Supreme Court on Interest on Delayed GST Refund: 6% Under Section 56 – Willowood Chemicals [2022 INSC 430]

Interest on delayed GST refund – Supreme Court ruling explained with headnote, key holdings, important paragraphs and FAQs.

The Supreme Court has held that interest on a delayed refund of integrated tax paid on exports is payable at 6 per cent per annum under the principal part of Section 56 of the CGST Act, and not at 9 per cent. The higher rate under the proviso applies only where the refund claim arises from an order of an adjudicating authority, Appellate Authority, Appellate Tribunal or court. The Gujarat High Court had awarded 9 per cent for delays of 94 to 290 days. The Court set that award aside because the statute itself fixes the rate, and it noted that interest at 6 per cent had already been paid. (paras 12–20)

Headnote

Goods and Services Tax — Refund — Interest on delayed refund — Rate of interest — Integrated Goods and Services Tax Act, 2017, Ss. 16 and 20; Central Goods and Services Tax Act, 2017, Ss. 54 and 56 and proviso to S. 56

Exporters who had paid integrated tax on exports received their refunds 94 to 290 days late. The Gujarat High Court directed the Revenue to pay simple interest at 9% per annum and later dismissed the Revenue's review petitions. Before the Supreme Court, the Union did not dispute that interest was payable; it contended only that the rate was capped at 6%. — Held, (i) a refund of integrated tax paid on exports is claimed under Section 16 of the IGST Act read with Section 20 of that Act, which applies Sections 54 and 56 of the CGST Act; (ii) the refunds here did not arise from any order of an adjudicating authority, Appellate Authority, Appellate Tribunal or court, so the cases fall under the principal part of Section 56 and not its proviso; (iii) where a statute specifies or regulates interest, interest is payable on the statutory terms, and Sandvik Asia, which involved delays of up to 17 years, does not apply to delays of 94 to 290 days; (iv) the High Court erred in awarding interest above 6%; appeals allowed, with the writ petitioners held entitled to interest at 6% per annum, already paid.

(Paras 9, 12–13, 18–21)

Judgment Intelligence

Key Holdings

• An exporter who pays integrated tax on exports is entitled under Section 16 of the IGST Act to a refund. Under Section 20 of the IGST Act, the refund claim is governed by the CGST Act, so it must be made under Section 54 of the CGST Act (para 12).
• Under the principal part of Section 56, if a refund ordered under Section 54(5) is not paid within 60 days of the application, interest of up to 6% is payable from the end of those 60 days until the date of refund (para 12).
• The 9% rate under the proviso applies only where the refund claim arises from an order of an adjudicating authority, Appellate Authority, Appellate Tribunal or court and is not paid within 60 days of the application filed after that order (para 12).
• These refunds did not arise from any such order, so the cases fall strictly within the principal part of Section 56 and not its proviso (para 13).
• Where a statute specifies or regulates interest, interest is payable on the statute's terms. Interest on equitable grounds at a reasonable rate arises only where the statute is silent and does not bar interest (para 18).
• The 9% rate in Sandvik Asia was granted because of an exceptional delay of up to 17 years. Delays of 94 to 290 days are not comparable and must be decided under the statute (paras 18–19).
• The High Court erred in awarding interest above 6%. The writ petitioners are entitled to 6% per annum, which had already been paid (paras 19–20).

Brief Facts

M/s. Saraf Natural Stone and M/s. Willowood Chemicals Pvt. Ltd. were exporters who had paid integrated tax on goods exported out of India and claimed refunds under Section 16 of the IGST Act read with Section 54 of the CGST Act. The refunds were granted late: the delays across 15 refunds to Saraf Natural Stone and 12 refunds to Willowood Chemicals ranged from 94 to 290 days. Both filed writ petitions before the Gujarat High Court. They argued that the inordinate delay was arbitrary and had reduced their working capital, and they asked for compensation and interest. They relied on Notification No. 13/2017-Central Tax and Notification No. 6/2017-Integrated Tax, which fixed interest at 6% and 9% for Section 56 and its proviso respectively (paras 3–5).

