GST Update No 180 on SC decision on rate of interest on delayed refunds

GST law was incorporated with a motive of simplified and easy tax reform in the economy. It was expected that it will bring hassle free refund process. Even the Government has come out with a time frame to sanction the refund at the earliest for easy and efficient business operations. However, it seems that officers of GST department are reluctant as they adopt bureaucratic practice and red tape procedure to grant refunds to the taxpayers. Intentional and continuing delays are often a matter of discussion among the business community as they face liquidity issues. Moreover, the rate of interest in case of delay in payment of taxes by the assessee is 18% whereas the rate of interest for delay in sanction of refunds is 6%/9%. The issue regarding rate of interest to be granted for delayed sanction of refund claim has travelled down the line from Gujarat High Court to the Hon’ble Apex Court in the case of UNION OF INDIA V/S M/S WILLOWOOD CHEMICALS PVT. LTD [SPECIAL CIVIL APPLICATION NO. 2995-2996 OF 2022]. The decision imparted is the subject matter of discussion of our present update. The respondent contended that they are eligible for refund since as per section 16 of IGST Act, 2017, registered person making exports shall be eligible to claim refund of unutilised ITC or refund of IGST paid on exports. The respondent claimed that they shall be entitled to interest due to delay in receipt of compensation ranging between 94 to 290 days. Reliance was placed on the following decisions: • Modi Industries Ltd V/s Commissioner of Income Tax and Another • Godavari Sugar Mills Ltd • Sandvik Asia Ltd The Counsel of the petitioner opposed the same by placing reliance on the various following decisions • K.T. Plantation Pvt. Ltd. and Anr. V/s State of Karnataka • Sandvik Asia Ltd. V/s Commissioner of Income Tax-I Pune and others and Commissioner of Income Tax • Gujarat V/s Gujarat Fluoro Chemicals. It was argued that the directions of Hon’ble High Court of payment of 9% CA. PRADEEP JAIN ??www.capradeepjain.com??pradeep@capradeepjain.com??4 interest p.a. from date of filing of GSTR-3B is incorrect since as per Section 56 of CGST Act, 2017, the interest rate is 6% p.a. only. The Court held that the departmental officers are having no objection on eligibility of grant of refund of interest but disputes are related to rate of interest to be awarded in such a case i.e. 6% instead of 9% p.a. Provisions of Section 56 of CGST Act, 2017 were carefully examined wherein it is mentioned that interest on refund is to be awarded within a period of 60 days from date of receipt of application along with interest at 6% p.a. If in case, the amount to be refunded arises from any order which is not refunded within a period of 60 days, interest at the rate of 9% p.a. would be applicable as per proviso to Section 56 of CGST Act, 2017. The Court held that the “If the statue specifies interest, it shall be payable as per the terms of the provisions of the same. If the statue bars from payment of interest, in that case no interest shall be awarded. Where statue is silent and there is no bar on awarding interest, delay in paying compensation would require rewarding interest at reasonable rate on equitable grounds.” Quoting the decisions on which reliance is placed by the respondent, the court stated that interest awarded in excess of what is mentioned in statue was only for a period beyond 20 years wherein the matter was not covered in statue and therefore, decided by the Court. However, inordinate delay of 17 years in making refund was accepted at 9% p.a. in the case of Sandvik Asia Ltd since there was inordinate delay in granting refund. However, in the present case, it was held that High Court has erred in its approach as there is a delay is of just 94 to 290 days which is not inordinate delay and therefore, interest awarded in such a case shall be only 6% and not 9%. From the above decision, it is crystal the GST provisions as regards grant of interest are having biased approach as the genuine taxpayers have to pay interest at the rate of 18% p.a. on every error and on the contrary, the department just awards interest at the rate of 6% p.a. for delay in sanction of refunds. An earnest need is anticipated at the end of government to bring structural level changes coupled with sincere actions and put an end to imparity and inequality among the taxpayers by lowering down the interest rates payable by them for short payment of taxes or increase the rate CA. PRADEEP JAIN ??www.capradeepjain.com??pradeep@capradeepjain.com??5 of interest for delayed sanction of refund claims.

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GST Update No 180 on SC decision on rate of interest on delayed refunds

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