Interest would be payable at the rate of 6% not 9%, if delay in granting refund is not substantial

The Hon’ble Supreme Court vide its order dated 19^th April 2022 in the matter of Union of India & Ors.  Vs.  M/s Willowood Chemicals Ltd. & Anr.  And Union of India & Ors.  Vs.  M/s Saraf Natural Stone & Anr. in Civil Appeal Nos. – 2995-2996 OF 2022 and Civil Appeal Nos. – 2997-2998 OF 2022 held that the delay in the instant case is ranging from 94 to 290 days and not so inordinate, thus interest would be payable at the rate of 6% not 9%.  Further, the relevant provision has provided the rate of interest at 6% in case of refund governed by the principal provision of Section 56 of the Act.

The appeals have been preferred by the Appellant Revenue against the orders dated 10.07.2019 of Gujarat High Court in Special Civil Application No.18591 of 2018 and against the order dated 13.03.2020 passed in Review Petition arising therefrom being Misc (‘the first case’). Civil Application No.1 of 2019 and in Special Civil Application No.15925 of 2018 and against the order dated 13.03.2020 passed in Review Petition arising therefrom being Misc. Civil Application No.1 of 2019 (‘the Second Case’).

Facts: –

• The issue involved in both the cases (before the Hon’ble High Court) was regarding the interest amount to be remitted by the revenue for inordinate delay in granting refunds. It was the contention of the petitioner that inordinate delay impacted the working capacity of the Writ petitioners and reduced their ability to conduct business.
• That in the second case arises out of a Writ Petition, being Special Civil Application No.15925 of 2018 filed by M/s. Saraf Natural Stone. It was submitted by the petitioner that: –
  1. The Petitioner states that in terms of Section 16 of the IGST Act. The Integrated Goods and Services Tax Act, 2017, 2017, a registered person making exports of goods outside India, shall be eligible to claim, refund of either unutilized input tax credit on export of goods under bond or letter of undertaking or refund of Integrated tax paid on export of goods.
  2. It was further stated that Section 16(3) of the IGST Act, provides that refund should be claimed in accordance with the provisions of Section 54 of the CGST Act. That in view of rule 2 and Section 20 of the IGST Act further provides that provisions of CGST Act relating to refunds shall, mutatis mutandis, apply, so far as may be, in relation to Integrated tax as they apply in relation to central tax as if they are enacted under this Act.
  3. The rate of tax has been fixed at 6% and 9% vide Notification No’s – 13/2017- Central Tax, dated 28.06.2017 and Notification No.6/2017 – integrated tax dated 28.06.2017.
  4. The Petitioner further stated that there was substantial period of delay in receipt of refund. Thus, it was prayed to direct the respondents to provide appropriate compensation as well as interest, for delay in granting the refund.
• The details of 15 refunds made to the Writ Petitioner showed that there was delay ranging from 94 to 290 days.
• That in the first case, M/s Willowood Chemicals Pvt. Ltd., it was submitted that as per Section 16 of IGST read with Section 54 of the CGST, the petitioner is entitled for appropriate compensation for delayed payment of the refund. The First Case dealt with 12 refunds, delay ranging from 94 to 290 days.
• That the High Court vide its judgment dated 10.07.2019, in the second case held: – 
  1. after considering the submissions and taking reference of T. Plantation Pvt. Ltd. and Anr. v. State of Karnataka (2011) 9 SCC 1 , Sandvik Asia Ltd. v. Commissioner of Income Tax-I Pune and others (2006) 2 SCC 508 and Commissioner of Income Tax, Gujarat v. Gujarat Fluoro Chemicals (2014) 1 SCC 126, held that the position appears to be settled.
  2. The respondents have not explained the reasons of delay as raised by the Writ applicants.
  3. In the overall view of the matter, we are inclined to hold the respondents liable to pay simple interest on the delayed payment at the rate of 9% per annum
• That the first case was disposed of on the same day relying on the ratio laid down in the Second Case and the respondents were directed to pay the interest at the rate of 9% to the Writ Petitioner.
• The Appellant being aggrieved preferred review petitions in both the cases contending that ‘as per Section 56 of the CGST the interest may be granted at the rate of 6% however the Hon’ble Court was pleased to give interest at the rate of 9%.’
• The Hon’ble High Court vide separate orders dated 13.3.2020 dismissed both the review petitions. The above-mentioned orders are in challenge in the present appeal. 

