Bombay High Court Holds Department Liable to Pay Interest on Delayed IGST Refunds Under Section 56 of CGST Act

Background and Context
The petitioner, engaged in the export business, sought a writ of mandamus for the release and refund of IGST paid on zero-rated supplies, along with applicable interest. The dispute arose after the petitioner’s goods were seized by customs authorities on allegations of mis-declaration of value, leading to an adverse adjudication order. This order was subsequently set aside by the Commissioner (Appeals) for violation of principles of natural justice and lack of substantive evidence. The appellate decision was upheld by the Customs, Excise and Service Tax Appellate Tribunal (CESTAT), and the Department accepted the outcome, releasing the goods and refunding most of the IGST, except for a portion related to three consignments.

Issue and Submissions
The core issue before the Bombay High Court was whether the petitioner was entitled to interest on the delayed refund of IGST under Section 56 of the Central Goods and Services Tax Act, 2017. The petitioner argued that the Department was statutorily bound to pay interest on the delayed refund, citing the scheme of Sections 54 and 56 of the CGST Act and relying on the Court’s earlier decision in Ms. Anita Agarwal v. Union of India. The Department, in its reply, contended that interest was not payable due to bona fide administrative processes and the absence of malafide intent.

Court’s Reasoning
The Court examined Section 56 of the CGST Act, which mandates payment of interest if any tax ordered to be refunded is not paid within sixty days from the date of receipt of the refund application. The Court noted that the petitioner had made a valid application and that the assessment of shipping bills itself constituted an application for refund. The process attained finality after the appellate and tribunal orders, and the refund was ultimately granted during the pendency of the petition.

The Court emphasized that the statutory obligation to pay interest on delayed refunds is clear and unambiguous. It rejected the Department’s argument that administrative or investigative delays could justify withholding interest, observing that such a stance disregards both the binding appellate orders and the express provisions of Section 56. The Court also referred to relevant circulars and policy guidelines, highlighting the importance of timely refunds for exporters’ working capital and the broader objective of facilitating ease of doing business.

Legal Principle and Decision
The Bombay High Court held that, on a conjoint reading of Sections 54 and 56 of the CGST Act, the Department is under a clear obligation to process refund applications within the prescribed time and to pay interest in cases of delay. The Court found the Department’s reply to be mechanical and contrary to the record and binding legal provisions.

Accordingly, the Court made the rule absolute in terms of the prayer for interest on the delayed refund, directing the Department to comply within four weeks. The judgment reinforces the statutory right of exporters to receive interest on delayed tax refunds and underscores the Department’s duty to adhere to the timelines and legal mandates under the CGST Act.