FEBRUARY 03, 2020

By L S Karthikeyan, Advocate

"Did we nurture this crop with water?
Almighty!! We protected this with our tears!!
Do you will this to wither"

-  Subramania Bharathi (rough translation from Tamil)

1.  THERE are many provisions in the GST Law which have been carefully drafted to overcome judicial pronouncements procured by legal acumen and untiring efforts of stalwarts under Central Excise/Service Tax provisions.

2.  One such provision relates to payment of interest to assessees (presently known as taxpayers/registered person) in the case of delayed refunds. The provisions relating to interest on delayed refunds under the Customs/Central Excise/Service Tax were inserted by the Finance Act, 1995 and read as under:

Customs Act, 1962 :

SECTION 27A. Interest on delayed refunds. - If any duty ordered to be refunded under sub-section (2) of section 27 to an applicant is not refunded within three months from the date of receipt of application under sub-section (1) of that section, there shall be paid to that applicant interest at such rate, [not below five per cent] and not exceeding thirty per cent per annum as is for the time being fixed [by the Central Government by Notification in the Official Gazette], on such duty from the date immediately after the expiry of three months from the date of receipt of such application till the date of refund of such duty.

Central Excise Act, 1944 (made applicable to Service Tax also)

SECTION11BB. Interest on delayed refunds. - If any duty ordered to be refunded under sub-section (2) of section 11B to any applicant is not refunded within three months from the date of receipt of application under sub-section (1) of that section, there shall be paid to that applicant interest at such rate, [not below five per cent] and not exceeding thirty per cent per annum as is for the time being fixed [by the Central Government, by Notification in the Official Gazette], on such duty from the date immediately after the expiry of three months from the date of receipt of such application till the date of refund of such duty :

3.  Even before insertion of the above provisions, the claims for interest have been allowed in a few decisions by the Courts, while in some cases such claim were denied for want of specific provisions.

4.   In the case of S.M. Varkey Vs Collector of Customs, Madras - 1986 (26) ELT 798 (Tribunal), the Tribunal did not accede to the request for ordering payment of interest because of long delay on the ground that ' there is no provision in the Act for payment of interest in respect of sums found due to an assessee or to the Department; Interest is not charged either way. '

5.  In the case of Geep Industrial Syndicate Ltd Vs Union of India - 1990 (47) ELT 311 All . the High Court had extracted the following portion from Life Insurance Corporation of India and another v . Gangadhar Vishwanath Ranade (dead) by L. Rs. 1989 (4) Supreme Court Cases 297:

"Obviously the assignee of the policies who had become entitled to receive ' the amounts due thereunder on the dates of their maturity, must be compensated by the L.I.C. for its failure to perform its statutory obligation under Section 226(3)(vi) of the Income Tax Act, 1961 within a reasonable time . . . performance of this statutory obligation by the L.I.C., in the present case, being after inordinate delay, award of interest to the assignee of the policies to whom the payment thereunder had to be made even according to the stand of the L.I.C. is, therefore, clearly justified."

6.  The High Court had ruled that after the LIC decision, there is no virgin field liability on interest and where the public bodies retained the amount belonging to individuals, arbitrarily of unjustly, they are liable to pay interest. The Court held that Section 11B(3) of Central Excise Act, 1944 case a statutory duty to refund the amount as a result of an appellate order. The Court observed that the instruction of the Department dated 20.8.1986 which reiterated such duty should have owned interest liability. It was held that the Court can grant an extra-ordinary remedy under Article 226 for a legal injury as public interest dictates and equity projects.

7.   However, in the case of Union of India Vs E. Merck (India) - 1998 (97) ELT 218 (SC), the Apex Court had noted that " there is no statutory or legal basis of the claim of interest indicated in the writ petition to furnish a ground for issuance of writ of mandamus" and reversed the decision of the High Court issuing a Writ of Mandamus directing the revenue to pay interest @ 12% as compensation for delay in refunding excess duty paid by the Petitioner.

8.   Meanwhile, the provisions for payment of interest under both Customs and Central Excise Acts have been inserted into the provisions vide Finance Act, 1995. It is significant that the provisions were inserted simultaneously with Section 28AA under Customs Act, 1962 and Section 11AA under Central Excise Act, 1944 providing for interest on delayed payment of duties.

9. The Rajasthan High Court in the case of J.K. Cement Works Vs Assistant Commissioner of Central Excise and Customs - 2004 (170) ELT 0004 (Raj) had noted that the Supreme Court decision in the case E.Merck has been rendered on 8.12.94 i.e. before insertion of Section 11BB and the insertion of the provision has made a vital difference ' for imposing liability to pay interest on the refund amount if amount of refund claimed is not paid within the time fixed in the statute'. The High Court had held that Section 11B prescribes that refund is to be paid within three months from the date of the application and no separate decision is required to pay interest ( para 21 refers) .

