tax period. Accordingly, refund interest was payable up to actual payment, but only at 6% per annum rather than 9% per annum.

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Issues: (i) Whether interest on refund of tax recovered pursuant to an assessment order was payable up to the date of actual refund or only from the date of the appellate order; (ii) whether the applicable rate of interest was 9% under the Gujarat Sales Tax Act, 1969 or 6% under the Gujarat Value Added Tax Act, 2003.

Issue (i): Whether interest on refund of tax recovered pursuant to an assessment order was payable up to the date of actual refund or only from the date of the appellate order.

Analysis: The refund arose from recovery made during the pendency of the assessee's appeal, and the appellate order merely corrected the original assessment. Applying the doctrine of merger, the assessment stood finally determined by the appellate authority, so the refund could not be treated as arising from a source other than the assessment. The statutory scheme governing delayed refund entitled the dealer to interest till the date the refund was actually made.

Conclusion: Interest was payable from the date of recovery of the amounts in question till actual payment of the refund.

Issue (ii): Whether the applicable rate of interest was 9% under the Gujarat Sales Tax Act, 1969 or 6% under the Gujarat Value Added Tax Act, 2003.

Analysis: Although the tax period related to the era of the Gujarat Sales Tax Act, 1969, the recoveries were made after the Gujarat Value Added Tax Act, 2003 had come into force. In view of the repeal and saving provision, the refund and its interest had to be governed by the VAT regime applicable at the time of recovery and refund. The petitioner could not insist on the repealed Act's higher rate merely because the underlying assessment period predated the VAT Act.

Conclusion: The applicable rate of interest was 6% per annum, not 9% per annum.

Final Conclusion: The assessee was held entitled to refund interest from the date of recovery until actual payment, but only at 6% per annum under the VAT regime.

Ratio Decidendi: On refund of tax recovered under an assessment that is later modified in appeal, interest runs till actual refund, and after repeal of the earlier sales tax law the governing rate of interest is determined by the saving and replacement provisions of the later VAT statute.

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