By its judgment of 10.07.2019 in Saraf Natural Stone's case, the High Court held the Revenue liable to pay simple interest at 9% per annum from the date of filing of GSTR-3B. Willowood Chemicals' petition was allowed the same day for the same reasons. The Revenue's review petitions, which argued that Section 56 allowed no more than 6%, were dismissed on 13.03.2020. In the Supreme Court, the Union did not dispute that interest was payable and challenged only the rate. Under interim directions, interest at 6% had already been paid (paras 6–9).

Issue (para 13)

1. Where a refund of integrated tax paid on exports is delayed, and the refund did not arise from an order of an adjudicating authority, Appellate Authority, Appellate Tribunal or court, was the High Court justified in awarding interest at 9% per annum instead of the rate prescribed under the principal part of Section 56 of the CGST Act?
2. Can a High Court, relying on equitable principles and decisions such as Sandvik Asia, award interest above the rate the statute itself specifies?

Court's Findings

The statutory scheme: The Court set out Sections 16 and 20 of the IGST Act and Sections 54 and 56 of the CGST Act. It explained that refund claims under the IGST Act are governed by the CGST Act's refund provisions, which apply as if enacted in the IGST Act. Section 56 has two parts. Under the principal part, interest of up to 6% runs from the end of 60 days after the application is received. Under the proviso, interest of up to 9% applies to refunds arising from adjudicating, appellate, tribunal or court orders (paras 11–12).

The proviso does not apply: These cases did not arise from any order of an adjudicating authority, Appellate Authority, Appellate Tribunal or court. They fall strictly within the principal part of Section 56 and not its proviso, which framed the only question: whether 9% could be awarded (para 13).

Maintainability not an obstacle: The Court noted that Orient Enterprises had held that a writ petition seeking only interest on a delayed refund was not maintainable. It also noted that Godavari Sugar Mills later held such a petition maintainable in similar circumstances. The Court then went on to the merits (paras 14–16).

The statute governs the rate: Relying on Modi Industries and Godavari Sugar Mills, the Court held that where a statute specifies or regulates interest, interest is payable on the statute's terms. The rate above the statutory rate in Godavari Sugar Mills covered only the period beyond 20 years, which the statute did not cover. Sandvik Asia granted 9% because of a delay of up to 17 years, and even there the Court said that a specific statutory provision governs the field. Gujarat Fluoro Chemicals noted that the 9% in Sandvik Asia was granted on the facts of that case. K.T. Plantation, a case about the validity of an acquisition statute, was held to concern a "completely distinct and different" issue (paras 16–18).

Application: The delays of 94 to 290 days were not as inordinate as in Sandvik Asia, so the matter had to be decided purely under the statute. Under the principal part of Section 56, interest is payable at 6%, and 9% applies only to cases covered by the proviso (para 19).

Final Outcome / Directions (paras 20–21)

• The Union of India's appeals were allowed.
• The original writ petitioners were held entitled to interest at 6% per annum on the amounts due to them as refund of tax.
• Since those amounts had already been paid with interest at 6% per annum, nothing further was required in either case.
• No order as to costs.

Legal Principle

Under the GST law, interest on a delayed refund is a statutory entitlement, and its rate is the rate the statute fixes. Refunds of integrated tax paid on exports are governed by Sections 54 and 56 of the CGST Act through Section 20 of the IGST Act. Where the refund does not arise from an order of an adjudicating authority, Appellate Authority, Appellate Tribunal or court, the principal part of Section 56 applies and interest is limited to the notified rate of 6% per annum. A writ court cannot award a higher rate on equitable grounds where the statute specifies or regulates interest. Equitable interest at a reasonable rate is available only where the statute is silent and does not bar it, or in exceptional situations outside the statute, such as the very long delays in Sandvik Asia.

