Introduction
The recovery of pre-deposit amounts after a successful appeal is often a point of contention between taxpayers and the GST department. While the refund of the principal amount is rarely disputed, the entitlement to interest from the date of payment is frequently misunderstood by both taxpayers and authorities. A common error is the application of general refund rules under Section 54, leading to the denial of interest for the first 60 days. This article provides a comprehensive analysis of Section 115 and the recent definitive stance taken by the Supreme Court of India.
The Statutory Framework: Section 115 vs. Section 56
The legal basis for interest on pre-deposit refunds is found in Section 115 of the CGST Act, 2017. It states that where an amount paid for admission of an appeal (under Section 107 or 112) is required to be refunded due to an order in Favor of the appellant, interest shall be payable.
The “Date of Payment” Rule
Unlike general refunds, where interest kicks in only after a 60-day delay from the application date (Section 56), Section 115 mandates interest from the date of payment of the amount till the date of refund. There is no “grace period” for the department under Section 115.
Borrowing the Rate, Not the Procedure
The confusion often stems from the language of Section 115, which mentions “interest at the rate specified under section 56”. However, judicial interpretation has clarified that Section 115 only borrows the interest rate from Section 56 and does not import its procedural hurdles, such as the 60-day waiting period or the requirement of a formal refund application under Section 54.
The Judicial Milestone: BLA Infrastructure Case
The Supreme Court of India, in the case of State of Jharkhand v. BLA Infrastructure Pvt. Ltd. (2026), provided much-needed finality to this discussion.
- Vested Right: The Court held that the refund of a statutory pre-deposit is a vested right once the assessee succeeds in appeal.
- Inapplicability of Section 54: The Court explicitly stated that such refunds are governed by Section 107(6) read with Section 115, and not Section 54.
- Limitation Period: Consequently, the 2-year limitation period for filing refund claims under Section 54 does not apply to the refund of pre-deposits.
- Mandatory Interest: The State or Centre cannot retain these amounts by citing the directory provisions of other sections; interest is mandatory in accordance with the law.
Comparative Analysis
| Feature | General Refund (Sec 54/56) | Pre-Deposit Refund (Sec 115) |
| Applicability | Standard refund claims | Consequent to Appellate Order |
| Interest Commencement | After 60 days of application | From Date of Payment |
| Time Limit | 2 years from the relevant date | Not Applicable (Vested Right) |
| Interest Rate | 6% (General) or 9% (Proviso) | Borrowed from Sec 56 (usually 6%) |
Practical Implications for Professionals
1. Maintain Documentation: Ensure all GST PMT-06 challans used for pre-deposit are preserved, as they establish the “Date of Payment” for interest calculation.
2. Calculate Correctly: Interest should be computed from the payment date using the formula: (Pre-deposit Amount × Rate% × No. of days) / 365.
3. Challenge Deficiency Memos: If the department issues a deficiency memo citing Section 54’s 2-year limit or denies interest for the first 60 days, professionals should cite Section 115 and the Supreme Court ruling in BLA Infrastructure.
4. Automatic Entitlement: Taxpayers should demand interest as an automatic part of the refund process without needing a separate application, as it is a statutory exercise.
Conclusion
The Supreme Court’s ruling in BLA Infrastructure reinforces the principle that statutory pre-deposits are held by the government in trust during the appeal process. Once the appeal is decided in Favor of the taxpayer, the amount must be returned with interest from the day it was paid. Understanding the independence of Section 115 is crucial for tax professionals to protect their clients’ financial interests and ensure full compliance with the law.
Extract of Section – 56, Central Goods And Services Tax Act, 2017
Interest on delayed refunds.
56. 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 15a 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.
Explanation.—For the purposes 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).
Extract of Section – 115, Central Goods And Services Tax Act, 2017
Interest on refund of amount paid for admission of appeal.
115. Where an amount paid by the appellant under sub-section (6) of section 107 or sub-section (8) of section 112 is required to be refunded consequent to any order of the Appellate Authority or of the Appellate Tribunal, interest at the rate specified under section 56 shall be payable in respect of such refund from the date of payment of the amount till the date of refund of such amount.
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About the Author: Meet Jadawala is a Chartered Accountant and Partner at Jadawala and Shah, specialising in Indirect Tax and GST advisory.
Disclaimer: This article provides practical insights based on the statutory provisions and their implications for various business models and compliance requirements across different industry sectors. Nothing contained in this document is to be construed as a legal opinion or professional view of the author or the firm whatsoever. The content is intended strictly for informational and educational purposes. While due care has been taken in preparing this analysis, certain technical inaccuracies or omissions may occur due to the evolving nature of tax laws. The author and the firm do not accept any liability for any loss or damage of any kind arising out of any inaccurate or incomplete information in this document, nor for any actions taken in reliance thereon. Readers are advised to seek specific professional advice before acting on any information contained herein.
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