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In an order that will offer some succour to exporters, the Gujarat High Court directed the Department of Revenue, Ministry of Finance to pay interest to a party at the rate of 9% per annum for delay in granting refund under the Integrated Goods and Services Tax (IGST) Act.
The petitioner, M/S Saraf Natural Stone, had approached the High Court seeking compensation and interest for the substantial delay in making payment of the refund of Integrated Tax paid on the export of goods.
As per Section 16 of the IGST Act, 2017, a registered person making exports of goods outside India shall be eligible to claim refund of either unutilized input tax credit on export of goods under bond or letter of undertaking, or refund of integrated tax paid on export of goods. It is also provided that the refund should be claimed in accordance with Section 54 of the CGST Act and its Rules.
Section 54 of the CGST Act states that such a refund should be made in a time-bound manner. Further, Rule 91 of the CGST Rules, 2017 provides that the provisional refund is to be granted within seven days from the date of acknowledgment of the refund claim.
The two aforementioned provisions state that a registered person exporting goods is entitled to provisional refund of 90% of his refund claim within a period not exceeding seven days from the date of the acknowledgment unless he has been prosecuted for any offence under the Act or under an existing law where the amount of tax evaded exceeds two hundred and fifty lakh rupees.
Moreover, Section 56 of the CGST Act provides that if any tax ordered to be refunded under Section 54 is not refunded within sixty days from the date of receipt of application, interest at a rate not exceeding six per cent as may be granted.
The Central Government had, vide a 2017 notification, fixed the rate of interest for Integrated Tax at 9% per annum.
Appearing before a Division Bench of Justices JB Pardiwala and AC Rao, the petitioner company submitted that there was no option available on the GST portal to enable claims of compensation/interest on delayed refund. The petitioners had also approached the jurisdictional GST authority, who stated that refund-related processing is done exclusively through the GST portal.
It was further submitted that the exporter company received the refund of Integrated Tax after a substantial period of delay, severely impacting its working capital and diminishing its ability to continue its business. Therefore, it sought compensation and interest in terms of Section 16 of the IGST Act.
On the other hand, the respondents argued that unless there is a specific provision for entitlement of interest or refund, the same would not be available since equity has no role to play in tax matters.
The Bench, however disagreed with this submission. It held,
“It is true that in the taxing statute the principles of equity may have little role to play, but at the same time, any statute in taxation matter should also meet with the test of constitutional provision.”
Noting that the respondent authorities did not explain the delay in granting the refund, the Court directed them to pay simple interest on delayed payment at the rate of 9% per annum.
Such payment is required to be made within two months of the order, the Court further stated.
The petitioner company was represented by Advocates Vinay Shraff, Nipun Singhvi and Vishal Dave.