The court affirmed the right to interest under Section 56 of the CGST Act for delays in tax refunds and established that such delays, due to administrative inaction, should not detrimentally affect the taxpayer.

JUDGMENT :

Jitendra Jain, J.

1. Rule. The rule is made returnable immediately at the request and consent of the learned counsel for the parties.

2. By this petition under Article 226 of the Constitution of India, the Petitioner seeks interest on delayed payment of refund of tax as per Section 56 of the Central Goods and Services Tax Act, 2017 (“CGST Act”).

Brief facts :-

3. The Petitioner is an exporter and supplier of Ethyl Alcohol Liquid Packaging Film, Iodized salt, etc. On export of the goods, the Petitioner makes payment of Integrated Goods and Services Tax (“IGST”) and claims the refund of same based on shipping bills as per the provisions of Section 16(3) of IGST Act read with Section 54 of CGST Act and Rule 96 of CGST Rules.

4. During the period August 2018 to July 2019, the Petitioner filed various shipping bills, which are considered as refund applications and claimed a refund of IGST of Rs.3.21 crore. However, the refund was granted only in August 2020 after constant follow-up with Respondents. The Petitioner contends that the delay in the grant of refund is not attributable to her. On enquiry with the Respondents, the Petitioner was informed that the Petitioner’s name was flagged on the “risky exporters list” and, therefore, there was a delay on the part of the Respondents in granting the refund. The said red flag was removed on receipt of NOC from the Risk Management Centre for Customs on 3 August 2020, and thereafter, the refund was granted.

5. It is the case of the Petitioner that they were never informed about her name being red-flagged on the portal of Respondents, and it is only through enquiry from Respondents that she was informed about the same. In any case, the Petitioner submits that as per Circular No.16 of 2019, dated 17 June 2019, the investigation in cases of names appearing “names red flagged” is to be completed within 30 days and, therefore, at the most, the interest for 30 days during which the investigation ought to have been completed can be excluded for computing interest. Therefore, the Petitioner prayed that the Respondents be directed to grant interest for the delay following Section 56 of the CGST Act.

6. Per contra, Mr. Mishra, learned counsel for the Respondents, submits that as soon as the NOC was received in August 2020 from the Risk Management Centre for Customs, the red flag tag was removed, and the refund was granted. Therefore, there was no delay in the grant of the refund. Mr. Mishra strongly objected to the Petitioner's claim for a grant of interest. The Respondents made no other submissions.

7. We have heard learned counsel for the Petitioner and Respondents.

8. The short point that arises for our consideration is whether the Petitioner is entitled to interest under Section 56 of the CGST Act for the period starting from the expiry of 60 days from the date of filing the shipping bill up to the date of grant of refund, although during the interregnum, the Petitioner’s name was red flagged on the respondents' portal.

9. Section 56 of the CGST Act provides for the grant of interest on delayed refunds, and the same reads as under:-

“Section 56. Interest on delayed refunds.– If any tax ordered to be refunded under sub-section (5) of sectin 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 from the date immed