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 must be calculated from 60 days after the shipping bill date until the actual refund date, despite the petitioner being red-flagged during this period. The HC determined that Section 56 contains no provision excluding such contingencies, and accepting the respondent's argument would impermissibly rewrite the statutory provision. The petition was allowed, establishing that administrative delays or red-flagging cannot justify denial of statutory interest on delayed tax refunds.

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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.

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