Delay in Deficiency Memo Doesn’t Stop Interest on Late GST Refund.
Issue
Whether the GST department’s failure to issue a deficiency memo within the prescribed 15-day time limit can be used as a reason to delay the processing of a refund application and to avoid the payment of statutory interest for delays beyond 60 days.
Facts
- The petitioner (Gameloft Software) filed a refund application under Section 54 of the CGST Act.
- As per Rule 90(2), the tax department is required to issue any deficiency memo (pointing out errors in the application) within 15 days of the application’s filing.
- The department failed to issue the deficiency memo within this 15-day period, leading to a delay in the adjudication of the refund.
- The department’s administrative lapse was being used to deny or delay the refund, impacting the taxpayer’s business.
- The petitioner filed a writ petition, seeking a direction for the refund to be processed and arguing that the department’s delay cannot reset the statutory timeline.
Decision
- The Delhi High Court reiterated the settled law that refund applications must be adjudicated within 60 days from the receipt of a complete application (Section 54(7)).
- It was held that the 15-day deadline for issuing a deficiency memo under Rule 90(2) is a mandatory procedural safeguard.
- The department’s administrative delay in issuing the deficiency memo cannot prejudice the taxpayer or be used as an excuse to reset the 60-day clock for refund processing.
- The court reaffirmed that if the refund is not processed within 60 days, statutory interest under Section 56 (at 6% or 9%) becomes payable.
- The court directed the Revenue to fix a hearing date and decide the refund claim within one month.
Key Takeaways
- Strict Timelines for Department: The 15-day limit for issuing a deficiency memo and the 60-day limit for processing a refund are mandatory timelines for the tax authorities, designed to ensure timely relief to taxpayers.
- Administrative Lapses Don’t Affect Taxpayer Rights: The department cannot use its own procedural delays (like late issuance of a deficiency memo) to its advantage by denying or delaying a taxpayer’s legitimate refund.
- Interest is a Statutory Right: Interest under Section 56 is a mandatory and compensatory right for the taxpayer if the department fails to process a refund within the 60-day window, reinforcing accountability.
- Writ Jurisdiction: The High Court will intervene in its writ jurisdiction to direct tax authorities to comply with statutory timelines for processing refunds, especially when delays are causing adverse business impacts.