Willowood Chemicals (P.) Ltd VS Union of India

In Special Civil Application No. 18591 of 2018, M/s. Willowood Chemicals Pvt. Ltd. contended that it was entitled to compensation for delayed GST refunds based on Section 16 of the IGST Act read with Section 54 of the CGST Act. The company highlighted delays in 12 refund cases, ranging from 94 to 290 days, as detailed in Annexure D of the petition. Willowood Chemicals sought appropriate compensation for these delays.

In both petitions, the petitioners argued that the delays in granting refunds were arbitrary and adversely affected their business operations, thus justifying the need for compensation and interest on the delayed refunds. The counsel for the Revenue opposed these submissions.

The High Court evaluated the arguments presented, considering relevant statutory provisions and precedents, including decisions from cases such as K.T. Plantation Pvt. Ltd. and Anr. v. State of Karnataka, Sandvik Asia Ltd. v. Commissioner of Income Tax-I Pune and others, and Commissioner of Income Tax v. Gujarat Fluoro Chemicals. The Court’s analysis focused on the legality of the delays and the impact on the petitioners’ businesses.

The first case involves Special Civil Application No. 18591 of 2018 filed by M/s. Willowood Chemicals Pvt. Ltd. The petitioner claimed entitlement to compensation for delayed GST refunds based on Section 16 of the IGST Act and Section 54 of the CGST Act. The delay in receiving 12 refunds ranged from 94 to 290 days, as detailed in Annexure D of the petition. The petitioner sought appropriate compensation for these delays.

Both petitions highlighted that the inordinate delay in granting refunds was arbitrary and significantly impacted the petitioners’ business operations. This led to a demand for compensation along with interest for the delay. The counsel for the Revenue opposed these submissions.

The High Court considered the submissions, referencing statutory provisions and prior decisions, including K.T. Plantation Pvt. Ltd. and Anr. v. State of Karnataka, Sandvik Asia Ltd. v. Commissioner of Income Tax-I Pune, and Commissioner of Income Tax, Gujarat v. Gujarat Fluoro Chemicals. In its judgment dated July 10, 2019, the High Court observed:

1. The law concerning interest on delayed payment of refunds is well-settled and is generally seen as beneficial and non-discriminatory.

2. While equity principles may have limited applicability in taxation matters, taxation statutes must still conform to constitutional provisions.

3. The respondents did not address the delay issue raised by the petitioners with any reply.

4. The delays outlined in the chart presented by the petitioners were self-evident.

The High Court thus held the respondents liable to pay simple interest on the delayed refunds at a rate of 9% per annum. It directed the authorities to review the chart provided by the petitioners, calculate the aggregate refund amount, and apply the 9% per annum interest from the date of filing of the GSTR-03. This exercise was to be completed within two months from receiving the court’s order, and the interest amount was to be paid within the same period.

The first case was disposed of on the same day with similar observations. The court allowed the writ application to the extent that the petitioners were entitled to 9% per annum interest on the delayed payments.

The concerned authority is directed to examine the chart provided by the writ applicants at Page 30, Annexure D of the writ application to calculate the total refund owed. The writ applicants are entitled to receive a 9% per annum interest on the refund amount from the date of filing the GSTR-3B. The respondents are instructed to perform this calculation promptly and determine the interest amount, completing this task within two months from the receipt of this order. The calculated interest amount must be paid to the writ applicants within two months from the date of receiving this order.

The appellant, dissatisfied with this directive, filed Review Petitions in both cases. They argued that:

1. The court directed the respondent authority to pay simple interest at a rate of 9% per annum on the delayed payment from the date of filing the GSTR-3B.

2. According to Section 56 of the IGST Act, the interest rate should not exceed 6%, but the court had ordered a 9% interest rate by its order dated 10.07.2011.

On 13.03.2020, the Review Petitions filed by the appellant were dismissed in both cases.

