Interest on delayed refunds

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Interest on delayed refunds 2017-04-13T23:43:58+00:00

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  • Ashish BadalaCA Ashish Badala
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    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).

    Priya MadrechaPriya Madrecha
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    56.1 Introduction
    This section provides for payment of interest on delayed refunds beyond the period of sixty days from the date of receipt of application to avoid delays in sanction or grant of refund.
    56.2 Analysis
    (i)    The section provides that interest is payable if –
         Tax paid becomes refundable under section 54(5) to the applicant; and
     It is not refunded within 60 days from the date of receipt of application for refund of tax under Section 54(1)
    (ii)    Interest is liable to be paid from the due date for payment of refund till the date of sanction or grant of refund.
    (iii)    The interest rate not exceeding the rate specified in the Section will be notified by the Government on the recommendations of the Council.
    Illustration:
    A Ltd has filed a refund claim of excess tax paid with all the documents and records on 19.08.2017. The department sanctioned the refund on 30.11.2017. In such a case, interest has to be paid for the period from 19.10.2017 to 30.11.2017.
    (iv)    Explanation to section provides that in cases where the orders of Appellate Authority / Tribunal / Court sanctions refund in an appeal, against the order of refund sanctioning authority, the order of Appellate Authority / Tribunal / Court will be considered as orders passed by refund sanctioning authority. In other words, by virtue of such order, the refund has become due and the interest will then be computed form the date of completion of 60 days from the date of original refund claim made.
    Illustration:
    A Ltd has filed a refund claim of excess tax paid with all the documents and records on 19.08.2017. It was rejected by refund sanctioning authority. On Appeal the Appellate Authority passed the order for refund based on which the department sanctioned the refund on 30.09.2018. In such case, interest has to be paid for the period from 18.10.2017 to 30.09.2018.
    56.3    Comparative analysis with the present regime
    The refund provisions under the GST regime are in line with the refund provisions envisaged in the present regime under Central Excise law under section 11BB of the Central Excise Act, 1944.
    56.4    Related provisions
    Section/Rule/Form      Description     Remarks
    Section 54     Refunds     Provision providing for refund of tax.
    56.5    FAQ
    Q1. Whether interest is payable on delayed sanction of refund of tax only?
    Ans. Yes. The provision for payment of interest is only with respect to delayed payment of refund of tax only and not interest or any other amount sanctioned as refund.
    Q2. What would be the rate of interest on delay of sanctioning refund?
    Ans. The rate of interest not exceeding 6% or 9% as the case may be to be notified by Government as per the recommendation of the GST Council.
    Q3. Whether interest is payable on delayed refund of unutilized input tax credit.
    Ans. The provision only refers to refund claim under Section 48(1) relating to tax paid and not Section 54(3). Therefore, there is no provision for payment of interest on delayed refund of unutilized input tax credit.
    56.6    MCQ
    Q1. Interest U/s 56 is applicable on delayed payment of refunds issued under?
    (a)    Section 54
    (b)    Section 44
    (c)    Section 41
    (d)    Section 45
    Ans. (b) Section 54
    Q2. Interest U/s56 has to be paid for delayed refunds, if the refund is not granted within
    ……….
    (a)    90 days
    (b)    3 months
    (c)    60 days
    (d)    None of the above
    Ans.  (c) 60 days

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