Precedents Relied Upon

• Union of India v. Orient Enterprises, (1998) 3 SCC 501 – Referred to · Discussed at para 14: it had held that a writ petition seeking only interest on a delayed refund was not maintainable.
• Godavari Sugar Mills Ltd. – Relied upon · Discussed at paras 15, 16 and 18: writ petition for interest held maintainable; where a statute specifies interest, the statutory rate governs.
• Modi Industries Ltd. v. Commissioner of Income Tax, (1995) 6 SCC 396 – Relied upon · Discussed at paras 16 and 18: there is no right to interest on a refund except as the statute provides.
• Sandvik Asia Ltd. v. Commissioner of Income Tax-I, Pune, (2006) 2 SCC 508 – Distinguished · Discussed at paras 16, 18 and 19: 9% was granted for an inordinate delay of up to 17 years, which is not comparable to delays of 94 to 290 days.
• Commissioner of Income Tax, Gujarat v. Gujarat Fluoro Chemicals, (2014) 1 SCC 126 – Relied upon · Discussed at paras 16 and 18: the 9% in Sandvik Asia was granted on the facts of that case.
• K.T. Plantation Pvt. Ltd. v. State of Karnataka, (2011) 9 SCC 1 – Distinguished · Discussed at para 17: it dealt with compensation under Article 300-A in an acquisition case, an issue distinct from interest on refunds.

Important Paragraphs of the Judgment

Para 9: "The appellants do not dispute the eligibility of the respondents for receiving interest for delayed payment of claims but their submission is that in terms of the relevant statutory provision, the interest could be awarded at the rate of 6 per cent and not 9 per cent per annum."

Para 13: "The instant cases have not arisen from any order passed by an Adjudicating Authority or Appellate Authority or Appellate Tribunal or Court and the cases are strictly within the scope of the principal provision of Section 56 and not under the proviso thereof."

Para 18: "… wherever a statute specifies or regulates the interest, the interest will be payable in terms of the provisions of the statute."

Para 19: "The award of interest at 9 per cent would be attracted only if the matter was covered by the proviso to the said Section 56. The High Court was in error in awarding interest at the rate exceeding 6 per cent in the instant matters."

What the Ruling Means: Practical Impact

• Ordinary refund delays carry 6% interest: Exporters whose refunds of integrated tax are paid late, without any adjudication or appeal in between, get 6% per annum under the principal part of Section 56, starting 60 days after the application is received.
• 9% needs an order behind the refund: The higher rate applies only where the refund claim arises from an order of an adjudicating authority, Appellate Authority, Appellate Tribunal or court that has attained finality, and the refund is not paid within 60 days of the application filed after that order.
• Limits on writ courts: High Courts may hear writ petitions seeking interest on delayed refunds, but where the statute fixes the rate they cannot award more on equitable grounds.
• Pleading Sandvik Asia: Taxpayers relying on Sandvik Asia should note that the Court treated it as resting on an exceptional delay of up to 17 years, not as authority for a higher rate generally.

Frequently Asked Questions

What rate of interest applies to a delayed refund of IGST paid on exports?

Where the refund does not arise from an order of an adjudicating authority, Appellate Authority, Appellate Tribunal or court, interest is payable at 6% per annum under the principal part of Section 56 of the CGST Act, which applies through Section 20 of the IGST Act (paras 12, 13 and 19).

When is 9% interest payable under Section 56?

Only under the proviso: where the refund claim arises from an order of an adjudicating authority, Appellate Authority, Appellate Tribunal or court that has attained finality, and the refund is not paid within 60 days of the application filed after that order (paras 12 and 19).

Was the writ petition seeking interest on a delayed refund maintainable?

The Court noted that Godavari Sugar Mills had held such petitions maintainable, departing from the earlier view in Orient Enterprises, and it decided the case on the merits (paras 14–16).

Why did the Court not follow Sandvik Asia, where 9% was granted?

In Sandvik Asia, 9% was granted because of an inordinate delay of up to 17 years, and even that judgment said a specific statutory provision governs the field. The delays here were 94 to 290 days, so the statute decided the rate (paras 18–19).

Did the exporters have to refund any interest already received?

The judgment records that, under interim directions, interest at 6% per annum had already been paid, and it held that nothing further needed to be done in either case (paras 9 and 20).

Judgment Copy

Judgment PDF: 2022 INSC 430 – Union of India v. M/s Willowood Chemicals Pvt. Ltd. (official copy, sci.gov.in)

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