TaxTMI 
TaxTMI 
Interest on Sanctioned GST Refund Cannot Be Held Hostage to Certification
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....nterest on Sanctioned GST Refund Cannot Be Held Hostage to Certification<br>By: - Raj Jaggi<br>Goods and Services Tax - GST<br>Dated:- 17-8-2026<br>A Refund Already Sanctioned Changes the Nature of the Dispute The Telangana High Court's order in M/s. Synchrony International Service Private limited and another Versus Assistant Commissioner (ST), STU-1, Hyderabad and four others. - 2026 (8) TMI 501 - TELANGANA HIGH COURT deals with a narrow but very important issue under GST refund law. The dispute was not about original entitlement to refund. The principal refund amounts had already been sanctioned and disbursed for different tax periods from July, 2018 to March, 2021. In some periods, refund was granted by the Refund Sanct....
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....ioning Authority. In other periods, refund was granted after orders were passed by the appellate authority. The remaining claim was only for interest on the delayed refund. The petitioner claimed interest under Section 56 of the CGST Act, 2017, because the sanctioned refunds were not disbursed within the statutory period of 60 days from the date of receipt of refund application. The interest claims remained pending before the Proper Officer from 03.06.2025. Deficiency Memos were issued, and the petitioner approached the High Court after the third Deficiency Memo was issued. This factual setting is important. Once the principal refund has already been sanctioned and paid, the later claim for interest does not stand on the same footing ....
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....as an original refund claim. The authority is no longer examining whether the refund itself is admissible. The limited question is whether interest is payable under Section 56, and if so, for what period and on what amount. Section 54 Provides the Refund Foundation Section 54 of the CGST Act, 2017 is the principal provision dealing with refunds. It covers applications for refund of tax, interest, penalty, fees, or any other amount paid by a taxpayer. Section 54(1) broadly requires a person claiming a refund to make an application before the expiry of the prescribed period of two years, subject to the statutory scheme. Section 54(5) provides that if the proper officer is satisfied that the whole or part of the amount claimed is refunda....
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....ble, he may make an order accordingly, and the amount so determined shall be credited to the fund referred to in Section 57. However, Section 54 also contains safeguards against unjust enrichment. In suitable cases, a refund may be paid to the applicant, and in other cases it may be credited to the Consumer Welfare Fund if the incidence has been passed on. This is why refund applications normally require documents, declarations, and certificates showing that the claimant has not passed on the tax burden. In Synchrony International, this stage had already been crossed. The refund of the principal amount had already been allowed and paid. Therefore, the controversy was no longer about whether the taxpayer satisfied the original refund c....
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....onditions under Section 54. The controversy had shifted to the statutory consequence of delayed payment of that refund. Section 56 Creates a Statutory Right to Interest Section 56 of the CGST Act, 2017 deals with interest on delayed refunds. It provides that where any tax ordered to be refunded under Section 54(5) is not refunded within sixty days from the date of receipt of the application under Section 54(1), interest becomes payable from the 61st day till the date of refund. The purpose of Section 56 is compensatory. The provision recognises that once money is refundable under law, the Government cannot retain it beyond the statutory period without compensating the taxpayer. Interest under Section 56 is not a discretionary relie....
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....f. It arises under the statute once the conditions are satisfied. Therefore, when the principal refund has already been sanctioned, the authority must examine the date of the refund application, the date on which sixty days expired, the date of actual disbursement, and the amount refunded. The interest calculation must follow these dates. The focus is on computation, not on fresh adjudication of refund entitlement. Rule 89 Prescribes Documents, but Relevance Still Matters Rule 89 of the CGST Rules, 2017 deals with applications for refund. Rule 89(1) provides the basic mechanism for filing a refund application. Rule 89(2) specifies the documentary evidence to be furnished, as applicable, with the refund application to establish that....
