AC Impex v. Union of India & Ors.
W.P.(C) 13881/2018, Delhi High Court
Judgment dated 13.03.2023
Category: Refund – Interest on Delayed Refund
Relevant Provisions: Section 54 & Section 56, CGST Act, 2017; Rule 89, CGST Rules
FACTS (Flowing Narrative with Para References)
AC Impex, an exporter of jewellery, availed ITC on domestic purchases and filed refund claims under Section 54 for August and September 2017 (paras 3–3.4). The claims related to zero-rated supplies. Due to GSTN difficulties, exports made partly in September and October 2017 were consolidated in refund applications filed for August and September 2017 (paras 22–22.2).
The department issued deficiency memo (13.02.2018), cured on 16.02.2018 (para 4). Two SCNs dated 07.05.2018 alleged that refund was inadmissible because exports in each month were lower than purchases of that month (paras 4–4.4, 21). The officer passed two orders on 11.05.2018 rejecting refund proportionately (paras 4.3–4.4).
On 11.01.2019, the High Court permitted the petitioner to file a manual refund application (para 6). The department nevertheless rejected the manual applications vide order dated 22.03.2019 (para 7). This was set aside by the Court on 28.03.2019, directing reconsideration (para 8).
Consequently, the department sanctioned the full refund of ₹29,90,532 on 24.05.2019 (paras 9–11). Interest of only ₹70,861 was later sanctioned on 08.07.2019 (paras 10–11). The dispute before the Court concerned the correct date from which interest should run under Section 56 (para 1–2).
QUESTIONS / ISSUES (with Para References)
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Whether interest under Section 56, CGST Act should be computed from 60 days after the original refund application (filed 16.12.2017), applying the main part of Section 56? (paras 1–2, 12–12.2)
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Or, whether interest should run only from 60 days after the Court’s order dated 28.03.2019, treating the refund as arising from a Court-directed order attracting the proviso to Section 56? (paras 2, 14–14.5)
OBSERVATIONS OF THE COURT (Flowing Narrative with Para References)
The Court reaffirmed that taxing statutes require strict interpretation, but the proviso to Section 56 must not nullify or displace the main provision (paras 17–17.2). The proviso applies only where refund arises pursuant to an adjudicatory order, i.e., where a lis exists on quantum or eligibility (para 24.3).
Here, the refund originally claimed had been substantively correct, and the subsequent restorations were merely to ensure compliance with the statutory mechanism, not because an adjudicatory order modified quantum (paras 24–25.2). The Court noted that orders dated 11.01.2019 and 28.03.2019 merely compelled the department to process the application that ought to have been processed originally and did not adjudicate any dispute on merits (paras 25–25.2).
The department’s argument that the refund “arose from” the Court’s order was rejected, since the order only directed compliance and did not create the right to refund (para 24–25.2). Hence, the case fell within the main body of Section 56, not the proviso (paras 24–26).
JUDGMENT / VERDICT (Para References Included)
The Delhi High Court held that interest must be computed under the main part of Section 56, since the proviso was inapplicable; there was no lis and the refund claim originated from the original application itself (para 26).
Accordingly, interest at 6% was directed to run from 18.04.2018 (60 days after the cure of deficiency on 16.02.2018) until the respective dates of actual remittance—
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02.07.2019 (CGST) and
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28.05.2019 (DGST) (paras 12–13, 26).
The department was directed to release differential interest within two weeks (para 28–29).
SUMMARY OF CASES REFERRED (Tabular Form)
| Case Cited | Court | Principle / Verdict | Relevance |
|---|---|---|---|
| CIT v. Indo Mercantile Bank Ltd. (1959 Supp (2) SCR 256) | Supreme Court | Proviso must be interpreted as an exception and cannot override the main provision (paras 24.1). | Applied to hold that Section 56 proviso cannot displace the main clause. |
| S. Sundaram Pillai v. V.R. Pattabiraman (AIR 1985 SC 582) | Supreme Court | Proviso cannot nullify or set at naught the object of the main enactment (para 24.2). | Used to emphasise limited role of proviso in refund interest computation. |
BETWEEN FINE LINES – PRACTICAL TAKEAWAY FOR INDUSTRY
This judgment offers major relief to exporters claiming refund delays: If the refund claim was valid at inception and the department rejected or mishandled it procedurally, interest must run from the original application, not from any later appellate or High Court order. Exporters can therefore claim significant interest arrears where officers reject or withhold claims without adjudicating a genuine dispute.
Disclaimer – “The above summary is for academic purpose only; not formal legal opinion. Seek professional opinion before application. Author or publisher or website shall not be responsible for any usage in any form.”