Taxpayers entitled to interest on delayed Input Tax Credit refunds under Section 54 CGST Act 2017

The HC ruled that taxpayers are entitled to interest on delayed refund of Input Tax Credit under Section 54 of the CGST Act, 2017. The court held that when the Department delays refund beyond the stipulated timeframe, interest must be paid, consistent with SC and other HC decisions across various tax statutes. The court rejected the Department's practice of issuing deficiency memos to defer interest payments, noting this would enable processing beyond statutory timelines under Rule 90 of CGST Rules and effectively constitute rejection of the original refund application. The petition was allowed, directing immediate payment of interest on the delayed ITC refund.

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Issues Involved:
1. Entitlement to interest u/s 54 of the CGST Act, 2017 on delayed refund of Input Tax Credit (ITC).

Summary:

Entitlement to Interest u/s 54 of the CGST Act, 2017 on Delayed Refund of ITC:

The petitioners filed for a refund of unutilized ITC, which was initially rejected by the respondents but later allowed on appeal. Despite the refund, the petitioners sought interest on the delayed amount, which the Department denied. The court examined Section 56 of the CGST Act, 2017, which mandates interest on delayed refunds beyond sixty days from the application date. The court noted that there was no ambiguity in the statute's intention to provide interest on delayed refunds, emphasizing that interest accrues automatically if the refund is delayed.

The court referred to various precedents, including the Gujarat High Court's decision in Saraf Natural Stone vs. Union of India, which held that interest on delayed refunds is a beneficial and non-discriminatory provision. The Bombay High Court in National Leather Cloth Mfg. Co. vs. Union of India reiterated that interest must be paid if refunds are delayed without any preventive or prohibitory orders. The court also cited the Supreme Court's decision in Ranbaxy Laboratories Ltd. vs. Union of India, which clarified that interest liability commences from three months after the refund application date, not from the date deficiencies are rectified.

The court further referenced the Delhi High Court's rulings in Jian International vs. Commissioner of Delhi Goods and Services Tax and Bansal International vs. Commissioner of DGST, which supported the view that interest should be paid from the original application date, even if deficiencies were later rectified. The court concluded that the petitioners were entitled to interest on the delayed refund of ITC as per Section 56 of the CGST Act, 2017, and directed the respondents to pay the interest forthwith.

Order:
The writ petitions were allowed, directing the respondents to pay interest on the delayed refund of ITC to the petitioners as per Section 56 of the CGST Act, 2017. No order as to costs, and any pending miscellaneous applications were closed.

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