Interest on delayed GST refunds under Section 56 is automatic & statutory

Xilinx India Technology Services Pvt Ltd Vs Assistant Commissioner State Tax (Delhi High Court)

In a significant ruling, the Delhi High Court has directed the tax authorities to pay interest to Xilinx India Technology Services Pvt. Ltd. on its delayed GST refunds. The case, filed under Articles 226 and 227 of the Constitution of India, centered on the company’s petition to process its pending refund applications for several periods spanning from September 2019 to March 2024.

Background of the Case

Xilinx India had filed multiple refund applications for a total amount exceeding 竄ｹ2.22 crore. The company’s grievance arose after the tax authorities eventually sanctioned the refunds but failed to pay any interest, despite the significant delay in processing the applications. The petitioner’s counsel argued that under Section 56 of the Central Goods and Services Tax (CGST) Act, 2017, interest on delayed refunds is automatically payable.

The court noted that while refund orders had been passed, no interest was granted. The court’s order dated February 28, 2025, had initially directed the respondents to file a status report, which confirmed the sanctioning of the refunds but did not mention interest.

Judicial Precedent: The Raghav Ventures Case

To support its argument for automatic interest, the petitioner’s counsel cited the precedent set by a coordinate bench of the Delhi High Court in Raghav Ventures v. Commissioner of Delhi Goods & Services Tax [(2024) SCC OnLine Del 1398]. This case, which the court relied on heavily, dealt with a similar situation where a refund was sanctioned but without the corresponding interest.

In Raghav Ventures, the court had addressed the tax department’s objection that the petitioner had not explicitly claimed interest in their refund application (Form GST-RFD-01). The court meticulously analyzed Section 56 of the CGST Act, which states that if a tax refund is not processed within 60 days from the date of application, interest at a rate of 6% is payable from the 61st day until the date the refund is credited to the applicant’s bank account.

The court in Raghav Ventures made several key observations:

The payment of interest under Section 56 is statutory and automatic. It does not depend on a specific claim being made by the petitioner in the refund application.

The question of interest only arises if the refund is not granted within the stipulated 60-day period.

The tax department’s argument that the claim for interest was waived because it wasn’t included in the refund form was dismissed as being contrary to the clear provisions of the law.

A circular issued by the Central Board of Indirect Taxes and Customs (CBIC) (Circular No. 125/44/2019-GST dated November 18, 2019) was also referenced. This circular clarifies that a refund is considered complete only when the amount is credited to the applicant’s bank account. It also advises tax authorities to issue final sanction and payment orders within 45 days of the application’s ARN (Application Reference Number) generation to ensure the refund is disbursed within the 60-day timeframe.

Based on these principles, the court in Raghav Ventures concluded that the petitioner was entitled to statutory interest and directed the tax authorities to process the interest payment within four weeks.

The Court’s Holding in the Xilinx India Case

Applying the reasoning from the Raghav Ventures precedent, the Delhi High Court found the current case to be on all fours with the prior judgment. The court affirmed that the provision for interest under Section 56 of the CGST Act is mandatory and self-operative. The court’s ruling reinforces the principle that taxpayers are not required to make a separate claim for interest on delayed refunds; the interest becomes a legal entitlement once the 60-day statutory period has elapsed without the refund being credited.

The court’s final order directed the tax authorities to pay the interest owed to Xilinx India Technology Services Pvt. Ltd. within a period of two months. This decision is a reiteration of the judiciary’s stance on ensuring timely and proper redressal for taxpayers under the GST framework, holding that the government must adhere to the statutory timelines and penalties for delays. The case was disposed of, with all rights and remedies of the petitioner left open.

FULL TEXT OF THE JUDGMENT/ORDER OF DELHI HIGH COURT

1. This hearing has been done through hybrid mode.

2. The present petition has been filed by the Petitioner- Xilinx India Technology Services Pvt. Ltd. under Articles 226 and 227 of the Constitution of India inter alia seeking processing of the refund applications (hereinafter, ‘refund applications’) filed by the Petitioner for the periods-September, 2019 to March 2020, October 2021 to March, 2022, April 2022 to December 2022, January,2023 to June, 2023 and July 2023 to March, 2024.

