2025 (8) TMI 703 - HC - GST

Interest on delayed tax refunds calculated from refund application date under relevant rules, with 6%-9% rates applied

Lupin Limited Versus Union of India, Through Revenue Secretary, Department of Revenue, Ministry of Finance, New Delhi, Additional Commissioner (Appeals), Panaji, Goa, Assistant Commissioner, CGST, Div-IV, Margao.

The HC held that interest on delayed tax refunds must be calculated from the date of receipt of the refund application, not from the date of refund ... Interest on delayed refund - relevant date for calculation of interest - to be calculated from the date when the fresh application was preferred by the petitioner or not - HELD THAT:- A conjoint and meaningful reading of Section 54 along with Section 56 forms a Scheme for refund of tax along with the interest and make it evidently clear, that the interest is levied, on delay of the refund, with an object to compensate the person who has claimed a refund, as if refund is allowed, the same shall be immediately refunded, upon an order being passed by a proper officer within a period of 60 days. However, this period of 60 days is to be computed from the date of receipt of the application referred under sub-section (1) of Section 54, and not as what has been argued by the Counsel for the Revenue, that it will be payable from the date of approval of refund. Similarly, when an Appellate Authority passes an order, either the Assessee or the Revenue going to the appellate forum, then a fresh application is to be filed for the purposes of convenience and bringing the refund order into the system, and the proviso clearly contemplates that within a period of 60 days from passing of the order by the Appellate Authority, the amount of refund shall be disbursed, if not, it shall carry an interest of 9%. A conjoint reading of Section 56, the first part along with the proviso and specifically read with the explanation, make it evidently clear that the legislature intended to give the status of an order in original as passed under Sub-section (5) by the proper officer, to the order passed by the Appellate Forum and therefore, the interest which is liable to be paid shall be governed by clause (1) as well as by the proviso and if from the date of the original order, if amount was not refunded within 60 days from the date of the first application, it shall carry an interest of 6% and also if upon the order being passed by the Appellate forum if the refund is not disbursed within a period of 60 days, it shall carry an interest at the rate of 9%. The interest shall be payable on the amount as contemplated under first part, i.e. when the amount is not refunded within 60 days from the date of the order passed by the First Authority, the proper officer and the interest at the rate of 9% from the date when the fresh application was made after the Appellate Authority allowed the appeals filed by the petitioner and revised the order in original, thereby allowing the entire claim of refund. Writ Petition is made absolute by quashing and setting aside the impugned order-in-appeal and by directing the respondents to pay to the petitioner the applicable interest amount of Rs. 2,18,44,148/- from 14.06.2022 on the refund claimed for February 2022 and Rs. 4,10,94,646/- from 12.10.2022 on refund claimed from May 2022, respectively. Petition disposed off. 1. ISSUES PRESENTED and CONSIDERED 1. Whether interest on delayed refund under Section 56 of the Central Goods and Services Tax Act, 2017 (CGST Act) is payable from the date of the original refund application or from the date of the fresh application filed consequent to an appellate order allowing the refund claim. 2. Interpretation of the proviso and explanation to Section 56 of the CGST Act regarding the rate and commencement of interest on delayed refunds arising from appellate orders. 3. Whether the interest rate applicable on delayed refunds is 6% or 9% per annum, and the conditions under which each rate applies. 4. The applicability and relevance of the 'relevant date' as defined in Section 54(2) for computing the limitation period and interest on delayed refunds. 5. The legal effect of an appellate order under Section 54(5) of the CGST Act and whether it is to be treated as an original order for the purpose of interest calculation under Section 56. 6. The effect of the availability of an appellate remedy under Section 110 of the CGST Act and the status of the Appellate Tribunal on the petitioner's claim for interest. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1 & 2: Commencement of Interest on Delayed Refunds and Interpretation of Section 56 Proviso and Explanation Legal Framework and Precedents: Section 56 of the CGST Act provides that if a refund ordered under Section 54(5) is not paid within 60 days from the date of receipt of the refund application under Section 54(1), interest at a rate not exceeding 6% per annum is payable from the day after the expiry of 60 days until the refund is made. The proviso to Section 56 states that where the refund arises from an order passed by an adjudicating or appellate authority or court which has attained finality, and is not refunded within 60 days from receipt of the application filed consequent to such order, interest at a rate not exceeding 9% per annum is payable from the day after expiry of 60 days from receipt of such application until refund. The explanation to Section 56 clarifies that an order passed by an appellate authority or court against an order under Section 54(5) is deemed to be an order under Section 54(5) itself. Precedents from the Delhi High Court and Telangana High Court have interpreted Section 56 as providing two distinct interest regimes: 6% interest from 60 days after the original refund application date if refund is delayed, and 9% interest from 60 days after a fresh application filed consequent to a final appellate order if refund is delayed thereafter. Court's Interpretation and Reasoning: The Court held that the interest on delayed refund under Section 56(1) begins from the date immediately after the expiry of 60 days from the date of the original refund application under Section 54(1). This interest at 6% compensates the claimant for delay in refund by the proper officer. The proviso applies where the refund claim arises from a final appellate order. In such cases, a fresh refund application is filed pursuant to the