The Supreme Court has held that in case of a delay in processing GST refund, a 6 per cent interest is also to be paid, provided the delay is ‘inordinate’.

The ruling comes after the Centre filed an appeal against the verdict of the Gujarat High Court which had asked the Tax Department to pay interest at the rate of 9 per cent in refund cases where delay was between 94-290 days. However, experts feel the rate needs to be revised as it is biased towards the department.

‘HC in error’

“Since the delay in the instant case was between 94 and 290 days and not so inordinate, the matter has to be seen purely in the light of the concerned statutory provisions. The High Court was in error in awarding interest at a rate exceeding 6 per cent in the instant matters,” a division bench of Justices UU Lalit, S Ravindra Bhat and PS Narasimha said while disposing the appeal.

An assessee, making exports of goods outside India, will be eligible to claim, refund of either unutilised input tax credit on export of goods under bond or letter of undertaking or refund of integrated tax paid on export of goods. Norms for refund are prescribed under Sections 54 and 56. While Section 54 says refund application needs to be filed within two years from the relevant date, Section 56 says the interest would be awarded at the rate of 6 per cent. The award of interest at 9 per cent would be attracted only if the matter was covered by the proviso to the said Section 56.

The proviso says where any claim of refund arises from an order passed by an adjudicating authority or Appellate Authority or Appellate Tribunal or court which has attained finality and the same is not refunded within 60 days from the date of receipt of application filed consequent to such order, interest at such rate not exceeding 9 per cent will be payable.

The bench quoted a ruling by the same court in the matter where the delay was up to 17 years. In that matter, the court had said that the award of interest in refund and amount must be as per the statutory provisions of law and whenever a specific provision has been made under the statute such provision has to govern the field.

Rebuilding trust

Commenting on the ruling, Rajat Mohan, Senior Partner with AMRG, termed the judgment accurate. However, the GST provisions with respect to interest indicate that legislature is biased towards the revenue, whereby the genuine taxpayer has to pay interest at the rate of 18 per cent on every clerical error. In contrast, the department pays the interest at the rate of 6 per cent (extreme cases 9 per cent).

“It is pertinent to note that these rates of interest have not undergone any change since the past many decades, and there is a need to bring an end to this imparity and lower down the interest rates payable by the tax payers so as to rebuild their trust in the rule of unbiased law,” he said.

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