3. The refund claimed in the refund applications are as under:

4. Vide order dated 28^thFebruary, 2025, this Court had issued notice and had directed the Respondents to place a Status Report on record. The said Status report has been filed on 15th April, 2025, as per which, the refund orders have been passed on the dates, as reflected in the above table.

5. The grievance of the Petitioner is that though the refund orders have been passed, no interest has been granted. The ld. Counsel for the Petitioner relies upon Section 56 of the CGST Act, 2017 to argue that the refund order is automatic in such cases. She also relies upon the decision of this Court of the Coordinate Bench in case of Raghav Ventures v. Commissioner of Delhi Goods & Services Tax, [(2024) SCC OnLine Del 1398] wherein the Court has observed as under:

“7. We have been informed that pending this petition, IGST refund for the tax period December 2022, February 2023, March 2023 and May 2023 has been sanctioned, but without interest. Petitioner claims that the said refund was credited into his account on 04.12.2023. He gave an application dated 06.12.2023 to the proper officer (Special Commissioner), Department of Trade & Taxes, praying for the grant of interest at the rate of 6% from the date of filing of refund applications till 03.12.2023.

8. Learned counsel for the respondent has raised objection to the grant of interest, arguing that vide FORM-GST-RFD-01, petitioner has only claimed the integrated tax and not the interest on the same and therefore he is not entitled for the grant of interest on the tax amount.

9. Section 56 of the CGST/DGST Act deals with the interest on delayed refunds. It provides that if any tax ordered to be refunded under sub-section (5) of Section 54 is not refunded within 60 days from the date of receipt of application under sub-section (1) of that Section, interest at the rate of 6% shall be payable in respect of such refund from the date immediately after the expiry of 60 days from the date of the receipt of the application till the date of refund of such tax.

10. Learned counsel for the petitioner drew our attention to Para 34 of the Circular issued by CBEC vide No. 125/44/2019-GST dated 18.11.2019, which reads as follows:-

“Section 56 of the CGST Act clearly states that if any tax ordered to be refunded is not refunded within 60 days of the date of receipt of application, interest at the rate of 6 per cent (notified vide notification No. 13/2017-Central Tax dated 28.06.2017) on the refund amount starting from the date immediately after the expiry of sixty days from the date of receipt of  application (ARN) till the date of refund of such tax shall have to be paid to the applicant. It may be noted that any tax shall be considered to have been refunded only when the amount has been credited to the bank account of the applicant. Therefore, interest will be calculated starting from the date immediately after the expiry of sixty days from the date of receipt of the application till the date on which the amount is credited to the bank account of the applicant. Accordingly, all tax authorities are advised to issue the final sanction order in FORM GST RFD-06 and the payment order in FORM GST RFD-05 within 45 days of the date of generation of ARN, so that the disbursement is completed within 60 days.”

11. It is manifest that interest under Section 56 of the Act becomes payable, if on the expiry of the period of 60 days from the date of receipt of the application for refund, the amount claimed is still not refunded. 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. Payment of interest does not depend on the claim made by petitioner and therefore cannot be denied on the ground of waiver on the claim of interest in FORM GST-RFD-01. Moreover, the question of payment of grant of interest arises only if the refund is not granted within 60 days from the date of receipt of application. No justification has been shown by the respondent for delay in payment of refund within the stipulated period. Thus, even though, the petitioner may not have claimed interest in his refund applications, his claim of interest cannot be denied under Section 56 of the Act as the same is mandatory and payable automatically in terms of the provisions of the Act.

12. In view of the above, we are of the opinion that petitioner is entitled to statutory interest at the rate of 6% starting from the date immediately after the expiry of sixty days from the date of receipt of refund applications till the date on which the refund is credited to the bank account of the petitioner. Respondent is accordingly directed to process the refund of interest and credit the same into the account of the petitioner within four weeks.”

6. Following this judgment as also in terms of the provision itself, it becomes clear that interest would be liable to be paid as calculated in terms of Section 56 of the CGST Act, 2017. It is accordingly directed that the interest be paid within a period of two months from now.

7. The present petition is disposed of. Pending application(s), if any, are also disposed of.

8. All rights and remedies left open.