INTEREST ON DELAYED SANCTION OF REFUND

GST Update 20.09.2016

GST DAILY DOSE OF UPDATION:-

INTEREST ON DELAYED SANCTION OF REFUND:-It is provided that if any tax refundable under section 38 to any applicant is not refunded within three months from the date of receipt of application under section 38(1), interest at the rate as specified in the notification shall be payable in respect of such refund from the date immediately after expiry of the due date for sanction of refund under section 38 till the date of refund of such tax. At present, under Central Laws, similar provision is contained in section 11BB of the Central Excise Act, 1944 which states that if refund is not granted within three months from the date of receipt of application, applicant shall be paid interest from the date immediately expiry of three months from the date of receipt of such application till date of refund of such duty. Although, the provisions under earlier laws and that proposed in GST appear to be similar but there is difference.

According to present Central Excise Laws, interest is payable if the refund claim is not granted within a period of three months from the date of receipt of refund application. However, in GST Law, there is additional condition for claiming interest and interest is not payable simply on expiry of three months from the date of receipt of refund application. As per Explanation to section 38(5), application shall mean complete application containing all information as may be prescribed. Hence, if refund application is filed on say for example 15.04.2016 but certain documents were not enclosed with the refund application. The required documents were submitted on 25.04.2016 and the refund was sanctioned on 22.07.2016, then as per GST Law, no interest will be payable as there is no delay in sanction of refund claim. The date of receipt of application shall be 25.04.2016 and not 15.04.2016. However, as per present Central Laws, interest is payable from 15.07.2016 to 22.07.2016. Therefore, the GST law seeks to make stringent provisions for grant of interest on delayed sanction of refund claims because the date of receipt of application shall be counted from the date when application contains all information as is prescribed. It will be give a weapon in the hands of department and they will return the refund claim on the one pretext or another so that no interest is payable by them. We have seen such type of practice of department and ultimately saying that the refund claim is time barred but the tribunal and High Court has held that the refund claim is deemed to be filed from the date of initial filing of claim.

Furthermore, explanation to section 39 provides that where order of refund is made by appellate authority or tribunal or court, then such order shall be deemed to be order under section 38(4) or 38(4A) thereby meaning that the interest in such cases will be payable from date immediately after expiry of due date of sanction of refund till the date of refund of tax. This provision is also presently there in Central Laws but the assessees rarely get interest from the expiry of three months from the date of original filing of refund application. This is for the reason that the revenue authorities interpret that the time limit of 3 months is to be counted from the date of filing of consequential refund claim after the order of the appellate tribunal. The revenue authorities are reluctant to grant interest from expiry of three months from date of original filing of refund claims. The issue has also been considered by Apex Court in the case of Ranbaxy Laboratories Ltd. vs Union of India [2012 (27) S.T.R. 193 (S.C.)] but even then, the hapless assessees are not granted interest. When taking refund of duty is tedious task, taking interest on delayed sanction of refund will definitely not be easy.

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GST Update 20.09.2016

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