Interest on a delayed GST refund is calculated from the date of the original application, not from the date of a later appellate order.

Interest on a delayed GST refund is calculated from the date of the original application, not from the date of a later appellate order.

Issue

When a GST refund is initially rejected by the adjudicating authority but is later sanctioned upon a successful appeal, from what date does the 60-day interest-free period for paying the refund begin: from the date of the original application or from the date of the appellate order that grants the refund?

Facts

• An assessee’s claim for a GST refund was initially rejected by the original adjudicating authority (the “First Authority”).
• The assessee successfully challenged this rejection in an appeal, and the First Appellate Authority allowed the appeal, directing the refund to be paid.
• However, there was a significant delay between the date the assessee first applied for the refund and the date it was finally paid out after the successful appeal.
• The Revenue department argued that the 60-day interest-free clock should only start ticking from the date of the Appellate Authority’s order, as that was the date the refund was finally determined to be legally payable.
• The assessee contended that the clock started 60 days after their original application, and the department’s wrongful rejection in the first instance should not be a reason to deny them interest for the period of delay.

Decision

The Bombay High Court ruled decisively in favour of the assessee.

• It held that the 60-day period for the purpose of calculating statutory interest on a delayed refund begins from the date of the original refund application.
• The court clarified the applicable interest rates based on established precedents:
  • 6% interest is payable for the delay that occurs beyond 60 days from the original order.
  • A higher 9% interest is payable for any delay that continues even after 60 days have passed since the appellate authority’s order was issued.
• The court emphasized that a refund that was wrongly denied by the original officer does not absolve the Revenue of its obligation to pay statutory interest. A later finding that the rejection was unsustainable means the refund was due all along.

Key Takeways

1. The Clock Starts from Day One: The time limit for paying a refund without incurring an interest liability starts from the date of the initial, valid refund application. A subsequent, wrongful rejection by a tax officer does not pause or reset this clock.
2. Interest is Compensatory, Not a Penalty: The court reiterated that statutory interest is not a penalty to punish the department for being wrong. It is compensation to the taxpayer for being deprived of the use of their own money during the period it was wrongfully withheld.
3. A Wrongful Rejection is a “Delay”: The period during which a refund is held up because of an incorrect rejection order is still considered a “delay” in payment. When an appellate court reverses that rejection, it is effectively stating that the refund was legally due from the beginning.
4. This is a Well-Settled Legal Principle: This is not a new concept. The court relied on a long and consistent line of judgments from both the current GST regime and the pre-GST (Central Excise) era to reaffirm this position, providing strong legal certainty on this important issue.