10.   However, the Departmental Officers invented new grounds for denying interest the most prominent being that the refund is determined only from the date of sanction order (if any) or the Appellate order which has attained finality and therefore interest could be paid only if the refund is not made within three months from the date of such order. There were also number of instances where the assessees were asked to give an undertaking that they would not insist on payment of interest, as a condition for release of locked up refunds.

11.   The Central Board of Excise and Customs, expressing concern over receipt of large number of representations issued Circular No.670/61/2002-CX dated 1.10.2002 wherein it was admitted that in a majority of cases, no reason is cited for not granting interest and wherever reasons are given, the same are found to be very vague and unconvincing. The Board instructed that the officers need not look for instructions from the superiors or in the appellate orders to grant interest if the refund is not sanctioned within three months from the date of application as provided in Section 11BB.

12.   The Courts also came to the rescue of the assessee holding that the provisions clearly lay down that interest is payable after the expiry of three months ' from the date of receipt of such application till the date of refund' and there is nothing in the provisions which indicates that the interest becomes liable only from the date of order determining the eligibility for refund.

13.   The Allahabad High Court in Hamdard Wakf Laboratories Vs Union of India 2005 (188) ELT 476 (All.) held that the legislature had cast a duty upon the adjudicating authority to decide the refund claim immediately within three months failing which the liability for interest start running after excluding three months from the date of application. The High Court held that ' Liability for payment of interest is statutory and, therefore, it was the bounden duty of the Assistant Commissioner of Central Excise to also pay interest at the rate specified under Section 11BB of the Act' (para 6).

14.   The Supreme Court in the case of Ranbaxy Laboratories Limited Vs Union of India - 2011-TIOL-105-SC-CX ruled that ' the only interpretation of Section 11BB that can be arrived at is that interest under the said Section becomes payable on the expiry of a period of three months from the date of receipt of the application under sub-section (1) of Section 11B of the Act' and that the Explanation under Section 11BB ' does not have any bearing or connection with the date from which interest becomes payable' (para 9).

15.   In the case of Pfizer Products India Private Limited Vs Commissioner of Customs & ST, Bangalore - 2015-TIOL-442-CESTAT-BANG, interest was denied on the ground that the refund was sanctioned but kept in the Consumer Welfare fund for a considerable time. The Tribunal held that such a stand is implausible and contrary to the statutory provisions and has stated:

"12. .. . The object behind insertion of interest provisions in Section 27A of the Act is that interest is compensatory in character. The beneficiary of the principal amount is entitled for compensation in the form of interest because, he is deprived of its right of claim for a considerable period of time at the discretion of the person responsible for paying the amount.."

16. The Department was not willing to give up and filed an appeal before High Court of Karnataka which lead the Court to impose costs and order additional interest @9% (besides the notified interest) CC Airport & ACC, Bangalore Vs Pfizer Products India Private Limited - 2015-TIOL-1958-HC-KAR-CUS. The Court held:

"13. What we now find (which has also been contended by learned counsel for the respondent-Company) is that the appellant has been misinterpreting the law, and thereby depriving the respondent from its rightful claim of interest, even after the order for refund of the amount had been made upto the Supreme Court. Not only that, the interest has been denied to the respondent even though the order directing payment of interest was made by the Tribunal on 21-5-2014, which was based on a decision of the Supreme Court. Merely because of the pendency of this appeal, though there was no stay order granted, the appellant has thus, without any valid reason, further delayed the payment of interest for a period of over 15 months from the date of the order of the Tribunal dated 21-5-2014. On having been questioned as to whether the appellant would stall recovery proceedings against any defaulting assessee merely if the assessee files an appeal and there is no stay order, the learned counsel for the appellant could not say that the Department would stall any such recovery in the absence of interim order passed by the competent authority or Court. If that be so, if no interim order was granted in favour of the Revenue in this appeal, it is not understood as to why the refund of interest was not paid to the assessee for these 15 months.

14. in such circumstances, we are of the opinion that the respondent would be entitled to costs or compensation for the high-handedness of the appellant, by initially not refunding the amount for over 12 years, and then refusing to pay the interest even after the order of the Tribunal, and dragging the respondent into litigation up to the High Court, although the matter was fully covered by the decision of the Apex Court in the case of Ranbaxy Laboratories Ltd. (supra)."

