Supreme Court reduces interest rate from 9% to 6% on delayed GST refunds under Section 56 CGST Act

The SC reversed the HC's award of 9% interest on delayed refund of unutilized input tax credit for export goods, reducing it to 6% per annum. The court held that under Section 56 of the CGST Act, the principal provision prescribes 6% interest for delayed refunds, while the 9% rate in the proviso applies only to refunds arising from orders of adjudicating/appellate authorities or courts. Since these cases involved direct refund applications under Section 54 and not consequent to any adjudicatory order, the 6% rate was applicable. The court emphasized that statutory interest rates must be followed as prescribed, citing precedents that where statutes specify interest rates, courts cannot award higher rates absent exceptional circumstances.

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Issues Involved:
1. Eligibility for interest on delayed refund under the IGST and CGST Acts.
2. Appropriate rate of interest for delayed refund.
3. Maintainability of writ petitions for claiming interest on delayed refunds.

Issue-wise Detailed Analysis:

1. Eligibility for Interest on Delayed Refund:
The appeals arose from two cases where the petitioners claimed refunds of integrated tax paid on export of goods, citing delays in receiving these refunds. They argued that under Section 16 of the IGST Act, they were entitled to refunds of unutilized input tax credit or integrated tax paid on exports. Section 20 of the IGST Act and Section 54 of the CGST Act were invoked to claim these refunds, with the petitioners highlighting substantial delays ranging from 94 to 290 days. The High Court acknowledged the delays and ruled that the petitioners were entitled to interest on the delayed refunds, as the inaction by the authorities was arbitrary and impacted their business operations.

2. Appropriate Rate of Interest for Delayed Refund:
The central issue was the rate of interest applicable to delayed refunds. The petitioners sought interest at 9% per annum, citing significant delays. The High Court awarded interest at this rate, relying on decisions such as K.T. Plantation Pvt. Ltd. v. State of Karnataka and Sandvik Asia Ltd. v. Commissioner of Income Tax-I Pune. However, the appellants contended that as per Section 56 of the CGST Act, the interest rate should not exceed 6% per annum unless the refund arose from an order by an adjudicating authority, appellate authority, or court, in which case the rate could be 9%. The Supreme Court clarified that the cases did not arise from such orders and should be governed by the principal provision of Section 56, thus limiting the interest rate to 6%.

3. Maintainability of Writ Petitions for Claiming Interest on Delayed Refunds:
The maintainability of writ petitions solely for claiming interest on delayed refunds was debated. Initially, the Supreme Court in Union of India v. Orient Enterprises held that such writ petitions were not maintainable. However, in Godavari Sugar Mills Ltd., the Court clarified that writ petitions could be entertained if they sought enforcement of statutory functions or involved public law functions. The Supreme Court in the present judgment upheld the maintainability of the writ petitions, aligning with the principle that courts could grant consequential relief, including interest, when enforcing statutory rights.

Conclusion:
The Supreme Court concluded that the High Court erred in awarding interest at 9% per annum, as the statutory provisions under Section 56 of the CGST Act prescribed a maximum of 6% for the cases in question. The appeals were allowed, directing that the petitioners were entitled to interest at 6% per annum. Since the amounts with 6% interest had already been paid, no further action was required. The judgment reinforced that statutory provisions govern the rate of interest on refunds, and deviations are permissible only under exceptional circumstances or specific statutory provisions.

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