Introduction
Delayed GST refunds continue to be one of the most litigated issues under the GST regime. A particularly contentious area is the grant of interest on refunds that are sanctioned only after appellate proceedings. The tax department frequently insists that interest should be calculated only from the date when a fresh refund application is filed pursuant to the appellate order. However, High Courts have been pushing back against this narrow interpretation.
Statutory Provisions
Section 56 of the CGST Act, 2017 deals with interest on delayed refunds. The main provision states that if a refund is not granted within sixty days from the date of receipt of the refund application under Section 54(5), interest becomes payable at the prescribed rate (not exceeding 6%).
The Section 56 is particularly important in appeal-related cases which is as follows:
“If any tax ordered to be refunded under sub-section (5) of section 54, to any applicant is not refunded within sixty days from the date of receipt of application under sub-section (1) of that section, interest at such rate not exceeding six per cent. as may be specified in the notification issued by the Government on the recommendations of the Council shall be payable in respect of such refund 1[for the period of delay beyond sixty days from the date of receipt of such application till the date of refund of such tax, to be computed in such manner and subject to such conditions and restrictions as may be prescribed]:
Provided that 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 sixty days from the date of receipt of application filed consequent to such order, interest at such rate not exceeding nine per cent. as may be notified by the Government on the recommendations of the Council shall be payable in respect of such refund from the date immediately after the expiry of sixty days from the date of receipt of application till the date of refund.”
The key question that keeps coming up is this: When a refund is granted after an appellate order, does the 60-day period (and consequently the interest) start from the original refund application or from the fresh application filed after the appeal succeeds?
Department’s Stand vs Judicial View
The department’s usual practice is to treat the post-appeal refund application as a fresh claim. They calculate interest only from the date of this new application, effectively wiping out the interest for the entire period the matter remained stuck in adjudication or appeal. Taxpayers, on the other hand, argue that this approach is unfair and defeats the compensatory nature of interest under Section 56.
Important Judicial Pronouncements
Delhi High Court – Bansal International v. Commissioner of DGST (2023) The Court took a clear stand that appellate proceedings are merely a continuation of the original refund proceedings. It held that asking the assessee to file a fresh refund application after the appellate order is only a procedural requirement. It cannot be used to deny or curtail the substantive right to interest. The Court ruled that interest must be computed from the date of the original refund application.
Telangana High Court – Qualcomm India Pvt. Ltd. v. Deputy Commissioner (ST) (2024) In this judgment, the Court emphasized the compensatory character of interest. It observed that once the taxpayer is found entitled to the refund, the department cannot escape liability for interest merely because the matter went into litigation. The delay, irrespective of the reason or stage, has to be compensated.
Bombay High Court – Lupin Limited v. Union of India (2025) The Bombay High Court reinforced the above views. It held that procedural formalities cannot override substantive statutory rights. The Court observed that the department cannot keep postponing its liability to pay interest by insisting on fresh applications when the refund claim was already pending since the original filing. Interest has to be granted reckoning the original application date.
Emerging Legal Position
A consistent view is now emerging across High Courts that:
- Interest under Section 56 is a statutory and compensatory right.
- Filing a fresh refund application after an appellate order is only a procedural step.
- It does not reset the clock for interest calculation.
- The liability to pay interest crystallizes after 60 days from the original refund application.
Practical Takeaways for Taxpayers
1. Always keep proper records of the original refund application date, ARN, and supporting documents.
2. When a refund is received pursuant to an appellate order, independently calculate the interest payable from the due date linked to the original application.
3. If the department grants refund with incorrect or nil interest, file a proper representation citing the above judgments before approaching the High Court.
4. In cases where significant amounts are involved, consider approaching the High Court directly, as the legal position is now reasonably well-settled in favour of the taxpayer.
Conclusion
The judiciary has consistently leaned towards protecting the taxpayer’s right to interest as a compensatory measure. Courts have made it clear that technicalities and procedural requirements cannot be used as a tool to deny legitimate interest on delayed refunds.
While the law and judicial precedents are increasingly favourable, taxpayers still need to remain vigilant and proactive. Proper documentation and timely follow-up can make a significant difference in successfully claiming interest on GST refunds arising out of appellate orders.
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