17. While the position was such under Central Excise/Customs law, in Sandvik Asia Limited Vs Commissioner of Income Tax-I, Pune - 2006-TIOL-07-SC-IT, interpreting provisions in the Income Tax Act, 1961, the Apex Court had even ordered interest on interest. Under the caption 'Assuming that there is no provision in the Act for payment of compensation, compensation for delay is required to be paid in view of decision of inter alia this Court :' the Court has held that:

28. In our view, there is no question of the delay being 'justifiable' as is argued and in any event if the revenue takes an erroneous view of the law, that cannot mean that the withholding of monies is 'justifiable' or 'not wrongful'. There is no exception to the principle laid down for an allegedly 'justifiable' withholding, and even if there was, 17 (or 12) years delay has not been and cannot in the circumstances be justified.

18.   Further, under the caption Whether on general principles the assessee ought to have been compensated for the inordinate delay in receiving monies property due to it?, the Supreme Court has observed:

'42. In the impugned order, the Bombay High Court has held that no compensation is required to be paid since ".... there was a serious dispute between the parties, which was ultimately ordered to be paid pursuant to the order passed by this Court on 30-4-1997. Undisputedly, the amount pursuant thereto was paid on 27-3-1998...". The Court further held that since the amount was paid once the controversy was resolved there was no wrongful retention of monies. No authority can ever accept an obligation to make payment and simply refuse to pay. In each and every case an authority must at least claim to act in accordance with law and hence claim it has no obligation to pay for some reason or another. When the claims of the authority are found to be unsustainable or erroneous by the Courts it follows that the authority has acted wrongfully in the sense of not in accordance with law and compensation to the party deprived must follow. If the decision of the High Court is upheld it would mean that there can never be any wrongful retention by an authority until this Court holds that their stand is not in accordance with law. Therefore, that on this issue as well, the impugned judgment cannot be sustained and ought to be reversed.'

19.   In Ajanta Leather Fashion (P) Ltd Vs Commissioner of Customs (Port), Kolkata - 2007 (218) ELT 624 (Tri. Kol) the Tribunal had put the principle in granting interest on delayed refund succinctly as ' It should also be appreciated that the appellants having been deprived from the year 1996 from its liquidity which ought to be restituted by virtue of their success in the Hon'ble Apex Court, there should not be denial of restitution with interest. This follows the right to equity under general law for the liquidity foregone'.

20   It has also been held in many cases that interest under Section 11BB is applicable in respect of specific notifications allowing refund of Service Tax paid on input services consumed by SEZ Reliance Industries Ltd Vs CCE &ST, Rajkot - 2014-TIOL-2096-CESTAT-AHM and also for refund of CENVAT Credit under Rule 5 of the Cenvat Credit Rules, 2004 Commissioner of Central Excise Vs Reliance Industries Ltd (Guj) - 2010-TIOL-928-HC-AHM-CX, Commissioner of Central Tax Vs Netapp India Pvt Ltd - 2019-TIOL-1395-HC-KAR-CX .

21.   Even in the case of pre-deposit consequent to favourable orders in favour of assessees, interest has been ordered by Tribunals/Courts if the amount is not refunded within three months from the date of order. The CBEC had issued Circular No.802/35/2004-CX dated 8.12.2004 as assured to the Supreme Court during the hearing of Commissioner of Central Excise, Hyderabad Vs I.T.C. Ltd - 2004-TIOL-112-SC-CX-LB. In the Circular it was inter alia instructed that

' 5. Delay beyond this period of three months in such cases will be viewed adversely and appropriate disciplinary action will be initiated against the concerned defaulting officers. All concerned are requested to note that default will entail an interest liability, if such liability accrues by reason of any orders of the CESTAT/Court, such orders will have to be complied with and it may be recoverable from the concerned officers'.

22.   Section 35FF, providing for interest for refund of pre-deposit was inserted in the Central Excise Act, 1944 with effect from 10.5.2008 and amended from 6.8.2014 and the above instruction was issued even when there was no statutory provision.

23.   The long history as narrated above would show that, when the amount due to an assessee is withheld for a long period, payment of interest is not merely a question of law. The question of fairness and equity is integrally connected to the principle. The fact that the provisions for interest on delayed payment of duties were brought in simultaneously with the insertion of provisions for payment of interest on delayed refunds (albeit lesser rate of interest was prescribed for the later) shows the balanced approach of the legislature.

24. However, the wisdom through such rich jurisprudence has been thrown to the wolves and the clock set back by about 25 years in the GST provisions. The CGST Act, 2017 (and the 25 odd SGST Acts) provides as under:

SECTION 56. Interest on delayed refunds. - If any tax ordered to be refunded under sub-section (5) of section 54 to any applicant is not refunded within sixty days from the date of receipt of application under sub-section (1) of that section, interest at such rate not exceeding six per cent. as may be specified in the notification issued by the Government on the recommendations of the Council shall be payable in respect of such refund from the date immediately after the expiry of sixty days from the date of receipt of application under the said sub-section till the date of refund of such tax :

Provided that where any claim of refund arises from an order passed by an adjudicating authority or Appellate Authority or Appellate Tribunal or court which has attained finality and the same is not refunded within sixty days from the date of receipt of application filed consequent to such order, interest at such rate not exceeding nine per cent. as may be notified by the Government on the recommendations of the Council shall be payable in respect of such refund from the date immediately after the expiry of sixty days from the date of receipt of application till the date of refund.

