Interest on Delayed GST Refunds: High Court Mandates Strict Adherence to Section 56

In this significant ruling from March 2026, the Bombay High Court intervened in a dispute regarding the computation of interest on delayed Integrated Goods and Services Tax (IGST) refunds. The court clarified that tax authorities cannot arbitrarily reduce interest or grant “nominal” amounts, as both the rate and the timing are strictly governed by the statutory mandate of Section 56.

The Legal Dispute: Statutory Mandate vs. Administrative Discretion

The Context

The Petitioner had previously secured a Writ Order directing the Customs and GST authorities to sanction their IGST refund along with statutory interest. However, when the actual orders were issued, the authorities failed to follow the law correctly.

The Discrepancies

ACC Mumbai-III initially sanctioned the interest but later issued a corrigendum (a formal correction) that reduced the amount without providing a clear mathematical or legal basis.
ACC Nhava Sheva sanctioned the principal refund but granted only a “nominal” interest amount that did not align with the actual period of the delay.

The Petitioner challenged these actions, arguing that interest on delayed refunds is a statutory right and not a matter of administrative choice.

The Decision: No Room for “Nominal” or “Unreasoned” Interest

The High Court ruled in favour of the assessee (Remand), setting aside the interest components of the impugned orders based on these findings:

Failure to Provide Reasons: The Court noted that the orders reducing the interest contained no explanation for how the figures were derived. An administrative order that lacks a “speaking” (reasoned) basis is legally invalid.
Mandatory Application of Section 56: The law states that if a refund is not sanctioned within 60 days from the date of the application, interest must be paid starting from the 61st day until the date of the actual refund.
Statutory Rates: The authorities must apply the fixed statutory rates—typically 6% for standard delays and 9% for delays resulting from appellate or court orders. They cannot substitute these with “nominal” rates of their own choosing.

The Outcome: Remand for Proper Re-determination

The Court declined to perform the mathematical calculation itself but issued the following specific directions to the Department:

The previous orders, to the extent of the interest components, were quashed and set aside.
The Designated Officer was directed to re-determine the interest amount strictly according to the rules laid out in Section 56.
The calculation must precisely reflect the full period of delay and the correct interest rate.
The Petitioner must be granted a personal hearing before the final revised interest order is passed.

Key Takeaways for Taxpayers

The 60-Day Deadline: Always track the date of your RFD-01 acknowledgement. Interest starts accruing automatically the moment the 60-day window for the Department to process your refund expires.
Challenge “Corrigendums”: If the department issues a “correction” to reduce your interest or refund after it was already sanctioned, they are legally required to give you a reason and a hearing. A silent or unreasoned reduction is a violation of natural justice.
Interest on Court Orders: If your refund is the result of a long legal battle, remember that you are likely entitled to the higher 9% interest rate rather than the standard 6%.
Verification of Dates: Ensure the “Date of Receipt” of your application is correctly recorded, as this is the anchor point for the entire interest calculation.

Summary of Interest Rules

Under a Standard Refund Claim, interest begins after 60 days of the application at a rate of 6% per annum. If the refund is due to a Court or Appeal Order, the rate increases to 9% per annum. In all cases, the interest period runs from the 61st day through to the date the payment is actually made. This judgment confirms that these parameters are fixed by statute and cannot be altered by the tax office.

HIGH COURT OF BOMBAY

Jindal Drugs (P.) Ltd.

Union of India^*

G. S. KULKARNI and Aarti Sathe, JJ.

WRIT PETITION NO. 1810 of 2023

FEBRUARY 11, 2026

Jas Sanghavi for the Petitioner. Jitendra B. Mishra, Abhishek Mishra, Rupesh Dubey, Ms. Raju R. Thalekar and Priyanshu Doshi for the Respondent.

ORDER

1. We have heard learned Counsel for the parties.

2. This petition under Article 226 of the Constitution is filed praying for the following reliefs:

“(a) this Hon’ble Court be pleased to issue a Writ of Certiorari or a writ in the nature of Certiorari or any other writ, order or direction under Article 226 of the Constitution of India calling for the records pertaining to the Petitioner’s case and after going into the validity and legality thereof be pleased to quash and set aside: (i) order-in-original No. AC/LCM/134/2022-23/IGST(R) (E) ACC dated 20.08.2022 passed by Respondent No. 2 and (ii) order-in-original No. 438/2022-23/AC/IGST/CAG/JNCH dated 01.09.2022 passed by Respondent No. 3, to the extent the said orders grant interest of 6% from the date immediately after the expiry of sixty days from the date of order dated 02.05.2022 passed by this Hon’ble Court.

(b) this Hon’ble Court be pleased to issue a writ of mandamus or a writ in the nature of mandamus or any other appropriate writ or order or direction under Article 226 of the Constitution of India ordering and directing the Respondents to forthwith sanction and grant the interest of Rs. 45,03,963/-in terms of Section 56 of the CGST Act and in compliance of the orders dated 02.05.2022 of this Hon’ble Court passed in Writ Petition No. 4445 of 2021.”

3. The issues as raised before the Court have arisen due to the respondents not granting statutory interest to the petitioner and, more particularly, as provided in the provisions of Section 56 of the Central Goods and Services Tax Act, 2017 (for short ‘the CGST Act’).

