Interest on a delayed GST refund is mandatory, even if the delay is caused by technical glitches in the government’s own IT systems.
Issue
Is the government liable to pay interest under Section 56 of the CGST Act, 2017, on a delayed GST refund, even when the delay was not the taxpayer’s fault but was caused by technical problems in the department’s own IT infrastructure?
Facts
- An assessee’s legitimate IGST refund on exports was significantly delayed.
- It was an undisputed fact that the assessee had filed all their documents, such as their Shipping Bills and GST returns, accurately and on time. There was absolutely no fault on their part.
- The revenue department’s own affidavit filed in court admitted that the delay was caused solely by “technical glitches” and a “transmission error” in the data flow between the GST Network (GSTN) and the Customs ICEGATE portals.
- The department initially tried to blame the assessee for some “alleged errors” in their documentation but could not provide any proof to substantiate this claim.
- The refund was eventually paid out manually, but only after the assessee had to file a writ petition in the High Court. The remaining dispute was over the payment of interest for the long period of delay.
Decision
The Gujarat High Court ruled decisively in favour of the assessee.
- It held that the payment of interest under Section 56 is mandatory and compensatory in nature. It is not a penalty on the department that can be waived but is compensation to the taxpayer for being deprived of the use of their own money.
- The court clarified that the liability to pay interest arises automatically by operation of law once the statutory period of 60 days from the date of the refund application has passed without the refund being paid.
- Crucially, the reason for the delay is completely irrelevant. Whether the delay is due to administrative issues, procedural hold-ups, or technical glitches in the government’s own systems, interest is still payable.
Key Takeways
- Interest is a Statutory Right, Not a Discretionary Favour: The right to receive interest on a delayed refund after the 60-day period is a legal right granted to the taxpayer by the statute. It is not something that a tax officer can decide to grant or withhold based on their discretion.
- The Government Cannot Use Its Own Failures as an Excuse: The government is responsible for its own administrative and technical infrastructure. It cannot use its own inefficiencies or the failure of its IT systems as a reason to deny a taxpayer their rightful compensation for a delayed refund.
- The Nature of Interest is Compensatory, Not Penal: The purpose of interest under Section 56 is not to punish the tax officer for the delay. Its purpose is to compensate the taxpayer for the time value of their money that was wrongfully withheld from them beyond the statutory period.
- This is a Well-Settled Legal Principle: This principle is not new to the GST era. The court relied on long-standing and landmark judgments from the pre-GST era (under the Central Excise Act) to reaffirm that the liability to pay interest on delayed refunds is an automatic and undeniable consequence of the delay, regardless of the cause.