Interest on delayed refund.

Case Title: Afflatus International v. Union of India

Court: High Court of Punjab and Haryana

Petition Number: CWP No. 8871 of 2019

Category of Dispute: Refund of Input Tax Credit (with Interest)

Date of Judgement: April 27, 2023

Relevant Sections: Section 54(5), Section 56 of the CGST Act, Rule 91 & Rule 86 of the CGST Rules

Circulars Referred: Circular Nos. 17/17/2017-GST, 70/44/2018-GST, and 94/13/2019-GST

Facts of the Case [Paras 1–5]

1. The petitioner sought a writ of mandamus for release of refund along with interest for unutilized Input Tax Credit (ITC) on account of zero-rated supplies.
2. Earlier, the High Court had directed the respondents (CWP No. 28035 of 2018) to take a decision on petitioner’s refund representation dated 30.08.2018.
3. Respondents contended that the petitioner had not filed the refund application properly after re-credit of the previously rejected amount and that the portal did not allow a fresh application post-deficiency memo (Para 2).
4. As per Circular No. 70/44/2018-GST, refund had to be filed under the same ARN reference post rectification; the officer awaited CBEC’s clarification (Para 2).
5. The petitioner subsequently reversed ITC using Form DRC-03 and re-applied under the same ARN as permitted by Circular No. 94/13/2019-GST. Refund was issued on 12.04.2019, one day after RFD-02 acknowledgement was issued (Paras 4–5).

Question(s) in Consideration [Para 6]

• Whether the petitioner is entitled to interest on delayed refund under Section 56 of the CGST Act where refund was granted after procedural compliance?

Observation of Court [Paras 6–7]

1. As per Section 56, interest is payable if refund under Section 54(5) is not made within 60 days of receipt of refund application.
2. The Court held that the date of refund application was valid only after all formalities, including DRC-03 and manual submission under the earlier ARN, were completed.
3. The refund was granted the next day after RFD-02 acknowledgement was issued (11.04.2019), hence no delay occurred from that date (Para 7).

Judgement of the Court [Para 8]

• The writ petition was dismissed, and interest on refund was denied, since the refund was issued promptly after formal compliance and acknowledgment.

Between Fine Lines

• Interest on refund under GST arises only after 60 days of valid refund application.
• Procedural lapses by taxpayer delay the reckoning of such 60 days.
• Filing of Form DRC-03 and using earlier ARN is crucial where refund was earlier rejected.
• The department acted within one day of receiving a valid refund application post-compliance.
• Therefore, no statutory interest is payable for the interregnum before such compliance.

Summary of Referred Cases

Takeaway:

“No Interest Without Compliance: Delay in Procedure Is Not Delay by Department”