Appellant’s Submissions: –

• That the appellants do not dispute the eligibility of interest on delayed payment of refund.
• However, it was submitted on the behalf of the Appellant that as per the statutory provisions the interest could be awarded at the rate of 6% not 9% per annum.

Held: –

• The Hon’ble Supreme Court after considering the submissions from the both sides took note of law stated in Section 16 & 20 of IGST Act, Section 54 & 56 of the CGST Act, and observed that in terms of Section 16 of the IGST Act to claim refund of either unutilized input tax credit of export of goods under bond or letter of undertaking or refund of integrated tax paid on export of goods and in terms of Section 20 any claim for refund is to be governed by the provisions of the CGST Act which would apply mutatis mutandis as if they were enacted in the IGST Act. Thus, the application of refund is required to be made in accordance with Section 54 of the CGST Act.
• That in terms of Section 56 if the refund is not granted to the applicant within 60 days from the date of receipt of application, interest would be payable at the rate of 6% from the receipt of application till the remittance of refund. However as per the proviso to the section if any refund arises out of any order passed by an Adjudicating Authority or Appellate Authority or Appellate Tribunal or Court and the refund is not granted within 60 days from the receipt of application, the interest would be payable at the rate of 9%, and the refunds in the instant case are not covered by the proviso.
• The Hon’ble Supreme Court took note of the decision in Union of India and others v. Orient Enterprises and Another (1998) 3 SCC 501, wherein it was observed that ‘a Writ Petition under Article 226 of the Constitution filed solely for relief for payment of interest on delayed refund would not be maintainable.’
• However, subsequently in the matter of Godavari Sugar Mills Ltd, this court was of the opinion that the Writ Petition is maintainable.
• The Hon’ble Supreme Court referred to the case of Modi Industries Ltd. and another v. Commissioner of Income Tax and Another (1995) 6 SCC 396, wherein it was held that ‘if the assessment order was reduced in appeal, no interest was payable from the date of payment of tax pursuant to the assessment order to the date of the appellate order.’ And also referred the decision of Godavari Sugar Mills Ltd.
• Further, reliance was placed on the decision of Sandvik Asia Ltd. (Supreme Court) wherein it was held that ‘There cannot be any doubt that the award of interest on the refunded amount is as per the statutory provisions of law as it then stood and on the peculiar facts and circumstances of each case. When a specific provision has been made under the statute, such provision has to govern the field. Therefore, the court has to take all relevant factors into consideration while awarding the rate of interest on the compensation.” And on the decision of Gujarat Fluoro Chemicals, wherein it was held that ‘In the facts of that case, this Court had come to the conclusion that there was an inordinate delay on the part of the Revenue in refunding certain amount which included the statutory interest and therefore, directed the Revenue to pay compensation for the same not an interest on interest.’
• The reliance placed by the High Court on the Constitution bench decision of this Court (Supreme Court) in T. Plantation Pvt. Ltd. and Anr., wherein issue of right to claim compensation when a person is deprived of his property was considered by this Court, is a completely different from the issue in the present case.
• Thereafter, the Hon’ble Supreme Court after considering the ratio laid down in the above judgments observed that relevant provisions of Section 56 provide for rate at 6%. Further the Hon’ble Court discussed the findings of the aforesaid judgments that ‘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. And ‘It must also be noted here that the inordinate delay of up to 17 years in making refunds was a special circumstance when this Court was persuaded to accept grant of interest at the rate of 9 per cent per annum in Sandvik Asia Ltd.
• That with all above discussions, the Hon’ble Supreme Court found that the delay in the present case is ranging from 94 to 290 days, which is not so inordinate.
• Lastly, it was held by the Hon’ble Supreme Court that the Hon’ble High Court was in error in awarding the interest at the rate of 9%. Thus, the interest would be awarded at the rate of 6% in terms of principal part of Section 56, and not 9% which would be awarded if the matter was covered with the proviso to Section 56.

The Hon’ble Court with the above findings allowed the appeal and directed that the original Writ Petitioners would be entitled to the interest at the rate of 6% as per Section 56 of the CGST Act.

To read the complete High Court judgment 2020 Taxo.online 335

To read the complete Supreme Court judgment 2022 Taxo.online 421