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.... a refund is due to the applicant. The words "as applicable" are important. They show that not every document mentioned in Rule 89(2) is required in every case. The documents must correspond to the nature of the refund claim. Refunds of accumulated input tax credit, refunds on account of export, refunds of excess balance in the cash ledger, refunds pursuant to appellate orders, and claims for interest on delayed refunds are not identical in character. In the present case, the Department insisted on certification under Rule 89(2)(m). The High Court's approach recognises that documentation under Rule 89 must be applied with reference to the real nature of the claim. If the claim relates only to interest on a refund already sanctione....
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....d and disbursed, the authority must ask whether the Rule 89(2)(m) certificate serves any legal purpose in that situation. Rule 89(2)(m) Is Linked With Unjust Enrichment Rule 89(2)(m) requires a certificate in Annexure 2 of FORM GST RFD-01 from a Chartered Accountant or Cost Accountant where the refund claimed exceeds Rs.2,00,000/-. The certificate must state that the incidence of tax, interest, or any other amount claimed as refund has not been passed on to any other person. This requirement is rooted in the doctrine of unjust enrichment. In indirect tax, the economic burden of tax may be passed on to customers. If a taxpayer has already recovered the tax from another person and then receives a refund from the Government, the taxpa....
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....yer may be unjustly enriched. Rule 89(2)(m) seeks to prevent that outcome in higher-value refund claims. However, the doctrine must be applied sensibly. Interest on a delayed refund of an amount already sanctioned is not ordinarily an amount collected from a customer. It arises because the Government retained the taxpayer's refundable amount beyond the statutory period. Such interest arises only after a delay in refund disbursement. It is therefore different from tax charged on outward supply or the tax burden passed through pricing. Why Rule 89(2)(m) Was Held Unnecessary The High Court accepted that the claim was only for interest on a principal refund already sanctioned and paid. In such a situation, interest could not have b....
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....een passed on to any end consumer. The principal refund had already reached the petitioner. The interest claim arose due to the delayed payment of that refund. This is the core legal reasoning. Certification under Rule 89(2)(m) is meant to establish that the incidence of the amount claimed has not been passed on. But where the amount claimed is statutory interest for delayed refund, there is no normal commercial chain through which such interest could have been passed on. It is not part of the invoice value. It is not tax collected from a recipient. It is compensation payable by the State for delay. Therefore, insisting on Rule 89(2)(m) certification in such a case would be unnecessary and unwarranted. The authority could still verify....
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.... whether interest is payable and whether the computation is correct. But it could not insist on a certificate meant for a different concern. Rule 89(2)(l) and the Two-Lakh Threshold The Department also referred to Rule 89(2)(l). Rule 89(2)(l) deals with self-declaration in cases where the amount claimed as refund does not exceed Rs.2,00,000/-. In such cases, the applicant may give a declaration that the incidence of tax, interest, or any other amount claimed as refund has not been passed on to any other person. Rule 89(2)(m), on the other hand, applies where the refund claim exceeds Rs.2,00,000/- and requires certification from a Chartered Accountant or Cost Accountant. Thus, Rules 89(2)(l) and 89(2)(m) operate in the same broad fi....
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....eld of unjust enrichment, with different evidentiary requirements depending on the amount involved. The present case shows that even this threshold-based mechanism must be applied with relevance. The question is not only whether the claim exceeds Rs.2,00,000/-. The more basic question is whether the nature of the claim is such that passing on of incidence is a real legal concern. For interest on delayed refund already sanctioned and paid, the High Court treated certification under Rule 89(2)(m) as unnecessary. Circular No.125/44/2019-GST Cannot Be Applied Mechanically The Department relied on Circular No. 125/44/2019-GST, dated 18.11.2019, issued by the CBIC on the electronic refund procedure. The State Tax Department had adopted t....
