Interest on Tax Refund Payable On Expiry Of 3 Months From The Date Of Refund Application: Karnataka High Court

The Karnataka High Court has held that the interest on a delayed tax refund is payable on the expiration of 3 months from the date of filing the refund application.

The single bench of Justice R. Krishna Kumar has observed that merely because there were certain deficiencies or lacunae in the refund claim by the petitioner, the circumstance cannot be relied upon or made the basis by the respondent or department to contend that it was entitled to pass the refund sanction order beyond the prescribed statutory period of three months.

The court relied on the Supreme Court's decision in the case of Ranbaxy Laboratories Ltd vs. Union of India, which held that interest on a delayed refund under Section 11BB is payable three months after the date of receipt of the application under Section 11B(1) of the Central Excise Act, 1944, rather than the date of the refund order or appellate order allowing the refund.

The petitioner filed refund claims, which were sanctioned in favor of the petitioner. There was an inordinate delay on the part of the department in not processing the refund claims of the petitioner within the prescribed period of three months from the date of receipt of the applications, as contemplated under Section 11-BB. The petitioner submitted a representation seeking payment of interest on the delayed refund by the respondent.

The department contended that though the refund applications were made earlier, there were certain discrepancies and lacunae, on account of which the respondent called upon the petitioner to furnish the details and documents and also make submissions. Ultimately, pursuant to the petitioner's submissions, the respondent sanctioned the refund within the prescribed period of three months from the date of the petitioner's final submission to furnish the details and documents and also make submissions. Ultimately, pursuant to the petitioner's submissions, the respondent sanctioned the refund within the prescribed period of three months from the date of the petitioner's final submission. There was no delay on the part of the respondent in sanctioning the refund, and consequently, the respondent was not liable to pay interest as sought by the petitioner.

The issue raised was whether the payment of interest on delayed refunds was sanctioned beyond the prescribed period of three months from the date of receipt of an application for a refund or from the date of the order for a refund.

The court, while allowing the appeal, observed that because the respondent had not sanctioned a refund within the prescribed period of three months from the date of submission of the refund request by the petitioner, the respondent would be liable to pay interest to the petitioner on the amounts ordered to be refunded.

"Respondent is directed to pay/grant interest to the petitioner on the amounts already refunded in favor of the petitioner at the rate of 6% per annum after the expiry of three months from the date of submission of the refund request by the petitioner as expeditiously as possible and at any rate within a period of three months from the date of receipt of a copy of this order," the court ordered.

Case Title: Al Tisource Business Solutions Pvt. Ltd. Versus Deputy Commissioner of Central Tax

Citation: Writ Petition No. 459 Of 2022 (T-RES)

Date: 10.11.2022

Counsel For Petitioner: Advocate Joseph Prabhakar

Counsel For Respondent: Advocate Vinita K.R.

Citation: 2022 LiveLaw (Kar) 523 

Click Here To Read The Order