2025 (11) TMI 114 - HC - GST

Interest granted for departmental delay issuing deficiency memo; petitioner's 74-day response noted; IGST refund claims to be decided

HC held the petitioner entitled to interest for delay caused by the Department's failure to issue a deficiency memo within the statutory timelines, while ... Seeking expeditious disposal of the refund applications filed by the Petitioner with interest - refund of excess amount of Integrated Goods and Services Tax (IGST) - no deficiency memo was issued in terms of the timelines fixed within the 15 days - HELD THAT:- As per the statutorily prescribed procedure, the refund applications have to be dealt with in a particular manner within the prescribed timelines as per law. The scheme of the Act and Rules has been analysed by this Court in MS G S Industries v. Commissioner of Central Tax and GST Delhi West [2025 (5) TMI 2072 - DELHI HIGH COURT] has held that 'this Court is of the view that the Petitioner cannot be denied the benefit of interest for delay caused due to the deficiency memo not having been issued within the stipulated period, i.e., between 4th/9th July, 2019 and 29th November, 2019. At the same time, the Petitioner also took about 74 days to respond to the deficiency memo i.e., between 29th November, 2019 and 11th February, 2020.' In addition, if there is delay by the Department in processing and granting refunds, it has a cascading adverse effect on the business of the tax payers as well. Under these circumstances, this Court is of the opinion that the Respondent ought to take a decision expeditiously on the refund applications. Petition disposed off. 1. ISSUES PRESENTED AND CONSIDERED 1. Whether a taxpayer is entitled to interest under Section 56 of the CGST Act where the proper officer failed to issue a deficiency memo within the 15-day period prescribed by Rule 90 of the CGST Rules, thereby delaying processing of a refund application. 2. The rate and computation of interest payable on delayed refunds under Section 56 of the CGST Act: application of the main provision (up to 6% p.a.) vis-à-vis the proviso (up to 9% p.a.) where refund claims attain finality in appellate proceedings or where a subsequent refund application is filed pursuant to such finality. 3. The effect of the applicant's own delay in responding to a deficiency memo on entitlement to interest for the period of such delay. 4. The appropriate remedial directions a Court may give where refund applications remain pending in breach of statutory timelines, including directions for personal appearance and final disposal within a fixed period. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Entitlement to interest where deficiency memo not issued within 15 days (Rule 90): Legal framework Legal framework: Section 54(1)-(7) (refund application, decision within 60 days if application complete) and Section 56 (interest on delayed refunds) of the CGST Act read with Rule 90 of the CGST Rules (time-limits and issuance of deficiency memos) govern refund procedure and interest for delay. Precedent Treatment: The Court relied on its prior decision analysing the scheme of refund and timelines (referred decision) and applied those principles to the facts. The earlier judgement was followed to the extent it mapped statutory timelines onto interest entitlement and the consequences of deficiencies being raised outside Rule 90 timelines. Interpretation and reasoning: The Court held that where the deficiency memo required by Rule 90 is not issued within the 15-day statutory period, the delay caused thereby cannot be set up by the Department to deny interest. The statutory scheme contemplates that the proper officer must process a refund application within prescribed timelines once an application is complete; failure to adhere to Rule 90 disrupts that scheme and accrues liability for interest for the period attributable to the Department's failure. Ratio vs. Obiter: Ratio - failure to issue a deficiency memo within the Rule 90 period disentitles the Department from relying on that late deficiency to defeat interest for the period of delay attributable to the Department. Obiter - observations on the broader business consequences of delayed refunds and administrative expediency. Conclusions: The taxpayer was entitled to interest for the period during which the Department failed to issue the deficiency memo within the stipulated period; the Department could not deny interest for that period. The Court awarded relief by directing expeditious decision-making (see remedial directions, Issue 4). Issue 2 - Rate and computation of interest under Section 56 (6% v. 9%): Legal framework Legal framework: Section 56 provides interest on refunds not made within sixty days from receipt of a complete application at a rate not exceeding 6% p.a.; the proviso elevates that rate to not exceeding 9% p.a. where the refund claim arises from an order of an adjudicating or appellate authority or court which has attained finality, and the application filed consequent