• Dated 02^nd July, 2025

Delhi High Court Upholds Taxpayer’s Right to Interest on Delayed GST Refunds

Brief Facts:

The Assessee, MSGS Industries, filed two GST refund applications on 4th and 9th July 2019. Subsequently, deficiency memos were issued by the department on 29th November 2019. The Assessee responded to these memos on 27th January 2020, and acknowledgements under FORM GST RFD-02 were generated on 11th February 2020. However, the refund was not processed within the statutory period of 60 days as provided under Section 54(7) of the CGST Act. Although the Appellate Authority later allowed the refund claim through an Order-in-Appeal dated 3rd January 2022, the department failed to act on the order, prompting the Assessee to file a second writ petition. Following High Court intervention, the refund was finally sanctioned on 9th June 2023.

Assessee's Contention:

The Assessee contended that the department failed to issue the deficiency memos within the mandatory 15-day period prescribed under Rule 90 of the CGST Rules, which should entitle them to pay interest from completion of 60 days after the date of the original refund applications. They argued that the limited interest granted only for 74 days was arbitrary and contrary to Section 56 of the CGST Act. According to the Assessee, they were entitled to interest for the entire period of delay, excluding only the days they took to respond to the deficiency memo.

Department's Contention:

The department submitted that the deficiency memos were based on genuine shortcomings in the refund applications and that interest liability could only begin once the deficiencies were cleared, which occurred on 11th February 2020. They defended their calculation of interest, stating that it was based on the timeline after the Hon'ble High Court's order, and that the 74-day period during which the Assessee had delayed in responding to the deficiency memo had been rightly excluded from the interest computation.

Decision:

The Court held that the Assessee could not be denied interest for the delay caused by the Department in issuing the deficiency memos, as they were not issued within the prescribed 15 days. However, the Assessee's own delay of 74 days in responding to the deficiency memo could not be ignored and had to be excluded from the interest calculation. The Court ruled that interest at 6% per annum was payable for the period from 7th September 2019 to 4th April 2022, after excluding the 74-day delay. Further, since the second refund application was filed pursuant to an appellate order, the interest rate was enhanced to 9% per annum from 5th April 2022 to 9th June 2023. The interest already paid by the department was to be deducted from the total interest payable, and the balance was to be paid to the Assessee.

BTA's Comment:

This judgment ensures a balanced interpretation of the law by protecting the rights of taxpayers while also recognizing equitable limitations. It reinforces that delays on the part of the department in issuing deficiency memos cannot defeat the taxpayer's right to interest. At the same time, it sensibly excludes periods where the delay was attributable to the Assessee. The ruling highlights the importance of adhering to procedural timelines and serves as a precedent on the calculation of interest in refund cases, ensuring that the interest serves as a true compensation for delayed payments rather than an unjust enrichment.

Case reference: Devendra Singh Rathore Versus CGST and CX, Arunachal Pradesh (2025) 31 Centax 225 (Gau.) [03-06-2025]

Author: Soumaditya Chakroborty

Edited by: Shaily Gupta