Interest On Delayed Refunds Covered Under Principal Provision Of Section 56 Of CGST Act Cannot Exceed 6%: Supreme Court

"...wherever a statute specifies or regulates the interest, the interest will be payable in terms of the provisions of the statute. Wherever a statute, on the other hand, is silent about the rate of interest and there is no express bar for payment of interest, any delay in paying the compensation or the amounts due, would attract award of interest at a reasonable rate on equitable grounds."

A Bench comprising Justices U.U. Lalit and S. Ravindra Bhat allowed appeals filed by the Union of India to reduce the interest granted by the Gujarat High Court for delay in refunds of integrated tax paid on export of goods from 9% to 6%.

Background

Section 16 of the Integrated Goods and Service Tax Act, 2017 contemplates that a registered person making exports of goods outside India, shall 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. The said refund is claimed in accordance with Section 54 of the Central Goods and Services Tax Act, 2017 (CGST Act) and rules thereunder. Two Companies (original petitioners), which had received the said refund after inordinate delay approached the Gujarat High Court seeking compensation as the inaction on the part of the Union Government was per se arbitrary and the delay adversely impacted their working capacity. The High Court granted relief by stating that the original petitioners are entitled to simple interest of 9% p.a. The Union Government filed review petitions seeking reduction in the interest rate from 9% to 6% as prescribed by the statute. The High Court dismissed the review petitions.

Analysis by the Supreme Court

The Court noted that as the present case did not emanate from orders passed by the Adjudicating Authority or Appellate Authority/Tribunal/Court it was governed by the principal provision of Section 56 of the CGST Act, which deals with interest on delayed refunds. It was of the view that interest at the rate of 9% could have been granted only if the matter was covered by the proviso to Section 56. It referred to Modi Industries Ltd. And Anr. v. Commissioner of Income Tax And Anr. (1995) 6 SCC 396, wherein the Apex Court had held that there is no right to get interest on refund except as provided by the statute, which in the facts of that case was the Income Tax Act, 1961. In Godavari Sugar Mills Ltd. v. State of Maharashtra (2011) 2 SCC 439, the Court had effectively stated that wherever a statute specifies or regulates the interest, the interest will be payable in terms of said provisions. However, the Court observed that when the statute is silent about the rate of interest there is no expressed bar to grant interest at a reasonable rate on equitable grounds. It was highlighted that in the case of Sandvik Asia Ltd. v. CIT (2006) 2 SCC 508, due to inordinate delay of 12 to 17 years in making a refund, the Apex Court had granted interest at the rate of 9% p.a. and the same had been categorically noted by the Apex Court in its judgment in CIT v. Gujarat Fluoro Chemicals (2014) 1 SCC 126. It was asserted that the same principle would not be applicable in the instant case where the delay was for 94 to 290 days.

Case Name: Union of India And Ors. v. M/s. Willowood Chemicals Pvt. Ltd.

Citation: 2022 LiveLaw (SC) 398

Case No. and Date: Civil Appeal No. 2995-2996 of 2022 | 19 April 2022

Corum: Justices U.U. Lalit and S. Ravindra Bhat

Counsels for the Appellant: ASG, Mr. N. Venkataraman; Advocates, Mr. Akshay Amritanshu, Mr. Merusagar Samantray, Ms. Indira Bhakar, Mr. Manish; Advocates-on-Record, Mr. M.K. Maroria, Mr. B. Krishna Prasad.

Counsels for the Respondent: Advocates, Mr. Vinay Shraff, Mr. Ankit Agarwal; Advocate-on-Record, Mr. Ravi Bharuka.

Headnotes:

Section 56 of the Central Goods and Services Tax Act, 2017 - Interest on delayed refunds - no refunded within sixty days from the date of receipt of application interest at such rate not exceeding 6% as may be specified in the notification issued by the Government on the recommendations of the Council shall be payable - wherever a statute specifies or regulates the interest, the interest will be payable in terms of the provisions of the statute - Wherever a statute, on the other hand, is silent about the rate of interest and there is no express bar for payment of interest - it would attract award of interest at a reasonable rate on equitable grounds

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