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....he circular. It prescribes various documents, declarations, undertakings and certificates for different categories of refund claims. The Department relied on the documentation requirement for claims filed under "any other ground." Administrative circulars play an important role. They guide officers, ensure uniformity and streamline refund processing. However, a circular cannot be applied mechanically without examining the nature of the claim. A claim for interest on a previously sanctioned refund is not the same as a fresh claim for refund of tax or ITC, which requires complete eligibility scrutiny. The High Court did not invalidate the circular. It only directed that the petitioner's claim be examined without insisting on Rule 89....
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....(2)(m) certification, as the claim related only to interest on a refund already sanctioned. This preserves the usefulness of the circular while preventing its mechanical application in a situation where the demanded certificate has no practical legal relevance. Section 16(2)(c) Had No Role After Sanctioned Refund The Department also referred to the undertaking requirement in relation to Section 16(2)(c) of the CGST Act, 2017. Section 16(2)(c) is one of the conditions for availing Input Tax Credit. Broadly, it requires that the tax charged in respect of the supply should have actually been paid to the Government, subject to the statutory scheme. This provision may be relevant when ITC eligibility or a refund of unutilised ITC is exa....
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....mined. However, after the principal refund has already been sanctioned and paid, a later claim for interest on delayed refund does not require re-opening the original ITC eligibility inquiry under Section 16(2)(c), unless the principal refund itself is under valid challenge or review in accordance with law. The High Court's order therefore provides practical clarity. Once a refund has already been sanctioned, the authority should not treat the interest claim as a fresh refund eligibility proceeding. The limited scrutiny is whether the delay attracts Section 56 and what amount of interest is payable. Reference to Section 42(2) Was Also Not Germane The Department's reliance also extended to Section 42(2), as referred to in th....
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....e circular. Section 42, in the original GST framework, dealt with matching, reversal and reclaim of input tax credit. Section 42(2) broadly related to the communication of discrepancies where the ITC claimed by the recipient did not match the details furnished by the supplier. Whatever may be the relevance of such an undertaking in an original refund claim involving ITC, its role becomes doubtful where the principal refund has already been sanctioned and disbursed, and the pending claim is only for interest. The High Court's approach effectively separates documents required for original refund eligibility from those needed for interest computation. This distinction is important because many refund claims are delayed by repeated de....
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....ficiency memos seeking standard documents without considering their relevance to the actual claim. Synchrony International discourages such mechanical processing. Interest Must Be Computed Till Actual Disbursement The petitioner's case was that the refund sanctioning authority should have computed interest till the date of disbursement under Section 56. This is an important point. Section 56 uses the expression "till the date of refund." Therefore, the date of actual payment or disbursement has practical significance. If a refund is sanctioned on one date but paid later, the taxpayer remains deprived of the money until actual disbursement. Interest under Section 56 must therefore be computed with reference to the date on which ....
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....the refund amount actually reaches the taxpayer, subject to the statutory provisions and facts of the case. Relevant Dates Must Drive the Interest Scrutiny The High Court directed scrutiny on the basis of a summary sheet showing sanctioned refund orders, disbursement dates and interest computation. For a Section 56 claim, these facts matter more than Rule 89(2)(m) certification. The Proper Officer was directed to verify the claim and decide it within two weeks Procedure Must Assist, Not Delay, Section 56 Interest Documentation remains important, but it must align with the nature of the claim. For interest on an already sanctioned refund, the relevant inquiry concerns delay, amount, dates and computation. Rule 89(2)(m) should not....
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.... be invoked where unjust enrichment is not a real possibility. Procedure must help verify Section 56 interest, not postpone it. Interest Cannot Be Trapped in Wrong Certification Synchrony International explains that interest on a previously sanctioned refund has a unique legal nature. It functions as compensation for late payment under Section 56, rather than being an amount handled through the commercial chain. As a result, insisting on Rule 89(2)(m) certification is unnecessary when unjust enrichment is not a genuine issue. The authority can verify the refund orders, dates, and calculations, but the claim should be regarded as interest, not as a new refund that needs extra certification. *** =============<br> Scholarly article....
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