Failure to discharge statutory duty/obligation by the refund sanctioning authority would be entitled to interest

The Karnataka High Court has ruled that refund sanctioning authorities are liable to pay interest if they fail to process refund claims within the statutory three-month period. The court found that deficiencies in a refund claim do not justify delays beyond this timeframe. Consequently, the Deputy Commissioner was ordered to pay the petitioner interest at 6% per annum for the delayed service tax refund.

The Hon'ble Karnataka High Court in M/s.Al Tisource Business Solutions Pvt. Ltd. v. Deputy Commissioner of Central Tax, GST Commissionerate, Bengaluru [Writ Petition No.459 of 2022 (T-RES), dated November 10, 2022] set aside the order passed by the Deputy Commissioner denying the interest to the assessee for delayed refund and granted relief under Section 11BB of the Central Excise Act, 1944 ("the CE Act") to pay the interest at the rate of 6% per annum for committing delay in issuing service tax refund order.

Facts

M/s Al Tisource Business Solutions Pvt. Ltd. ("the Petitioner"), during the period from June 30, 2010 to September 9, 2017, filed refund claims which were sanctioned during the period from March 28, 2018 to May 19, 2020, respectively. It was contended by the Petitioner that the Deputy Commissioner ("the Respondent") has not processed these refund claims within the prescribed period of three months from the date of receipt of the applications as stated under Section 11-BB of the CE Act. Thus, the Petitioner made a representation on August 12, 2020 seeking payment of interest on the delayed refund by the respondent.

Instead on complying with the request of Petitioner, the Respondent issued a Show Cause Notice ("SCN") dated October 20, 2020 calling upon the Petitioner as to why the request for grant of interest should not be rejected. Despite the facts and circumstances stated by the Petitioner, the Respondent passed the orders dated March 11, 2021 and March 18, 2021 ("the Impugned Orders") rejecting the claim for interest put forth by the Petitioner.

The Respondent submitted that there were certain discrepancies in the refund claims, therefore the Petitioner was asked to furnish the details and documents and also make submissions and ultimately, the Respondent sanctioned the refund within the prescribed period of three months from the date of final submission of the Petitioner and as such, there was no delay on the part of the Respondent in sanctioning the refund.

Being aggrieved, this petition has been filed.

Issues

1. Whether the Petitioner is entitled to get interest on the delayed refund claims?
2. Whether the Impugned Order passed by the Respondent for rejecting the Petitioner's interest claim needs to be set aside?

Held

The Hon'ble Karnataka High Court in Writ Petition No.459 of 2022 (T-RES) held as under:

• Stated that, merely because there were certain deficiencies/lacunae in the refund claim by the Petitioner, it cannot be relied upon nor made the basis by the Respondent in order to contend that it was entitled to pass the refund sanction order beyond the prescribed statutory period of three months.
• Opined that, the Respondent completely misdirected itself in coming to the erroneous conclusion that the period of three months would start running from the date of the final submission made by the Petitioner and not from the date of submission of the refund claim.
• Held that, the Impugned Orders are illegal, arbitrary and contrary to law.
• Set aside the Impugned Orders.
• Directed the Respondent to pay interest at the rate of 6% per annum on the delayed payment of refund in favor of the Petitioner within 3 months.

Relevant Provisions

Section 11BB of the CE Act

"Interest on delayed refunds-

If any duty ordered to be refunded under sub-section (2) of section 11B to any applicant is not refunded within three months from the date of receipt of an application under sub-section (1) of that section, there shall be paid to that applicant interest at such rate, not below five per cent and not exceeding thirty per cent per annum as is for the time being fixed by the Central Government, by notification in the official gazette, on such duty from the date immediately after the expiry of three months from the date of receipt of such application till the date of refund of such duty:

Provided that where any duty ordered to be refunded under sub-section (2) of section 11B in respect of an application under sub-section (1) of that section made before the date on which the Finance Bill, 1995 receives the assent of the President, is not refunded within three months from such date, there shall be paid to the applicant interest under this section from the date immediately after three months from such date, till the date of refund of such duty.

Explanation: Where any order of refund is made by the Commissioner (Appeals), Appellate Tribunal or any court against an order of the Assistant Commissioner of Central Excise or Deputy Commissioner of Central Excise, under sub-section (2) of section 11B, the order passed by the Commissioner (Appeals), Appellate Tribunal or, as the case may be, by the court shall be deemed to be an order passed under the said sub-section (2) for the purposes of this section."