Taxpayer entitled to interest on delayed GST refund despite department's erroneous payment classification under Section 56

The Allahabad HC held that the petitioner was entitled to interest on delayed GST refund under Section 56 of the CGST Act. The tax department erroneously deposited the petitioner's payment under CGST instead of IGST and created a temporary ID without providing access credentials to the petitioner. When the First Appellate Authority ordered refund on 30.06.2018, the department withheld the amount for over 33 months until 04.04.2022. The HC ruled that the department cannot benefit from its own errors and directed payment of interest from 09.09.2018 to 31.03.2022 within one month.

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Issues Involved:
1. Refund of security deposit under Section 129(1) of the U.P. Goods and Service Tax Act, 2017.
2. Provision of temporary ID and password for filing an online application under Rule 89 of the U.P. Goods and Service Tax Rules, 2017.
3. Entitlement to interest on the delayed refund.

Issue-Wise Detailed Analysis:

1. Refund of Security Deposit
The petitioner, a registered dealer dealing in tobacco, had his goods intercepted and detained by the Assistant Commissioner, Mobile Squad Unit-5, State Tax, Jhansi. An order dated 30.12.2017 under Section 129(3) of the U.P. Goods and Service Tax Act, 2017, demanded tax and penalty totaling Rs.4,70,400/- for the release of the goods. The petitioner complied by depositing the amount via bank draft. The petitioner appealed this order, and the appellate authority set it aside on 30.06.2018, directing a refund. Despite several applications and reminders from the petitioner, the refund was not processed until the court intervened. The court noted that the respondents had arbitrarily created a temporary ID for the petitioner and failed to provide the necessary password, making it impossible for the petitioner to file the refund application online.

2. Provision of Temporary ID and Password
The petitioner requested the provision of a temporary ID and password to file the required online application under Rule 89 of the U.P. Goods and Service Tax Rules, 2017. The respondents failed to provide this, citing technical glitches and the developmental stage of the GST Portal. The court found that the respondents had created a temporary ID without informing the petitioner of the password, thereby obstructing his ability to apply for the refund online. The court held that the respondents' actions were arbitrary and mischievous, as they did not facilitate the refund process despite the appellate order.

3. Entitlement to Interest on Delayed Refund
The court examined Sections 54 and 56 of the C.G.S.T. Act and Rule 89 of the C.G.S.T. Rules, which govern the refund process and the payment of interest on delayed refunds. The petitioner applied for a refund on 09.07.2018, but the refund was processed only on 04.04.2022. The court noted that the respondents had withheld the refund for over 33 months without any valid reason. As per Section 56, interest is payable if the refund is not processed within 60 days from the date of application. The court directed the respondents to pay interest to the petitioner from 09.09.2018 to 31.03.2022 at the rate notified under Section 56 of the Act.

Conclusion:
The court allowed both writ petitions, directing the respondents to pay interest on the delayed refund within a month from the date of the judgment. The court emphasized that the respondents' arbitrary actions and failure to provide the necessary temporary ID and password had caused undue delay and harassment to the petitioner. The judgment underscores the importance of adhering to statutory provisions and ensuring timely refunds to taxpayers.

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