Facts of the case:

In this case, the petitioner approached the Gujarat High Court challenging an order passed in Form GST RFD-06 rejecting its refund claim for excess interest paid on delayed filing of GSTR-3B returns. The petitioner had deposited the tax amounts in the Electronic Cash Ledger before the due date for filing returns for all the relevant tax periods except one month, but interest was subsequently demanded by the department on the premise that returns had been filed belatedly.

After paying the disputed interest through Form GST DRC-03 pursuant to an audit objection, the petitioner sought refund of the excess interest by relying upon the Gujarat High Court’s earlier decision in Arya Cotton Industries, which had categorically held that interest is chargeable only up to the date of deposit of tax into the Electronic Cash Ledger and not up to the date of filing of the return when sufficient balance already existed in the ledger. The petitioner also pointed out that the proviso inserted in Rule 88B of the CGST Rules pursuant to the recommendations of the 53rd GST Council Meeting embodied the very principle laid down in Arya Cotton Industries. Despite these submissions, the refund claim was rejected solely on the ground that the amendment to Rule 88B was prospective in operation.

Issue:

Whether the GST authorities were justified in rejecting the refund of excess interest merely by holding that the proviso inserted in Rule 88B of the CGST Rules operates prospectively, despite the binding judgment of the Gujarat High Court in Arya Cotton Industries holding that interest cannot be levied beyond the date of deposit of tax into the Electronic Cash Ledger?

Held that:

The Gujarat High Court allowed the writ petition and quashed both the refund rejection order and the consequential recovery notice. The Court held that the authorities had completely ignored the binding precedent laid down in Arya Cotton Industries, despite the petitioner repeatedly bringing the judgment to their notice. It observed that the subsequent insertion of the proviso to Rule 88B merely incorporated the legal principle already declared by the High Court and could not be used as a ground to deny relief for earlier periods. 

The Court described the department’s approach as a “classic case of selective denial,” observing that while the authorities accepted that the ratio of Arya Cotton Industries applied to the petitioner’s case, they nevertheless rejected the refund by taking shelter behind the prospective operation of Rule 88B. Such an approach, according to the Court, was arbitrary and reflected complete non-application of mind to a binding judicial precedent. Accordingly, the Court directed the respondents to refund the excess interest along with statutory interest at 6% per annum within six weeks, failing which the refund would carry 12% interest for every week of delay.

The Court also imposed costs of ₹5,000 on the department for its unjustified conduct.

Case Name: Anas Enterprise Versus Union of India & Anr. dated 16.07.2026

To read the complete judgement 2026 Taxo.online 2004