Decoding the Entitlement to Interest on Delayed GST Refunds

A. Introduction:

The Goods and Services Tax (GST) at its core promises that legible tax paid on Zer rated supply, any excess tax paid or unutilised credit due to the taxpayer will be promptly returned. However, the verification procedure often involves procedural delays, interpretational issues, converting the taxpayer’s rightful claim into a financial burden.

It is in this crucial space that Section 56 of the Central Goods and Services Tax (CGST) Act, 2017, emerges as the definitive safeguard. Titled “Interest on delayed refunds,” this provision transforms the government’s obligation to refund into a statutory liability to compensate to some extent for the time value of money lost.

This entitlement is a vested, non-negotiable right, a principle that has been consistently and forcefully upheld by High Courts across the nation, effectively creating a jurisprudence of compensatory justice in the GST landscape.

This article throws detailed light upon landmark cases such as Raghav Ventures, SBI Cards & Payment Services Limited, Bansal International, and Lupin Limited, to clarify the genesis, scope, and mandatory nature of this crucial entitlement.

I. The Foundational Mandate:

Section 56 operates on a simple, certain premise: when the state holds a citizen’s money beyond a stipulated period, it must pay for the privilege. This is not punitive action against the government, but rather a restorative measure to compensate the taxpayer for the direct cost of being deprived of their working capital.

The Standard Statutory Threshold: 60 Days

The main provision of Section 56 sets the baseline for administrative efficiency:

“If any tax ordered to be refunded… is not refunded within sixty days from the date of receipt of application… interest at such rate not exceeding six per cent.… shall be payable…”

This language establishes three non-negotiable operational truths:

A. The Unconditional Obligation: “Shall be Payable”

The word “shall” is the operational essential of the section. It removes all discretion from the tax officer. Once the 60-day period expires without the refund being credited, the liability for interest is automatically triggered. It is an accrued statutory debt owed by the government to the taxpayer.

B. The Baseline Compensation: 6% per annum

Rate of 6% per annum.  is deemed adequate compensation for the commercial use of the taxpayer’s funds during the period of administrative delay.

C. The Start Date: The Date of the Initial Application

Critically, the 60-day period begins from the date of receipt of the original refund application (filed under Section 54(1), usually in Form GST RFD-01). This date is sacrosanct and cannot be casually reset by the tax authorities, a principle that forms the cornerstone of judicial review under this section.

II. The Automatic Right: Dismantling the ‘No Claim, No Interest’ Fallacy

A persistent and common administrative contention is the rejection of interest claims on the grounds that the taxpayer did not explicitly tick the “interest claimed” box in their original refund application form (RFD-01). This administrative interpretation attempts to convert a statutory right into a procedural formality. The judiciary has unequivocally crushed this.

The Raghav Ventures Ruling: Interest Accrues, It Is Not Claimed

In the landmark case of Raghav Ventures [2024 (3) TMI 118] the Delhi High Court explicitly stated:

The payment of interest under Section 56 of the Act being statutory is automatically payable without any claim, in case the refund is not made within 60 days from the date of receipt of the application.

This decision rests on sound legal reasoning:

1. Timing Disconnect: The refund application is filed before the 60-day deadline expires. At the time of filing, no delay has yet occurred, and therefore, no right to interest has arisen. A taxpayer cannot prospectively waive a right that has not yet been triggered.

2. Statutory Over Procedural: The court established that a statutory mandate like Section 56 cannot be overridden or extinguished. The interest liability is a direct consequence of the Act itself, flowing from the government’s failure to adhere to the statutory timeline, not the taxpayer’s affirmative claim.

3. Mandatory Compensation: The principle is simple: the moment the department retains the funds for 61 days, the interest clock starts, and that liability is borne by the exchequer.

Key Takeaway: This means that even if a sanction order is silent on interest, or if the client had forgotten to claim it, the right remains alive and can be enforced through a writ petition, as the failure to pay interest is a direct breach of a statutory duty.

