Court directs 6% interest from August 1, 2021, to March 2, 2024, on delayed tax refund to ONGC, emphasizing adherence to CBDT's Central Action Plan 2021-22 and rejecting Revenue's reliance on Income Tax Act timelines
In a landmark decision dated August 19, 2026, the Gujarat High Court (Division Bench comprising Justices A.S. Supehia and Vaibhavi D. Nanavati) ruled in favor of Oil and Natural Gas Corporation Ltd. (ONGC), ordering the Income Tax Department to pay interest on delayed tax refunds calculated from the date of issuance of Form-5 under the Direct Tax Vivad Se Vishwas Act, 2020 (VsV Act), rather than from the date of consequential orders passed by the Designated Authority.
The case arose from ONGC's claim for interest on a refund amount delayed by over 1013 days. Although the Income Tax authorities had granted interest, it was only calculated from July 1, 2022, the date of the order giving effect to Form-5, and not from May 24, 2021, the date Form-5 was originally issued. ONGC contended that interest should run from the earlier date in line with Clause-9 of the Central Board of Direct Taxes (CBDT) Central Action Plan 2021-22, which mandates that consequential orders or refunds in VsV cases where Form-5 was issued by June 30, 2021, must be completed by July 31, 2021.
The Court thoroughly examined the provisions of Section 5(1) and (2) of the VsV Act, 2020, and Rule 7 of the VsV Rules, 2020. It observed that while the Act requires the Designated Authority to issue Form-5 certifying the amount payable and the declarant to make payment within 15 days, neither the Act nor the Rules specify any timeline for passing consequential orders post issuance of Form-5. The Revenue had relied on CBDT Circular No.03/2021, which directs Assessing Officers to pass consequential orders under the Income Tax Act, 1961, but the Court noted that this Circular does not prescribe a time limit for such orders.
Importantly, the Court placed significant reliance on Clause-9 of the CBDT Central Action Plan 2021-22, which explicitly sets a deadline of July 31, 2021, for passing consequential orders or refunds for VsV cases where Form-5 was issued on or before June 30, 2021. Since ONGC's Form-5 was issued on May 24, 2021, the Court held that the Assessing Officer was obliged to pass consequential orders and refund the amount by July 31, 2021. The failure to do so and the delay until June 17, 2022, and ultimately February 7, 2024, for passing orders and crediting refunds, was unreasonable.
Rejecting the Revenue's contention that the limitation period under Section 153 of the Income Tax Act, 1961, should apply to passing consequential orders, the Court clarified that the VsV Act is a special statute and its provisions must be given effect to without importing limitations from the Income Tax Act. The Court further emphasized the settled principle from the Supreme Court's judgment in Union of India v. Tata Chemicals Ltd. (2014) that interest on delayed refunds is a statutory right and a form of compensation for unauthorized retention of money by the Department.
Consequently, the Court directed the Income Tax Department to pay interest at 6% per annum on the delayed refund amount to ONGC, calculated from August 1, 2021 (the date immediately after the CBDT action plan deadline) until March 2, 2024, when the refund was actually credited to ONGC's account. The Court also ordered that failure to comply within six weeks would attract an additional interest of 9% per annum recoverable from the responsible officers.
This decision underscores the judiciary's insistence on strict adherence to timelines prescribed in administrative action plans and statutory schemes, especially in taxpayer-friendly legislations like the VsV Act. It clarifies the correct computation of interest on delayed refunds under the VsV Act and rejects Revenue's attempt to delay interest liability by deferring the starting date to the issuance of consequential orders. The judgment is expected to guide other pending refund claims under the VsV Act and strengthen taxpayer rights against undue retention of funds by the tax authorities.
Bottom Line:
Interest on delayed refund under the Direct Tax Vivad Se Vishwas Act, 2020 (VsV Act, 2020) must be calculated from the date of issuance of Form-5, in accordance with Clause-9 of the Central Action Plan 2021-2022 issued by the CBDT, and not from the date of consequential orders passed by the Designated Authority.
Statutory provision(s):
Section 5 of the Direct Tax Vivad Se Vishwas Act, 2020; Rule 7 of the Direct Tax Vivad Se Vishwas Rules, 2020; Section 244A of the Income Tax Act, 1961; Section 153 and Section 154 of the Income Tax Act, 1961;