appellate order, and if refund is delayed beyond 60 days from receipt of this fresh application, interest at 9% per annum is payable. The explanation deeming the appellate order as an order under Section 54(5) means the appellate order has the same effect as an original order for refund determination, triggering the applicability of the proviso to Section 56. The Court rejected the Revenue's argument that interest runs only from the date of the fresh application filed after the appellate order. The Court emphasized that the statutory scheme contemplates interest from the date of the original application as well, as the refund was due but delayed since then. Key Evidence and Findings: The petitioner filed two original refund applications in April and August 2022, which were partially allowed. Subsequent appeals resulted in appellate orders allowing full refund claims. Fresh refund applications were filed in May 2023 following appellate orders. Refund payments were made in July 2023, after significant delay beyond 60 days from both the original and fresh applications. Application of Law to Facts: Interest at 6% is payable from 14.06.2022 (61 days from original application date of 14.04.2022) until the date of refund payment for the February 2022 claim. Interest at 9% is payable from 60 days after the fresh application filed post-appellate order (though the Court did not quantify this separately, it recognized the entitlement). Similarly, for the May 2022 claim, interest at 6% is payable from 12.10.2022 (61 days from original application date of 12.08.2022). Treatment of Competing Arguments: The Revenue argued that interest should run only from the date of the fresh application filed after the appellate order, relying on the proviso and a circular under Rule 93 of the CGST Rules. The Court rejected this, holding that the statute mandates interest from the original application date if refund is delayed, and the proviso provides for enhanced interest for delay post-appellate order. The Court also rejected reliance on the 'relevant date' definition under Section 54(2)(d) for interest calculation, holding it relevant only for limitation, not interest commencement. Conclusions: Interest on delayed refund is payable at 6% from 61 days after the original refund application date until refund is made or until the appellate order is passed. If refund is further delayed beyond 60 days from a fresh application filed consequent to a final appellate order, interest at 9% per annum is payable. Both interest regimes apply sequentially and independently, compensating for delay at different stages. Issue 3: Applicable Interest Rates and Conditions for 6% and 9% Legal Framework and Precedents: Section 56 specifies interest at not exceeding 6% per annum for delay in refund after original application. The proviso specifies interest at not exceeding 9% per annum for delay after application filed consequent to a final appellate order. Delhi High Court and Telangana High Court decisions confirm these dual rates and their application to distinct periods of delay. Court's Interpretation and Reasoning: The Court affirmed that the 6% interest applies for delay after the original refund application, while the 9% interest applies for delay after the fresh application filed pursuant to the appellate order. The proviso does not replace or dilute the main provision but supplements it for a different scenario. Application of Law to Facts: The petitioner is entitled to 6% interest from 61 days after the original refund applications for February and May 2022 exports. Additionally, if refund was delayed beyond 60 days after fresh applications post-appellate orders, 9% interest would apply for that period. Conclusions: Both rates are applicable in their respective contexts and periods. The petitioner is entitled to interest at 6% for delay after original applications and 9% for delay after fresh applications following appellate orders. Issue 4: Relevance of 'Relevant Date' under Section 54(2) for Interest Computation Legal Framework: Section 54(2) defines 'relevant date' for limitation purposes, including sub-clause (d) which refers to the date of communication of appellate orders. Court's Interpretation and Reasoning: The Court held that the 'relevant date' under Section 54(2) is relevant only for determining the limitation period for filing refund applications under Section 54(1), not for computing the commencement of interest under Section 56. The Court rejected the Revenue's reliance on sub-clause (d) of Section 54(2) for interest calculation, holding it inapplicable for that purpose. Conclusions: The 'relevant date' concept under Section 54(2) applies solely to limitation and does not affect the date from which interest on delayed refunds is payable under Section 56. Issue 5: Legal Effect of Appellate Orders under Section 54(5) for Interest Purposes Legal Framework: Section 54(5) empowers the proper officer to make an order granting refund. The explanation to Section 56 deems an appellate order against a Section 54(5) order as an order under Section 54(5) itself. Court's Interpretation and Reasoning: The Court held that appellate orders have the same legal effect as original orders passed by the proper officer under Section 54(5) for refund determination and interest calculation. This deeming provision ensures that interest provisions apply seamlessly whether refund is granted originally or on appeal. Conclusions: Appellate orders are treated as original refund orders under Section 54(5) for the purpose of interest under Section 56, triggering entitlement to interest on delayed refunds post-appellate orders. Issue 6: Availability of Appellate Remedy under Section 110 and Status of Appellate Tribunal Legal Framework: Section 110 of the CGST Act provides an appellate mechanism. A Notification dated 31.07.2024 establishes the Appellate Tribunal, but it is not yet functional due to pending appointments. Court's Reasoning: The Revenue raised a preliminary objection that the petitioner's remedy lies before the Appellate Tribunal under Section 110. The Court noted that although the Tribunal has been constituted, it is not yet functional. Therefore, the petitioner's writ petition is maintainable and can be adjudicated. Conclusions: In absence of a functional Appellate Tribunal, the petitioner's claim for interest on delayed refund is justiciable before the High Court.