Hypothetical Question on section 56 of the Central Goods and Services Tax, Act, 2017[1]

Facts

Presume that Mr C is running a business of ZYX Private limited in the State of NCT of Delhi. The company was incorporated under the provisions of the Companies Act, 2013, having its registered office in Delhi. The company is engaged in the business of manufacturing and trading electrical goods like electric wires, Cables, etc. The ZYX Private Limited is registered under the Central Goods and Services Tax Act, 2017 bearing registration No.0000.

That the Manager along with the team (Accounts and Finance) hereinafter referred to as the “accounts team” have filed the returns as per the rules and regulations framed under the Central Goods and Services Tax Act, 2017. The accounts team filed the refund application dated 01.02.2021 as per section 54 of the Central Goods and Services Tax Act, 2017.

The refund application was processed dated 01.03.2021 however the refund amount was paid in tranches by the department to ZYZ Private Limited. The first tranche was received on 15.05.2021 and the second tranche was received on 20.06.2021. Pursuant to the refund in the account of ZYZ Private Limited. The accounts team informed the same to Director (Accounts and Finance) about the information that the refund was processed in tranches. The Director (Accounts and Finance Team) told the accounts team to resolve the issue if any.

Rule

That section 56 of the Central Goods and Service Tax Act, 2017 is reproduced hereinbelow:

“56. Interest on delayed refunds – 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 the receipt of an 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 from the date immediately after the expiry of sixty days from the date of receipt of application under the said sub-section till the date of refund of such tax.

Provided that where any claim of refund arises from an order passed by an adjudication 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 recommendation of the Council shall be payable in respect of such refund the date immediately after the expiry of sixty days from the date of receipt of application till date of refund.

Explanation- For the purpose of this section, where any order of refund is made by an Appellate Authority, Appellate Tribunal, or any court against an order of the proper officer under sub-section (5) of section 54, 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).”

Analysis

As per section 56 of the CGST, Act, 2017 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 an application under sub-section (1) of that section, interest at such rate not exceeding six per cent. In the present case in hand, the refund amount was received by the company in tranches and the same was received beyond the sixty days as per the details mentioned hereinabove. In the light of the circumstances, the same shall ought to be received with the interest amount to the tune of 6 per cent. However, the same was not received with an interest amount. The accounts team has informed the same to the Director of the company.

Conclusion

That Section 56 of the CGST Act, 2017 is very clear w.r.t to the refund application and the same mention about the interest on the delayed refunds. The remedy is available to those assessees who meet the requirements stipulated in the said section. The said section can only be triggered when there is a delay in the refund amount to the assesses beyond 60 days period counted from the date of the receipt of the application. As in the present case, the delay was beyond 60 days period therefore the interest amount ought to be transferred.

The author of this article can be reached at [email protected] for any discussion or clarification. Please feel free to drop a mail.

[1] Deepanshu Arora holds a degree in B. Com from the University of Delhi.

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