In the Jwala Energy Case, the AP HC Correctly Awarded Interest for the Relevant Period but Applied 6% Instead of the Appropriate 9% Rate. A close reading of Section 56’s proviso shows that any refund flowing from a court order that has attained finality carries 9% interest — not the 6% the High Court awarded.
The point in one paragraph
In Jwala Energy Resources Pvt. Ltd. the Andhra Pradesh High Court correctly held that the petitioner was entitled to interest from the date of deposit till the date of refund, on the back of the constitutional principle that no one can retain money collected under an unconstitutional levy. That part of the ruling is sound. But the Court fixed the rate at 6% per annum. With respect, that rate is wrong. The CGST Act’s own framework prescribes 9% per annum for refunds that arise from an order of an Appellate Authority, Appellate Tribunal or court that has attained finality. Mohit Minerals is exactly such an order. The petitioner was short-changed by 3% per annum for the entire intervening period — on a deposit of ₹68.36 lakh, over roughly six years, that is the difference between approximately ₹20.5 lakh of interest (at 6%) and approximately ₹31 lakh (at 9%). A material amount on the same facts.
The statutory architecture for interest on refunds — read carefully
The GST Act has three distinct interest-bearing refund situations, and each carries a different rate.
Section 56, main clause. Where tax ordered to be refunded under Section 54(5) is not refunded within sixty days from the date of receipt of the refund application, interest is payable at a rate not exceeding six per cent (notified at 6%) for the period of delay beyond sixty days till the date of refund. This is the standard “delayed refund” rate — it deals with departmental sluggishness in processing routine refund applications.
Section 56, proviso. 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 is not refunded within sixty days from the date of receipt of the application filed consequent to such order, interest is payable at a rate not exceeding nine per cent (notified at 9%) from the date immediately after the expiry of sixty days from the date of receipt of application till the date of refund. This is the legislature’s own recognition that refunds flowing from judicial determinations sit on a higher rung than routine departmental refunds, and must bear a higher rate.
Section 56, Explanation. Where any order of refund is made by an Appellate Authority, Appellate Tribunal or any court against an order of the proper officer under Section 54(5), the order passed by the Appellate Authority, Appellate Tribunal or by the court shall be deemed to be an order passed under the said sub-section (5). This explanation is critical — it makes plain that the 9% rate under the proviso is not confined to orders technically passed under Section 54; it extends to any order of a court or appellate authority that operates against, or replaces, the proper officer’s refund decision.
Section 54(12). A narrower 6% rate for the specific situation where refund has been withheld under Section 54(11) on suspicion of malfeasance or fraud, and the taxpayer subsequently succeeds. Not relevant to Jwala Energy.
Section 115. Pre-deposits paid under Section 107(6) or 112(8) which are refundable consequent to an Appellate Authority or Tribunal order bear interest at the rate specified under Section 56 from the date of payment till the date of refund. The 9% rate flows here too where the refund arises from an order.
Section 54, Explanation (2)(d). The “relevant date” for limitation in a case where tax becomes refundable as a consequence of a judgment, decree, order or direction of an Appellate Authority, Appellate Tribunal or any court is the date of communication of such judgment. The legislature, in other words, expressly contemplated refunds arising from court orders — and built the framework around them.
Why the 9% rate applies to Jwala Energy
Apply this framework to the facts. The petitioner paid IGST under RCM on ocean freight in FY 2018-19. The Supreme Court in Union of India v. Mohit Minerals Pvt. Ltd. (19 May 2022) struck down the levy. The refund claim filed thereafter was made consequent to that ruling. The Supreme Court’s order has attained finality — there is no further appeal. This is, in every material respect, a refund that “arises from an order passed by … court which has attained finality” — the exact language of the proviso to Section 56.
The High Court itself recognised this. The Court framed the refund as flowing “directly from the declaration of law by the Supreme Court in Mohit Minerals.” Having so framed the refund — and having further passed its own direction for refund with interest — both the Mohit Minerals order and the AP HC’s own order squarely fall within the proviso. The Explanation to Section 56 reinforces the conclusion: a refund directed by a court, against an order of the proper officer (here, the rejection of interest), is deemed to be an order under Section 54(5).
There is no escape from the proviso. The proviso’s notified rate is 9%. The award of 6% in Jwala Energy cannot be reconciled with the statutory hierarchy.
The deeper reasoning — why 6% is structurally wrong
Even leaving aside the textual argument, the 6% rate is structurally wrong for three reasons.
First, hierarchy of seriousness. The 6% rate under the main clause of Section 56 is the rate for departmental delay in processing routine refund applications. The 9% rate under the proviso is the rate for refunds that flow from a judicial determination. The latter is intrinsically more serious — it reflects a situation where the taxpayer has had to litigate to recover money. To put a refund flowing from a Supreme Court ruling on unconstitutionality on the same rate as a refund delayed by a clerk in a Commissionerate is inconsistent with the gradation the legislature itself has built.
Second, the constitutional argument cuts the same way. The High Court grounded the right to interest in the constitutional principle of restitution — loss of use of money must be compensated. But that principle requires full compensation. The notified rate that best reflects what the State itself considers a fair rate of compensation in court-ordered refund situations is 9%, not 6%. Awarding 6% is to compensate the taxpayer at a discount to what the State’s own framework prescribes for the closest analogous statutory situation.
Third, parity within the Act. Section 115 expressly imports the rate specified under Section 56 for refunds of pre-deposits flowing from appellate orders. The Tribunal-stage pre-deposit refund is one of the cleanest examples of a court-ordered refund and bears 9%. There is no principled reason why a refund flowing from a Supreme Court ruling on unconstitutionality should bear 6% when a refund of a Tribunal-stage pre-deposit bears 9%.
The takeaway for the next defender drafting the prayer
This is not a footnote. It is the difference between approximately ₹20.5 lakh and approximately ₹31 lakh of interest on the Jwala Energy facts — roughly a 50% understatement of the petitioner’s entitlement. The same understatement multiplied across every refund claim flowing from Mohit Minerals, every refund claim flowing from constitutional rulings going forward, and every refund claim where the statutory authority has ignored the proviso to Section 56, is a meaningful national number.
For the next defender preparing a similar refund claim, three drafting moves follow.
One, plead Section 56 proviso expressly in the petition. Do not let the Court treat this as a pure constitutional restitution case — make the statutory anchor visible. “The refund herein arises from an order of the Hon’ble Supreme Court (Mohit Minerals) which has attained finality. The proviso to Section 56 of the CGST Act, 2017 prescribes interest at the rate not exceeding nine per cent, notified at 9% per annum, for refunds arising from such orders.”
Two, rely on the Explanation to Section 56 to neutralise any argument that the refund did not technically arise under Section 54(5). The Explanation deems any court-directed refund to be an order under that sub-section.
Three, on the temporal point, retain the constitutional argument from Jwala Energy — interest from the date of deposit, not merely from sixty days after the application — but combine it with the 9% rate under the proviso. The proviso governs the rate; the constitutional principle governs the period. Both work together, both must be invoked, both must be reflected in the prayer.
The Jwala Energy ruling is, on balance, a win for taxpayers. But it is a partial win. The defender’s job is to take the principle the next step — and recover the additional 3% per annum that the statute itself has already conceded.
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