Facts of the Case

The petitioner, M/s G.S. Industries, filed two refund applications dated 4th July 2019 and 9th July 2019 claiming GST refunds amounting to ₹23,10,333/- and ₹14,46,417/- respectively.

Deficiency memos were issued belatedly on 29th November 2019, to which the petitioner responded on 27th January 2020, and acknowledgments were issued on 11th February 2020. However, the refund was not processed within the statutory period of 60 days as mandated under Section 54(7) of the CGST Act.

The petitioner was compelled to file multiple writ petitions. Eventually, the refund was sanctioned on 9th June 2023, but only partial interest (₹45,669/-) was granted for a limited period. Aggrieved by denial of full interest, the petitioner approached the Delhi High Court in the present writ petition. 

Issues Involved

  1. Whether the petitioner is entitled to interest on delayed GST refund for the entire period under Sections 54 and 56 of the CGST Act.
  2. Whether delay caused due to late issuance of deficiency memo by the department affects computation of interest.
  3. Whether the petitioner’s delay in curing deficiencies can be excluded while calculating interest.

Petitioner’s Arguments

  • Interest under Section 56 is payable after expiry of 60 days from the date of refund application.
  • The deficiency memo was not issued within the prescribed 15 days under Rule 90 of CGST Rules, hence delay is attributable to the department.
  • Full interest ought to be granted from the date when statutory period expired, without restricting it to a limited duration.
  • The department cannot deny statutory interest due to its own procedural lapses.

Respondent’s Arguments

  • The deficiency memo was validly issued and the petitioner took time to rectify deficiencies.
  • Interest should only be calculated after completion of application in all respects.
  • Partial interest already granted is in compliance with Court directions.
  • Delay attributable to the petitioner must be excluded from interest computation.

Court’s Findings / Order

The Delhi High Court elaborately interpreted Sections 54 and 56 of the CGST Act and clarified the framework for interest on delayed refunds.

The Court held:

  • Interest begins after 60 days from the date of initial refund application.
  • Delay in issuance of deficiency memo beyond 15 days cannot prejudice the petitioner.
  • However, the period during which the petitioner took to cure deficiencies (74 days) must be excluded on equitable grounds.
  • A two-tier interest structure applies:
    • 6% interest for the period after expiry of 60 days from first application.
    • 9% interest after expiry of 60 days from the second refund application filed pursuant to appellate order.

Final directions:

  • Interest payable from 7th/9th September 2019 to 9th June 2023, excluding 74 days delay attributable to petitioner.
  • 6% interest up to 4th April 2022.
  • 9% interest from 5th April 2022 to 9th June 2023.
  • Amount already paid to be adjusted.

Important Clarification

  • Delay by tax authorities in issuing deficiency memo cannot defeat taxpayer’s right to interest.
  • Interest under Section 56 has a progressive structure (6% → 9%) depending on stage of proceedings.
  • Even when refund is granted after appellate proceedings, interest from earlier stages is not extinguished.
  • Equitable principles apply where delay is attributable to the taxpayer.

Sections / Provisions Involved

  • Section 54, CGST Act, 2017 – Refund of Tax
  • Section 56, CGST Act, 2017 – Interest on Delayed Refund
  • Rule 90, CGST Rules, 2017 – Acknowledgment & Deficiency Memo

Link to download the order -  https://delhihighcourt.nic.in/app/showFileJudgment/PMS20052025CW74852024_124322.pdf

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