Statutory interest on sales tax refund follows assessment correction, with different pre- and post-VAT rates applied.

Statutory interest on a sales tax refund was held payable where the appellate authority merely corrected the assessment and the refund arose as a consequence of that correction; the appellate order was treated as merging with the assessment for section 54 purposes, so the refund could not be denied interest. The Court also applied different interest rates for different periods: 9% per annum under section 54 of the Gujarat Sales Tax Act, 1969 up to 31 March 2006, and 6% per annum under section 38 of the Gujarat Value Added Tax Act, 2003 thereafter, because the refund was made after the VAT regime commenced.

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Issues: (i) Whether interest on the refund amount was payable under section 54 of the Gujarat Sales Tax Act, 1969 on the footing that the appellate order only corrected the assessment and the refund arose from the assessment order. (ii) Whether different rates of interest applied for the period before and after the commencement of the Gujarat Value Added Tax Act, 2003.

Issue (i): Whether interest on the refund amount was payable under section 54 of the Gujarat Sales Tax Act, 1969 on the footing that the appellate order only corrected the assessment and the refund arose from the assessment order.

Analysis: The refund became due pursuant to the appellate order, but the appellate authority merely corrected the assessment and gave legal shape to what the assessing authority ought to have done. On that reasoning, the refund could not be treated as arising from an order other than the assessment order. The settled view also applied the doctrine of merger to hold that the appellate decision merges with and corrects the assessment for purposes of section 54. The controversy was treated as covered by the prior binding interpretation relied upon by the Court.

Conclusion: Interest was payable on the refunded amount under section 54 of the Gujarat Sales Tax Act, 1969, and the contention that no such interest accrued was rejected.

Issue (ii): Whether different rates of interest applied for the period before and after the commencement of the Gujarat Value Added Tax Act, 2003.

Analysis: The Court noted that the Gujarat Value Added Tax Act, 2003 came into force on 1 April 2006 and that the refund was made thereafter. For the period upto the commencement of the GVAT regime, interest was governed by section 54 of the Gujarat Sales Tax Act, 1969 at 9% per annum. For the period after the new regime came into force, interest was governed by section 38 of the Gujarat Value Added Tax Act, 2003 at 6% per annum.

Conclusion: Interest at 9% per annum was payable upto 31 March 2006 and interest at 6% per annum was payable for the subsequent period until refund.

Final Conclusion: The petition was allowed and the respondents were directed to pay statutory interest on the refund amount at the applicable rates for the respective periods.

Ratio Decidendi: When an appellate authority merely corrects an assessment and refund becomes due as a consequence, the assessee is entitled to statutory interest on delayed refund at the rate and for the period provided by the governing sales tax or VAT enactment applicable to the relevant time.

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