Explanation. - For the purposes of this section, where any order of refund is made by an Appellate Authority, Appellate Tribunal or any court against an order of the proper officer under sub-section (5) of section 54, the order passed by the Appellate Authority, Appellate Tribunal or by the court shall be deemed to be an order passed under the said sub-section (5).

25.   While the main clause of Section 56 and the Explanation are pari materia with Section 11BB, the proviso is a new insertion (invention). Superficially, Section 56 looks more beneficial by providing for interest if refund is not sanctioned within sixty days (as against ninety days under 11BB) and a sense of fairness is tried to be exhibited by providing interest @9% in respect of refund arising out of orders of adjudicating authority/Appellate Authority/Tribunal or Court. However, the additional 3% interest would be a pittance considering that interest is allowed only after sixty days from the date of application 'filed' consequent to such order.

26.   It should be noted that under Section 54(1) read with Rule 89(1) of the CGST/SGST Rules, 2017, ' Any person, except the persons covered under notification issued under section 55, claiming refund of any tax, interest, penalty, fees or any other amount paid by him, other than refund of integrated tax paid on goods exported out of India, may file an application electronically in FORM GST RFD-01 through the common portal' .

27. As per clause (a) of Rule 89(2), 'the application under sub-rule (1) shall be accompanied by 'the reference number of the order and a copy of the order passed by the proper officer or an appellate authority or Appellate Tribunal or court resulting in such refund or reference number of the payment of the amount specified in sub-section (6) of section 107 and sub-section (8) of section 112 claimed as refund'.

28.   The relevant date in terms of clause (2)(k) of the Explanation under Section 54 ' in case where the tax becomes refundable as a consequence of judgment, decree, order or direction of the Appellate Authority, Appellate Tribunal or any court, the date of communication of such judgment, decree, order or direction'.

29.   Therefore, it follows that even for refund of an amount arising out of an order, including pre-deposits while filing appeals, a proper application in Form RFD-01 has to be filed online in the portal. The requirement to file a separate application in Form RFD-01 is also reiterated vide Circular No.125/44/2019-GST dated 18.11.2019 [clause (k) in para 3].

30. This requirement to file a fresh application is in contrast to the claim for refund of pre-deposits made under Customs & Central Excise Acts. The CBEC vide Circular No.984/8/2014-CX dated 16.09.2014 had clarified that since pre-deposit is not payment of duty, refund thereof need not be subject to process of refund of duty under Section 11B and refund with interest should be paid within 15 days of receipt of the letter of the appellant seeking refund'.

31. Once an application is filed under RFD-01, 'if the proper officer is satisfied that the whole or part of the amount claimed as refund is refundable, he may make an order accordingly and the amount so determined shall be credited to the Fund referred to in section 57' .

32. Coming back to the proviso under Section 56, the interest @ 9% is payable if the 'claim arises out of an order which has attained finality' and such claim is not sanctioned with in sixty days from the date of receipt of application filed consequent to such order'.

33.   Another twist is provided in sub-sections (11) & (12) of Section 54 which reads as under:

'(11) Where an order giving rise to a refund is the subject matter of an appeal or further proceedings or where any other proceedings under this Act is pending and the Commissioner is of the opinion that grant of such refund is likely to adversely affect the revenue in the said appeal or other proceedings on account of malfeasance or fraud committed, he may, after giving the taxable person an opportunity of being heard, withhold the refund till such time as he may determine.

(12) Where a refund is withheld under sub-section (11), the taxable person shall, notwithstanding anything contained in section 56, be entitled to interest at such rate not exceeding six per cent. as may be notified on the recommendations of the Council, if as a result of the appeal or further proceedings he becomes entitled to refund.'

34.   In view of the above provisions, the process of refund would flow as under:

35.   Only if the refund claimed in application (no.4) filed after Stage IV as above is not sanctioned within sixty days from the date of such application, the department is liable to pay interest @ 9% under the proviso to Section 56 of the CGST/SGST Act, 2017.

36.   Thus, the GST law has been made in such a way that RP has to be content with getting refund of the tax amount and the Department can EASILY and SIMPLY reject the refund or keep filing appeals in each forum without fear of interest liability.

37.   The great poet Subramania Bharathi had doubts whether we ' Would lose the rare gem which came after a thousand year wait'. We have no such apprehensions. The interest on delayed refunds is safely placed in the coffin.

(The views expressed are strictly personal.)