Interest on Delayed Refunds under GST Act, 2017

As per Section 56 of the Act, you are entitled to interest on GST refunds that are not processed within the stipulated timeframe. The applicable interest rates and calculation periods vary depending on the context:

1. Regular Refunds under the GST Act, 2017:

• Interest Rate:6% per annum.
• Calculation Period: From the 61st day after the date of receipt of your refund application until the date of refund payment.

2. Refunds Arising from Appellate Orders under the GST Act, 2017:

• Interest Rate:9% per annum.
• Calculation Period: From the 61st day after the date of receipt of your application following the finalized appellate order until the date of refund payment.

Important Notes under the GST Act, 2017:

• The 60-day processing window starts from the date your complete and valid refund application is received by the authorities.
• Interest computation is based on actual days passed, not rounded off.
• If your refund claim is rejected, you are not entitled to interest.
• Interest is calculated on the entire eligible refund amount.
• While no official notification has been issued yet, Budget 2023 proposed amending Section 56 to clarify the calculation period for regular refunds. Once notified, any updates will be reflected.

General Framework under the GST Act, 2017:

• Section 56 of the CGST Act, 2017:This section mandates that if a GST refund is not processed within 60 days of receiving the application, the government must pay interest on the refund amount.
• Interest Rate: The current interest rate for delayed refunds is 6% per annum.
• Calculation Period: Interest starts accruing from the day after the 60-day processing period lapses and continues until the date the refund is credited to your account.

Finding Specific Details for Your State under the GST Act, 2017:

1. Identify the relevant State VAT/Sales Tax Act under the GST Act, 2017:Each state has its own pre-GST legislation. Knowing the specific act will help you understand if there are any additional provisions related to interest on delayed GST refunds.
2. Check State GST Department Website under the GST Act, 2017:Most state GST department websites have dedicated sections on refunds and interest calculations. Look for information on Section 56 of the CGST Act and any state-specific rules.
3. Consult a Tax Professional under the GST Act, 2017:If you’re unsure about the calculations or have specific questions about your case, it’s best to consult a chartered accountant or tax advisor familiar with your state’s GST laws.

Example (Hypothetical) under the GST Act, 2017:

State: Maharashtra Refund Amount: ₹10,000 Delay in Processing under the GST Act, 2017: 90 days (beyond the 60-day limit)

Interest Calculation under the GST Act, 2017:

• Interest Rate = 6% per annum
• Number of days beyond 60 days = 30 days
• Interest = (10,000 * 6 * 30) / (365 * 100) = ₹5

Unfortunately, I can’t provide a complete example without knowing the specific state in India you’re interested in. Each state has its own Sales Tax or Value Added Tax (VAT) laws that existed before GST, and these rates can sometimes influence the calculation of interest on delayed refunds.

However, I can provide you with the general framework for calculating interest on delayed GST refunds in India and guide you on finding the specific details for your chosen state:

General Framework under the GST Act, 2017:

• Section 56 of the CGST Act, 2017 under the GST Act, 2017:This section mandates that if a GST refund is not processed within 60 days of receiving the application, the government must pay interest on the refund amount.
• Interest Rate under the GST Act, 2017:The current interest rate for delayed refunds is 6% per annum.
• Calculation Period under the GST Act, 2017:Interest starts accruing from the day after the 60-day processing period lapses and continues until the date the refund is credited to your account.

Finding Specific Details for Your State under the GST Act, 2017:

1. Identify the relevant State VAT/Sales Tax Act under the GST Act, 2017:Each state has its own pre-GST legislation. Knowing the specific act will help you understand if there are any additional provisions related to interest on delayed GST refunds.
2. Check State GST Department Website under the GST Act, 2017:Most state GST department websites have dedicated sections on refunds and interest calculations. Look for information on Section 56 of the CGST Act and any state-specific rules.
3. Consult a Tax Professional under the GST Act, 2017:If you’re unsure about the calculations or have specific questions about your case, it’s best to consult a chartered accountant or tax advisor familiar with your state’s GST laws.

Example (Hypothetical):

State: Maharashtra Refund Amount: ₹10,000 Delay in Processing: 90 days (beyond the 60-day limit)

Interest Calculation under the GST Act, 2017:

• Interest Rate = 6% per annum
• Number of days beyond 60 days = 30 days
• Interest = (10,000 * 6 * 30) / (365 * 100) = ₹5

Unfortunately, I can’t provide a complete example without knowing the specific state in India you’re interested in. Each state has its own Sales Tax or Value Added Tax (VAT) laws that existed before GST, and these rates can sometimes influence the calculation of interest on delayed refunds.

