2024 (11) TMI 785 - HC - GST

Petitioner entitled to interest under Section 56 CGST Act for delayed refund despite red-flagging period

The Bombay HC ruled that a petitioner was entitled to interest under Section 56 of the CGST Act, 2017 for delayed refund payment. The court held that ... Interest on delayed payment of refund of tax as per Section 56 of the Central Goods and Services Tax Act, 2017 - interest for the period starting from the expiry of 60 days from the date of filing the shipping bill up to the date of grant of refund, although during the interregnum, the Petitioner’s name was red flagged on the respondents' portal - HELD THAT:- Section 56 of the CGST Act provides for the period for which the interest is to be granted, and the said period starts from the date of receipt of an application for refund till the date of refund of such tax. In the instant case, the shipping bill is considered as an application for refund and, therefore, the period for grant of interest would begin on expiry of 60 days from the date of the shipping bill and would continue till the date of refund of such tax. In the absence of any provision in Section 56 to exclude the contingency with which we are faced, the denial of interest by the Respondents cannot be justified. If the submissions of the Respondents is accepted, then the same would amount to rewriting the provisions of Section 56 of the CGST Act by this Court, which certainly is not permissible. The Petitioner is entitled to interest under Section 56 of the CGST Act for the period beginning with the expiry of 60 days from the date of the shipping bill up to the date of grant of refund - petition allowed. Issues:Entitlement to interest under Section 56 of the CGST Act for delayed refund of tax.Analysis:The petitioner, an exporter, sought interest on delayed refund of tax under Section 56 of the CGST Act. The petitioner claimed a refund of IGST amounting to Rs. 3.21 crore for the period August 2018 to July 2019. The refund was granted in August 2020 after the petitioner's name was flagged on the 'risky exporters list,' causing a delay. The petitioner argued that the delay was not her fault and requested interest for the period of delay. The respondents contended that there was no delay as the refund was granted promptly after the red flag was removed. The court had to determine whether the petitioner was entitled to interest under Section 56 of the CGST Act despite the red flag delay.The court examined Section 56 of the CGST Act, which provides for interest on delayed refunds. It noted that the delay in the present case was due to the respondent's inaction in completing the investigation within the specified time frame. The court emphasized the importance of timely refunds for exporters' working capital and business operations. It highlighted Circulars issued by the CGST Policy Wing to ensure timely completion of investigations for refund claims, underscoring the need for efficient working capital management to enhance competitiveness in international trade.Furthermore, the court found that Section 54 of the CGST Act mandates processing refund applications within 60 days. In this case, there were no adverse comments against the petitioner regarding non-compliance or document deficiencies. The delay was solely attributed to the respondent's failure to adhere to the prescribed investigation timeline. The court held that the petitioner should not suffer due to the respondent's inaction and was entitled to interest under Section 56 for the delay period.The court rejected the respondent's argument that the investigation period should be excluded from calculating interest. It emphasized that the law does not provide for such exclusion and that rewriting statutory provisions was impermissible. Consequently, the court ruled in favor of the petitioner, declaring her entitlement to interest under Section 56 of the CGST Act. The court ordered the respondents to grant interest within a specified period, considering the exclusion of the investigation period as a reasonable measure.In conclusion, the court held that the petitioner was entitled to interest under Section 56 of the CGST Act for the period of delay caused by the respondent's inaction. The court's decision aimed to uphold the statutory provisions and ensure timely refunds for exporters, emphasizing the importance of efficient working capital management in promoting business competitiveness.