Gujarat High Court Mandates Interest on Delayed IGST Refunds Due to Technical Glitch

The court directs Union of India to compensate Vineet Polyfab Pvt. Ltd. for delayed refund processing, citing mandatory provisions under GST Act.

In a significant judgment, the Gujarat High Court has ruled in favor of Vineet Polyfab Pvt. Ltd., directing the Union of India to pay interest on delayed refunds of Integrated Goods and Services Tax (IGST) due to technical glitches in the system. The division bench comprising Justices Bhargav D. Karia and Pranav Trivedi highlighted the mandatory nature of Section 56 of the Goods and Services Tax Act, 2017, which stipulates compensatory interest on refunds not processed within 60 days of the application.

The case arose when Vineet Polyfab Pvt. Ltd. faced significant delays in receiving refunds for IGST paid on exports due to a persistent error code, SB000, in the GSTN Integration status report of the Indian Customs Electronic Data Interchange System. Despite efforts to resolve the issue, including written requests and supplementary filings, the system failed to process the refund automatically.

In response to a petition filed by Vineet Polyfab Pvt. Ltd., the Gujarat High Court ordered manual processing of the refund but noted that interest had not been granted alongside the refunded amount. The court emphasized that the delay was not due to any fault on the part of the petitioner, but rather a technical glitch in the system, thereby entitling the petitioner to compensatory interest.

The judgment referenced the Supreme Court's decision in Ranbaxi Laboratories Ltd. v. Union of India, asserting that interest under Section 56 is compensatory for delayed payments and must be paid from the expiry of 60 days following the refund application. The court also cited its own precedent in Panji Engineering Pvt. Ltd. v. Union of India, reinforcing the obligation to pay interest on delayed refunds.

The Gujarat High Court has ordered the respondent authorities to issue the compensatory interest within 12 weeks from the receipt of the court order, underscoring the judiciary's stance on ensuring timely and fair refund processes under the GST framework.

Bottom Line:

GST Law - Interest on delayed refund of IGST is mandatory under Section 56 of the GST Act, 2017, and compensatory in nature for delayed payment of refund to the taxpayer.

Statutory provision(s): Goods and Services Tax Act, 2017 Sections 56 and 54

Vineet Polyfab Pvt. Ltd. v. Union of India, (Gujarat)(DB) : Law Finder Doc Id # 2796740