III. Protecting the Timeline: The Sanctity of the Original Application Date

The Revenue often seeks to manipulate the interest calculation by arguing that the “relevant date” for computing the 60-day period should be the date of a subsequent application, such as one filed after a deficiency memo or a court order. This attempt to ‘reset the clock’ of the government’s liability has been firmly rejected by the judiciary.

The SBI Cards Doctrine: Money Lies with the Revenue

The Punjab and Haryana High Court’s in SBI Cards & Payment Services Limited [2023 (2) TMI 815] where the Revenue attempted to argue that since the refund was eventually sanctioned under the direction of the High Court, the interest period should only commence from the date of the fresh application filed pursuant to the High Court’s order.

The Court’s analysis was pragmatic and powerful:

…the money lain with the respondents for the continuous period of two and a half years…

The crux of the ruling is that regardless of the administrative twists and turns-whether the claim was initially rejected, delayed by procedural errors, or ultimately sanctioned by a court-the fundamental fact remains: the taxpayer’s funds were continuously held and used by the government. Therefore, the compensation must reflect the entire period of deprivation, starting from the 61st day of the original RFD-01 application. Any other interpretation would reward administrative inefficiency and penalise the taxpayer for the time spent seeking justice.

The Judicial Balancing Act: Excluding Taxpayer-Attributable Delay

While the interest right is robust, courts and specifically Rule 94 of the CGST Rules, 2017 acknowledge that a taxpayer cannot benefit from their own delay. Periods attributable to the applicant’s failure to respond to deficiency memos or provide necessary information are excluded from the interest calculation. This ensures a balanced, fair approach, where the interest is truly compensatory for the government’s delay, not the applicants.

IV. Compensation for Conflict: The Two-Tiered Interest Mechanism

The legal fight for a refund is fundamentally different from a standard administrative delay. When a taxpayer is forced to challenge a rejection order through the Appellate Authority, Tribunal, or High Court, they incur significant litigation costs and face prolonged financial distress. The proviso to Section 56 addresses this reality by mandating an enhanced rate of interest.

The Proviso: A Premium on Litigation Success

The proviso states that where a refund claim arises from an order of an Appellate Authority or Court which has attained finality, and is not refunded within 60 days of the consequent application, an enhanced interest rate (notified as 9% per annum) shall be payable.

This creates a mandatory Two-Tier Interest Structure that covers the entire period of delay:

Tier 1: The Initial Administrative Delay (The 6% Period)

 Tier 2: The Post-Judicial Delay (The 9% Period)

The Bansal International [2023 (11) TMI 958] and Lupin Limited[ 2025 (8) TMI 703] Synthesis:

The Delhi High Court, in Bansal International and the Bombay High Court, in Lupin Limited provided the authoritative roadmap for this calculation.

The Lupin Limited judgment, in particular, reinforces the holistic view of the law: the fresh application filed after a successful appeal is merely a procedural step to trigger the final sanction process; it is not a fresh claim that nullifies the original delay. The court directed the payment of interest to start from the 61st day of the original application, effectively covering the entire period of deprivation under the dual-rate mandate.

Professional Imperative: When drawing the litigation strategy, the entitlement to 9% interest on the delayed refund amount post-appellate success must be factored into the commercial viability and expected recovery, as this enhanced rate acts as a strong restraining against prolonged administrative non-compliance.

V. Conclusion:

The courts’ mandatory directives in these cases necessitate a systemic change in the Revenue’s approach. Since the interest is automatic and statutory, the department in principle, not require any separate claim or subsequent application to process the 6% interest due on delayed refunds. The very act of sanctioning a refund beyond the 60-day window should trigger a simultaneous automatic calculation and disbursement of the interest.

The jurisprudence around Section 56 of the CGST Act, 2017, is a testament to the principle that a modern, equitable tax system must provide robust remedies against administrative failure. The entitlement to interest on delayed GST refunds is an unassailable right rooted in the concept of compensatory justice.