Delayed statutory refund may trigger compensatory interest when tax authorities withhold excess tax without justification.

Statutory refund delay under the Jharkhand Value Added Tax Act may attract compensatory interest where excess tax remains unpaid beyond the prescribed period without justification. The Jharkhand High Court noted that delayed processing of a refund application, or withholding the amount after filing, cannot be excused by non-allocation of funds. It also accepted that the interest period may run from the date of the demand notice, adjusted for the time taken by the assessee to file the refund application after receipt of that notice. The decision therefore treats interest as recompense for deprivation of money during the period of wrongful retention.

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Issues: Whether the assessee was entitled to interest on the delayed refund of excess tax deposited under the Jharkhand Value Added Tax Act, and from what date such interest was payable.

Analysis: The refund application was not decided within the statutory period, and the refund itself was released only during the pendency of the writ petition. The record did not disclose any justification for the delay in processing the refund or for withholding the amount after the refund application was filed. The Court held that non-allocation of funds could not defeat the statutory mandate governing timely refund, and that interest was payable as recompense for the period during which the assessee was deprived of the use of its money. On the facts, the Court also accepted the assessee's case that the excess demand notice was received much later than its date, and therefore the period for interest had to run from the date of the demand notice, with adjustment for the time taken by the assessee to file the refund application after receipt of that notice.

Conclusion: The assessee was held entitled to 6% simple interest on the refunded amount from 31 August 2020 until payment of the principal amount, after excluding the period taken by the assessee to file the refund application after receiving the demand notice.

Final Conclusion: The writ petition succeeded, and the refund delay was held to carry compensatory interest liability in favour of the assessee.

Ratio Decidendi: Where a statutory refund is withheld beyond the prescribed period without justification, interest becomes payable as compensation for deprivation of money, and the refund authority cannot defeat that liability by administrative delay or lack of fund allocation.

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