4. The relevant facts are:

The petitioner had earlier approached this Court by filing Jindal Drugs (P.) Ltd. v. UOI [WP No. 4445 of 2021, dated 2-5-2022] seeking directions against the respondent to sanction refund to the petitioner alongwith interest in terms of Section 16(3)(b) of the Integrated Goods and Services Tax Act, 2017 (IGST Act) read with Section 54 of the CGST Act and Rule 96 of the CGST Rules. The said petition was adjudicated by this Court and by an order dated 2 May 2022, in allowing the petition, this Court directed the respondent to sanction refund to the petitioner under the IGST Act as also grant to the petitioner statutory interest.

5. In pursuance of the said order passed by this Court, the petitioner made a claim for payment of statutory interest. The Assistant Commissioner of Customs (Export), Air Cargo Complex, Mumbai-III, passed an order-in-original dated 20 August 2022 whereby insofar as the interest was concerned, the following order was passed:

“ORDER

(a)……

(b) I hereby sanction an interest amount of Rs.1,94,195/- (Rupees One Lakh Ninety Four Thousand One Hundred Ninety Five Only) on IGST refund sanctioned on the above para(a).”

6. However, subsequently on 13 September 2022 another order was issued which was in the nature of the corrigendum to the said order in original dated 20 August 2022, whereby, the sanctioned of interest of Rs.1,94,195/- on IGST refund was reduced to an amount of Rs.92,801/-, and accordingly, the order-in-original dated 20 August 2022 came to be modified / substituted. There is a further order passed in regard to the other shipping bills dated 1 September 2022 by an another officer i.e. Assistant Commissioner of Customs, Drawbacks /IGST Cell, Nhava Sheva whereby an amount of Rs.64,36,666/- came to be granted, whereby on such amount, an interest of Rs.50,390/- was granted to the petitioner.

7. The grievance of the petitioner is that the calculation of the interest as awarded by such order, is in fact in the teeth of the statutory provisions i.e. the rates which are specified under Section 56 of the CGST Act. In support of his contention, and the entitlement of the petitioner to the statutory interest, in the context of the petitioners’ application as made under Section 54 of the Central Goods and Services Tax Act, learned Counsel for the petitioner has placed reliance on the decisions of the Co-ordinate Bench of this Court in Altisource Business Solutions India (P.) Ltd. v. UOI GST 254/103 GSTL 274 (Bombay)/(2025) 35 Centax 267 (Bom.); and Lupin Ltd. v. UOI (Bombay)/(2025) 33 Centax 282 (Bom). It is hence the contention as urged on behalf of the petitioner that considering the provisions in law, the prayers made in the petition deserve to be granted.

8. Mr. Mishra, learned Counsel for the revenue, although would justify the orders, however, is not in a position to justify that the correct mandate of Section 56 of the CGST Act, whether at all has been applied in the impugned order being passed and, more importantly, as interpreted by this Court in the said decisions.

9. On perusal of the impugned orders, we do not find, as to on what basis, a reduction in the interest being earlier granted to the petitioner, has been made and / or the calculation of interest whether at all is made as per the provisions of Section 56 of the CGST Act, for the reason that no reasons or discussion on such aspect is borne out by the impugned order. Although the petitioner would desire that this Court in the present proceedings in exercise of its jurisdiction under Article 226 of the Constitution undertake such exercise and determine the amounts payable, we are, however, not inclined to undertake such exercise of accepting the calculations as placed on record on behalf of the petitioner and step ourselves into the shoes of the said authorities in determination of the correct amount of interest. It may be observed that it is the mandate of law which would be required to be followed, and more particularly, when the revenue is already guided by the provisions of law and the binding decisions of this Court on the manner in which the interest ought to have been calculated, by applying such statutory provisions, which would also be in compliance of the orders dated 2 May 2022 passed by this Court on Writ Petition No.4445 of 2021 as filed by the petitioner.

10. In our opinion, in fact once the Court has directed as far as back on 4 May 2023 that the petitioner would be entitled for ‘statutory interest’, an appropriate exercise in that regard ought to have been undertaken and as acceptable in law and the petitioner was not required to approach this Court on any such issue.

11. In this view of the matter, we are inclined to set aside the order dated 20 August 2022, insofar as the operative paragraph (b) is concerned, as also the corrigendum dated 13 September 2022, as also the order-in-original dated 1 September 2022, insofar the amount of interest at Rs.50,390 has been determined as payable to the petitioner.

12. We direct the concerned Designate Officer of the respondents to undertake a fresh exercise of determination of the interest amounts, strictly as per the provisions of Section 56 of the CGST Act, and determine the amount of interest payable to the petitioner strictly in accordance with law and the directions of this Court in Altisource Business Solutions India Pvt. Ltd. (supra) and Lupin Ltd. (surpa).

13. Let this exercise be undertaken and an appropriate order be passed after granting an opportunity of a hearing to the petitioner within a period of 30 days from today. All contentions of the parties in that regard are expressly kept open.

14. We hope that on these issues, there is no further litigation and the concerned officer would accordingly act in the light of what has been observed hereinabove.

15. Disposed of in the aforesaid terms. No costs.