The High Court’s judgments and orders are now being challenged in these appeals. The appellants do not contest the respondents’ right to receive interest on the delayed payment but argue that the statutory provision caps the interest rate at 6% per annum, not 9%. Given the appellants’ position, the interim stage of the Court has been approached for further direction.

The appellants have agreed to pay interest at a rate of 6% and have since made the necessary payments.

We have heard arguments from Mr. N. Venkataraman, the Additional Solicitor General representing the appellants, and Mr. Vinay Shraff, the advocate for the respondents.

Before addressing the core issue, it is essential to consider the relevant statutory provisions:

The case involves an appeal concerning the payment of interest at a rate of 6% by the appellants, which has been fulfilled subsequently. Mr. N. Venkataraman, representing the appellants, and Mr. Vinay Shraff, representing the respondents, presented arguments before the court.

Before addressing the main issue, the court referenced relevant statutory provisions from the Integrated Goods and Services Tax (IGST) Act and the Central Goods and Services Tax (CGST) Act:

A) Sections 16 and 20 of the IGST Act define “zero-rated supply” and provide provisions for claiming refunds on such supplies, whether by supplying under bond/Letter of Undertaking or on payment subject to prescribed conditions.

B) Sections 54 and 56 of the CGST Act outline the procedure for claiming refunds of tax, interest, and other amounts paid, specifying the timeframe and forms for such applications.

The court will proceed to adjudicate the controversy in question based on these legal provisions and the arguments presented by both parties.

Section 1: The applicant must provide a declaration, supported by documentary evidence, certifying that any tax and interest claimed as refund has not been passed on to any other person.

Section 2: Upon receipt of the application, if the proper officer is satisfied that the claimed amount is refundable, they may order the refund, and the determined amount shall be credited to the specified Fund.

Section 3: Notwithstanding the above, for claims related to zero-rated supplies by registered persons (except those exempted by the Government), the officer may provisionally refund 90% of the claimed amount, subject to prescribed conditions. A final order for the refund will be made after verifying the submitted documents.

Section 4: The proper officer must issue the refund order within sixty days from receiving a complete application.

Section 5: In cases specified under sub-section (8), instead of crediting the refundable amount to the Fund, it shall be paid directly to the applicant. These cases include refunds for taxes on exports, unutilized input tax credit, tax on supplies not provided with invoices, refunds under Section 77, and taxes or interest borne by the applicant without passing on the incidence to others.

This summary outlines the process and conditions for claiming refunds under GST law, emphasizing verification and timely issuance of refund orders.

Section (5) states that upon receipt of an application for refund, if the proper officer is satisfied that the claimed amount is refundable, he may order the refund, which will be credited to the Fund mentioned in Section 57.

Section (6) allows for provisional refund of 90% of the claimed amount for zero-rated supplies, subject to prescribed conditions, with a final settlement after document verification.

Section (7) mandates that the refund order under subsection (5) must be issued within sixty days of receiving a complete application.

Section (8) provides that instead of crediting the Fund, the refundable amount may be paid to the applicant if it pertains to specific categories like tax on exports, unutilized input tax credit, tax paid on a supply not provided, or tax and interest not passed on to others.

Section (9) ensures refunds are made strictly according to subsection (8), overriding any contrary provisions in other laws or judgments.

Section (10) allows withholding of refunds if the applicant has outstanding returns or liabilities under the GST Act, with deductions possible for unpaid taxes, interest, penalties, or fees.

Section (11) permits withholding of refunds if their grant may adversely affect revenue due to pending appeals or proceedings, especially in cases involving fraud or malfeasance.

Section (12) entitles the applicant to interest if a refund is delayed due to appeal or further proceedings, at a rate not exceeding six percent.

Section (13) specifies that advance tax deposited by casual or non-resident taxable persons won’t be refunded unless all required returns have been filed for the entire registration period.

These provisions aim to regulate the refund process under GST, ensuring compliance and preventing misuse, while also safeguarding taxpayer rights to timely refunds and interest where applicable. 

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