Department Must Pay Statutory Interest Under Section 56

Department Must Pay Statutory Interest Under Section 56 on Delayed Refund of Mandatory Pre-Deposit

Issue

Whether the tax authorities are obligated under Section 56 of the CGST/DGST Act to pay statutory interest on the delayed refund of a mandatory pre-deposit, where the refund arose post appellate relief and was sanctioned after adjusting penalties.

Facts

A search was conducted on the assessee’s premises, which led to demand proceedings.
A Show Cause Notice (SCN) was issued, and the Order-in-Original (OIO) confirmed the tax demand against the assessee.
The assessee filed an appeal against the OIO and deposited the mandatory pre-deposit as required by law.
The Appellate Authority partly allowed the assessee’s appeal, granting partial relief.
Following the appellate order, the assessee submitted an application for the refund of the mandatory pre-deposit.
The Department adjusted certain penalties from the pre-deposit amount and sanctioned the balance refund.
The Department failed to pay interest on the sanctioned refund, prompting the assessee to file a writ petition before the High Court seeking statutory interest under Section 56.

Decision

The High Court noted that the Department could not point to any discretionary power vested in the authorities to deny interest once the entitlement under Section 56 is attracted.
The Court held that because the refund arose pursuant to appellate relief and was formally sanctioned, the statutory liability to pay interest under Section 56 was automatically triggered.
The High Court allowed the writ petition in favor of the assessee and directed the authorities to quantify and release the due interest.

Key Takeaways

Mandatory Statutory Interest: Interest on delayed refunds under Section 56 of the CGST/DGST Act is a statutory obligation, and authorities have no discretion to deny or withhold it once entitlement is established.
Pre-Deposit Refund Protection: Refunds of pre-deposits arising from favorable appellate orders attract interest if not disbursed within the statutorily prescribed timeframe.
No Administrative Discretion: Tax authorities cannot arbitrarily refuse statutory interest payments on sanctioned refund amounts.

HIGH COURT OF DELHI

King Impex

Commissioner of Delhi Goods and Services Tax

Anil Kshetarpal and Ms. SHAIL JAIN, JJ.

W.P. (C) No. 11434 of 2024
CM APPL. No. 10578 of 2025

SEPTEMBER 8, 2026

Umesh Sarwal and Siddhant Sarwal, Advs. for the Petitioner. Ms. Vaishali Gupta, Panel Counsel, Aditya Singla, SSC, Ms. Arya, Dhananjay Gautam, Akhil, Ms. Sakshi Chandna and Ms. Nehaol, Advs. for the Respondent.

ORDER

1. Through the present Petition, the Petitioner seeks grant of interest on the sanctioned refund amount of Rs. 19,76,518/- (Rupees Nineteen Lakhs Seventy-Six Thousand Five Hundred and Eighteen only).

2. The premises of the Petitioner were searched under Section 67 of the Central Goods and Services Tax Act, 2017 (hereinafter, “CGST Act”), on 24th December, 2020. Thereafter, a demand-cum-Show Cause Notice under Section 74 of the CGST Act was issued in July, 2021, to which the Petitioner submitted a Reply. Subsequently, an Order-in-Original dated 05th December, 2022, confirming the demand, came to be passed.

3. Aggrieved thereby, the Petitioner preferred an Appeal before the Appellate Authority and deposited an amount of Rs. 31,44,190/- (Rupees Thirty-One Lakhs Forty-Four Thousand One Hundred and Ninety only) towards the mandatory pre-deposit. The Appeal was partly allowed on 04th December, 2023. Thereafter, the Petitioner filed an application dated 14th February, 2024, seeking refund of the pre-deposit amount. Ultimately, after adjustment of the penalty amounting to Rs. 11,67,672/- (Rupees Eleven Lakhs Sixty-Seven Thousand Six Hundred and Seventy-Two only), a refund of Rs. 19,76,518/- (Rupees Nineteen Lakhs Seventy-Six Thousand Five Hundred and Eighteen only) was sanctioned vide Order dated 13th January, 2025. The Petitioner claims entitlement to interest under Section 56 of the CGST Act on the aforesaid sanctioned refund amount.

4. Learned Counsel appearing for the Respondent submits that the Petitioner may make a representation in this regard to the Department, which shall be duly considered.

5. However, upon a query from the Court, learned Counsel appearing for the Respondent is unable to point out any discretion vested in the concerned Authorities to deny interest, if otherwise payable under Section 56 of the CGST Act.

6. In view of the foregoing position, the present Writ Petition is allowed. Further, considering the aforesaid disposal, Respondent No. 1 is directed to quantify the amount of interest payable to the Petitioner under Section 56 of the CGST Act within a period of 15 days from today, and release the same within a period of one month thereafter.