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 refunds under Section 56 of the CGST Act - Shipping bill as application for refund - Delay attributable to tax authority disentitles no interest - Investigation time frame and exclusion of 30 days under Circular No.16 of 2019 - Verification time limits under CGST Policy Wing Circular No.131/1/2020Interest on delayed refunds under Section 56 of the CGST Act - Shipping bill as application for refund - Delay attributable to tax authority disentitles no interest - Entitlement to interest under Section 56 of the CGST Act for delayed refund despite the petitioner being red flagged on the respondents' portal. - HELD THAT: - The court held that shipping bills constitute applications for refund and, therefore, the period for grant of interest under Section 56 begins on expiry of sixty days from the date of the shipping bill and continues until the date of refund. The petitioner was not responsible for the delay caused by the respondents' inaction in completing the verification after the red flag was inserted. Section 56 contains no provision excluding the period during which respondents investigate a refund claim. Since the delay was squarely attributable to the respondents and not to any non compliance by the petitioner, denial of interest could not be justified. Accepting the respondents' contention would amount to judicially rewriting Section 56, which the court declined to do. [Paras 8, 13, 14, 15, 16]Petitioner entitled to interest under Section 56 for the period from expiry of 60 days from the shipping bill till date of refund.Investigation time frame and exclusion of 30 days under Circular No.16 of 2019 - Verification time limits under CGST Policy Wing Circular No.131/1/2020 - Whether a reasonable investigation period provided in departmental circulars should be excluded while computing interest on delayed refunds. - HELD THAT: - The court noted the object and timelines prescribed by Circular No.16 of 2019 and CGST Policy Wing Circular No.131/1/2020 to ensure prompt completion of verification in suspicious refund claims. Although Section 56 does not itself provide for excluding an investigation period, the court regarded the 30 day period in Circular No.16 of 2019 as a reasonable time for completing the investigation and directed that this 30 day period be excluded from computation of interest. The court emphasised that respondents had not complied with the time limits in the circulars, but nonetheless treated the 30 days as an allowable deduction in computing interest as a matter of reasonableness. [Paras 11, 12, 16]Exclude 30 days (as per Circular No.16 of 2019) from the period for which interest under Section 56 is to be calculated; interest to be computed after reducing 30 days from the applicable period.Final Conclusion: The petition is allowed: the petitioner must be paid interest under Section 56 of the CGST Act for the period from the expiry of sixty days from each shipping bill until refund, after excluding thirty days (per Circular No.16 of 2019); respondents directed to grant interest within eight weeks. 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.