The Supreme Court has dismissed the special leave petitions filed against a Delhi High Court judgment directing the Delhi GST Department to refund ₹3,39,79,974 along with 6% interest, holding that there was no good ground to interfere with the High Court’s order under Article 136 of the Constitution.
The Bench of Justice Manoj Misra and Justice Vijay Bishnoi did not find a good ground to exercise its jurisdiction under Article 136 of the Constitution of India and accordingly dismissed the special leave petitions. Pending applications, if any, were also disposed of.
Buy Now: E-Handbook: Draft Replies to GST Notices On 40+ Issues
The dispute arose from an amount inadvertently deposited by the taxpayer into its Electronic Cash Ledger (ECL) after obtaining GST registration as an Input Service Distributor (ISD).
The assessee obtained GST registration as an ISD on July 10, 2017. According to the company, it inadvertently deposited ₹3,39,79,974 into its Electronic Cash Ledger between August 2017 and January 2018.
The company was under the mistaken impression that only Input Tax Credit could be distributed through the ISD account and that cash deposits could not be distributed through such an account.
Consequently, the company filed a refund application on April 12, 2018, seeking refund of the amount. The Department subsequently debited the amount from the ECL, with the expectation that it would be credited to the company’s bank account. However, the anticipated credit did not materialise.
A deficiency memo was eventually issued by the Department in March 2020. The taxpayer, seeking to rectify the deficiencies and acting on the understanding that the amount would thereafter be refunded, withdrew its original refund application.
However, the amount continued to remain uncredited. The company made repeated representations to the authorities but did not receive the refund, eventually approaching the Delhi High Court under Article 226 of the Constitution.
The writ petition sought refund of ₹3,39,79,974 along with interest from June 11, 2018 until the date of actual refund.
Before the High Court, the Department relied upon Circular No. 17/17/2017 dated November 15, 2017, contending that the refund application and requisite documents were required to be submitted physically before the jurisdictional authority.
The Department maintained that because the taxpayer had not submitted the application physically and had withdrawn the refund application after the deficiency memo, the refund could not be processed within the prescribed period.
At the same time, the Department stated that it was willing to consider re-crediting the amount into the taxpayer’s Electronic Cash Ledger through PMT-03, even though the procedural requirements had not been followed.
The Department, however, disputed liability for interest, taking the position that a proper refund application in accordance with the applicable procedure had not been filed.
The Delhi High Court, comprising Justice Prathiba M. Singh and Justice Rajneesh Kumar Gupta, examined the statutory framework governing GST refunds.
The Court noted that under Rule 89 of the CGST Rules, a refund application is required to be filed in the prescribed manner. Under Rule 90, the proper officer is required to scrutinise the application within 15 days and, where the application is found deficient, issue a deficiency memo in FORM GST RFD-03.
The Court observed that the statutory refund mechanism operates on specific timelines and that those timelines had not been adhered to in the present case.
A significant aspect of the judgment was the High Court’s finding that the Department had not adhered to the statutory timeline for scrutiny and issuance of a deficiency memo.
The refund application had been filed on April 12, 2018, whereas the deficiency memo was issued only on March 3, 2020.
The Court observed that the mandate requiring scrutiny and issuance of deficiency memos within the prescribed period had not been complied with.
The deficiency memo sought documents including updated returns, the Electronic Cash Ledger showing debit of the refund amount, a cancelled cheque and a declaration concerning prosecution for specified tax offences.
While deciding the question of interest, the High Court relied upon its earlier judgment in Bansal International v. Commissioner of DGST, decided on November 21, 2023.
The Court explained the operation of Section 56 of the CGST Act, under which interest is payable where a refund remains unpaid beyond the prescribed period.
The judgment noted that the applicable rate under the main provision of Section 56 is 6% per annum, while the proviso provides for a higher rate of 9% per annum in circumstances involving a refund claim that becomes payable following appellate or judicial proceedings and remains unpaid beyond the prescribed period.
The High Court further explained that the statutory scheme contemplates payment of interest after expiry of 60 days from the relevant refund application, subject to the circumstances contemplated by Section 56.
The High Court ultimately held that the amount could no longer be retained by the Department.
It observed that, irrespective of the procedural history, the Department’s own counter affidavit made it clear that the amount was liable to be returned. The Court held that the amount could not continue to be retained by the Department.
Accordingly, the Court held that Matrix Cellular was entitled to the refund and proceeded to determine the applicable interest.
The Delhi High Court directed the Department to credit ₹3,39,79,974 to the taxpayer’s bank account by May 30, 2025, along with interest at 6% per annum.
Interest was directed to be calculated for two periods: June 11, 2018 to March 2, 2020; and August 29, 2023 to May 20, 2025.
The Court denied interest for the intervening period from March 3, 2020 to August 28, 2023, particularly because the taxpayer had withdrawn its refund application after the deficiency memo and subsequently approached the Department only in August 2023.
The High Court also imposed a significant consequence for any further delay.
It directed that if the Department failed to credit the refund amount to the taxpayer’s bank account, interest would thereafter be payable at 18% per annum from June 1, 2025.
The matter subsequently reached the Supreme Court.
On September 21, 2026, the Bench of Justice Manoj Misra and Justice Vijay Bishnoi declined to interfere with the Delhi High Court’s judgment.
Thus, the Delhi High Court’s directions concerning the ₹3.39 crore refund and applicable interest remain undisturbed following the Supreme Court’s dismissal of the challenge.
Membership Required to Access Case Details & Order Copy
To view the complete Case Details and Download Order Copy, you must have an active membership. Please subscribe to continue.