However, I can provide you with the general framework for calculating interest on delayed GST refunds in India and guide you on finding the specific details for your chosen state:

General Framework under the GST Act, 2017:

• Section 56 of the CGST Act, 2017:This section mandates that if a GST refund is not processed within 60 days of receiving the application, the government must pay interest on the refund amount.
• Interest Rate: The current interest rate for delayed refunds is 6% per annum.
• Calculation Period: Interest starts accruing from the day after the 60-day processing period lapses and continues until the date the refund is credited to your account.

Finding Specific Details for Your State under the GST Act, 2017:

1. Identify the relevant State VAT/Sales Tax Act: Each state has its own pre-GST legislation. Knowing the specific act will help you understand if there are any additional provisions related to interest on delayed GST refunds.
2. Check State GST Department Website under the GST Act, 2017:Most state GST department websites have dedicated sections on refunds and interest calculations. Look for information on Section 56 of the CGST Act and any state-specific rules.
3. Consult a Tax Professional under the GST Act, 2017:If you’re unsure about the calculations or have specific questions about your case, it’s best to consult a chartered accountant or tax advisor familiar with your state’s GST laws.

Example (Hypothetical) under the GST Act, 2017:

State: Maharashtra Refund Amount: ₹10,000 Delay in Processing: 90 days (beyond the 60-day limit)

Interest Calculation under the GST Act, 2017:

• Interest Rate = 6% per annum
• Number of days beyond 60 days = 30 days
• Interest = (10,000 * 6 * 30) / (365 * 100) = ₹5

                                      FAQ QUESTIONS

Q: When am I entitled to interest on a delayed GST refund under the GST Act, 2017?

A: You are entitled to interest on a delayed GST refund in two situations:

1. Statutory Interest under the GST Act, 2017:If the refund is not processed and credited to your account within 60 days from the date of filing the application, you are entitled to interest at the rate of 6% per annum.
2. Interest on Orders under the GST Act, 2017:If the refund arises due to an order passed by an adjudicating authority or an appellate authority (e.g., after an appeal), you are entitled to interest at the rate of 9% per annum, if the refund is not processed within 60 days from the date of communication of the order.

Q: How is the interest calculated under the GST Act, 2017?

A: The interest is calculated on the amount of the delayed refund from the 61st day after the application/order was filed/communicated, until the date the refund is credited to your account.

Q: Do I need to do anything to claim the interest under the GST Act, 2017?

A: No, you don’t need to file any separate application to claim the interest. It is automatically calculated and credited to your account along with the refund amount.

CASE LAWS

1. M/s. Panji Engineering Private Limited v. Union of India [R/SPECIAL CIVIL APPLICATION No. 560 of 2022]:

• The Gujarat High Court held that an assessee is entitled to interest on delayed GST refunds if the department disburses the refund beyond the statutory period of 60 days from the application date.
• This case relied on the precedent set in Ranbxi Laboratories Ltd. v. Union of India(2011), where the Supreme Court established the principle of awarding interest on delayed tax refunds.

2. M/s. Refex Industries Limited Vs The Assistant Commissioner [Writ Petition No. 4553 of 2020] under the GST Act, 2017:

• The Madras High Court clarified that interest under Section 56 of the CGST Act applies only to the cash component of the delayed refund, not the Input Tax Credit (ITC).
• This judgment highlights the distinction between cash and ITC components within the GST system.

3. M/s. Vatsana Steel Pvt. Ltd. Vs CCE, Vadodara [Order-in-Appeal No. 20875 (Vadodara) of 2019] under the GST Act, 2017:

• The Appellate Authority for Indirect Taxes (AAIT) held that interest is payable on delayed refunds even if the delay is due to bona fide reasons.
• This case emphasizes that the department’s reasons for delay are not a consideration for awarding interest.

4. M/s. Jindal Power Ltd. Vs CCE, Raipur [Order-in-Appeal No. 2421 (Raipur) of 2019] under the GST Act, 2017:

• The AAIT ruled that interest is calculated from the day after the expiry of the 60-day period prescribed for refunds, not from the date of the order granting the refund.
• This clarifies the specific starting point for interest accrual in delayed refund cases.

5. M/s. KSP Steel Ltd. Vs The Commissioner of Central Goods and Service Tax, Jaipur [Writ Petition No. 5246 of 2020] under the GST Act, 2017:

• The Rajasthan High Court held that the department cannot deny interest on delayed refunds due to technical glitches in the GST portal.
• This case highlights the department’s accountability for ensuring proper system functionality and its impact on timely refunds.

It’s important to note that these are just a few examples, and the specific details of each case may vary. If you have a specific situation involving delayed refunds, it’s recommended to consult with a legal professional specializing in GST matters for tailored advice