to such order is not processed within sixty days. Precedent Treatment: The Court expressly followed and applied the reasoning in the earlier decision which analysed the dual-rate scheme, explaining that the main provision and the proviso operate for different periods and contingencies: 6% applies from the first application's expiry of sixty days; 9% applies for delay after filing an application consequent to final appellate orders. Interpretation and reasoning: The Court reiterated that the proviso does not supplant the main provision for the initial period; instead it supplements by providing a higher rate for the period post-filing of an application that follows appellate finality. Thus, interest must be computed in tranches corresponding to operative events (first application, subsequent application after appellate finality), with 6% applicable initially and 9% applicable where and when the proviso's conditions are met. Ratio vs. Obiter: Ratio - clear prescription on temporal application of the two rates: 6% for delayed processing after an initial complete application; 9% for delayed processing of an application filed consequent to an appellate/ adjudicatory order attaining finality. Obiter - explanatory flow-chart style observations illustrating computation across multiple applications. Conclusions: Interest entitlement and computation must follow the statutory bifurcation; where a second application is necessitated by appellate finality and remains unprocessed beyond sixty days, the higher rate applies for that period, while the lower rate applies for earlier periods as applicable. Issue 3 - Effect of taxpayer's delay in responding to deficiency memo on interest entitlement: Legal framework Legal framework: Rule 90 procedures for issuing deficiency memos and Section 56 interest; equitable consideration of delays attributable to either party when allocating periods for interest calculation. Precedent Treatment: The Court applied the principle (as in the prior consideration) that interest should not be awarded for periods where delay is attributable to the taxpayer in remedying validly raised deficiencies, subject to the temporal validity of the deficiency itself (i.e., whether it was issued in time under Rule 90). Interpretation and reasoning: The Court balanced the Department's failure (late issuance of deficiency memo) and the taxpayer's subsequent response time. It found that although the deficiency memo was not issued within the Rule 90 window (so initial delay was departmental), the petitioner took 74 days to respond to the deficiency - a period for which interest would not appropriately run in the petitioner's favour. The entitlement to interest is therefore apportioned to exclude periods of taxpayer-caused delay. Ratio vs. Obiter: Ratio - entitlement to interest is reduced by periods where the applicant unreasonably delayed in curing deficiencies; the Department's lapse does not automatically yield interest for periods caused by taxpayer inaction. Obiter - the specific finding of 74 days' applicant delay is fact-specific. Conclusions: Interest must be calculated net of the period when the taxpayer delayed responding to the deficiency memo; the Department remains liable for interest for the period caused by its late issuance of the deficiency memo. Issue 4 - Remedial directions for delayed refunds and final disposal: Legal framework Legal framework: The Court's supervisory jurisdiction under Articles 226/227 to enforce statutory timelines and to direct administrative action consistent with statutory obligations (refund adjudication under Sections 54-56 and Rule 90). Precedent Treatment: The Court exercised the same supervisory power previously used to ensure compliance with statutory refund timelines and interest computation, following principles of expeditious decision-making where statutory timelines were breached. Interpretation and reasoning: Recognizing the adverse commercial consequences of delayed refunds and the Department's statutory duty to process refund claims expeditiously, the Court directed the taxpayer to appear before the Department on a specified date and ordered that any outstanding deficiencies already pointed out be cleared and refund orders passed within one month in accordance with law. The Court left all rights and remedies open, indicating the directions were procedural and without prejudice. Ratio vs. Obiter: Ratio - where statutory timelines are not complied with, the Court may direct prompt administrative action (including personal appearance and fixed-time disposal) while preserving parties' statutory rights. Obiter - observations on cascading adverse business effects of refund delays. Conclusions: The Court issued procedural directions for attendance and clearance of deficiencies and required final disposal of refund applications within one month; rights and remedies of parties were preserved. The remedy targeted prompt adjudication consistent with statutory provisions and prior jurisprudence on interest entitlement.