GST refund rejected then allowed on appeal: interest u/s 56 runs from original refund application date, not post-appeal filing

Section 56 CGST Act was construed to determine when interest on a GST refund becomes payable where the refund was initially rejected but later allowed in appeal. The HC held that the main provision mandates interest at 6% p.a. if the refund remains unpaid beyond 60 days from the original refund application under Section 54(1), and the proviso only enhances the rate for the period commencing after 60 days from a subsequent application filed once entitlement attains finality in appellate proceedings. A later "post-appeal" application does not shift the start date of interest under the main provision. The proper officer was directed to process the refund application and compute interest accordingly; the petition was allowed.

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Issues Involved:
1. Interpretation of Section 56 of the DGST Act regarding the commencement of the interest period for delayed refunds.
2. Entitlement of the petitioner to interest on the refund amount from the date of the first application for refund.

Summary:

Issue 1: Interpretation of Section 56 of the DGST Act regarding the commencement of the interest period for delayed refunds.

The petitioner challenged the order rejecting their claim for interest on the refund of GST already granted. The Adjudicating Authority held that interest was payable only if the refund was not made within sixty days from the receipt of the application filed pursuant to the order passed by the Appellate Authority. The petitioner contended that interest should be calculated from the date immediately after the expiry of sixty days from the first application for a refund, not from the application filed after succeeding in the appellate proceedings.

Issue 2: Entitlement of the petitioner to interest on the refund amount from the date of the first application for refund.

The court examined Section 56 of the CGST Act (identically worded as Section 56 of the DGST Act), which stipulates that interest is payable if the refund is not made within sixty days from the date of receipt of an application. The court clarified that the interest period commences from the date immediately after the expiry of sixty days from the first application for refund, even if the refund is initially denied but subsequently allowed by an appellate authority. The court emphasized that the appellate proceedings are a continuation of the original proceedings, and an order passed by the Adjudicating Authority merges with the order passed by the Appellate Authority or Appellate Tribunal/High Court.

The court rejected the Revenue's contention that a separate application for refund was required after the appellate order and that interest would run from the date of this subsequent application. The court stated that such an interpretation would lead to an absurd result and deny the taxpayer's right to interest for the period spent in appellate proceedings. The court held that the taxpayer is entitled to interest from the date immediately after the expiry of sixty days from the first application for refund, and the proviso to Section 56 does not dilute this right but provides for an increased rate of interest (9%) if the refund is not processed within sixty days of an application filed pursuant to appellate orders.

The petition was allowed, and the Adjudicating Authority was directed to process the petitioner's application for interest on the refund in accordance with this decision.

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