The Goods and Services Tax Appellate Tribunal (GSTAT), Agra Bench, has held that statutory interest on a delayed refund cannot be denied merely because the disputed tax was paid through the Electronic Credit Ledger and subsequently restored through FORM GST PMT-03.
The bench of Ajeet Singh (Judicial Member) and Vivek Kumar (Technical Member) ruled that a taxpayer who deposits the entire disputed tax demand, instead of only the mandatory appellate pre-deposit, does not lose the right to claim interest when the demand is subsequently set aside.
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The dispute originated from an adjudication order dated July 5, 2024, raising an additional tax demand of ₹1,18,26,516 under Section 73 of the Central Goods and Services Tax/State Goods and Services Tax Act, 2017.
The taxpayer discharged the demand through its Electronic Credit Ledger and challenged the adjudication order before the first appellate authority.
On October 3, 2024, the first appellate authority allowed the appeal and set aside the additional tax demand. Consequently, the amount paid against the demand became refundable.
The authorities subsequently sanctioned refund/re-credit of the amount but did not grant interest. After its challenge to the denial of interest was rejected by the first appellate authority, the taxpayer approached GSTAT.
Appearing for the taxpayer, authorised representative M.M. Agrawal argued that payment of the full disputed demand could not operate as a bar to statutory interest.
The taxpayer submitted that the prescribed pre-deposit is a condition for invoking the appellate remedy and obtaining protection against recovery of the remaining disputed demand. It does not mean that a taxpayer who pays the entire amount forfeits the right to interest if the demand is overturned.
The representative also argued that no distinction could be drawn merely because the amount was paid through the Electronic Credit Ledger.
Once input tax credit was debited against the disputed demand, it remained unavailable for use until restored through the refund/re-credit process. The taxpayer was therefore deprived of its utilisation during that period.
The department, represented by Mukesh Kumar, supported the rejection of the interest claim.
It contended that the taxpayer was required to deposit only the prescribed statutory pre-deposit for filing the appeal but had deposited the entire disputed demand.
The department also argued that the amount had been restored through FORM GST PMT-03 and that no liability to pay interest arose on such re-credit.
Examining Section 56, the tribunal noted that the provision governs interest where tax ordered to be refunded is not refunded within 60 days from receipt of the refund application.
The bench also considered the proviso concerning refund claims arising from adjudicatory or appellate orders that have attained finality.
In its findings, the tribunal recorded that the adjudicating authority had acknowledged delay attributable to excessive workload in the office. The department had not controverted that position.
The tribunal accordingly concluded that Section 56 applied to the delayed sanction of the refund. However, its operative directions did not quantify the interest or specify the rate applicable to the claim.
The tribunal held that the mode of payment could not, by itself, constitute a conclusive ground for denying interest.
It observed that the disputed amount had been debited from the taxpayer’s Electronic Credit Ledger against a tax demand that was subsequently set aside. Until the credit was restored, the taxpayer could not utilise it towards other eligible liabilities.
The bench compared this position with payment through the Electronic Cash Ledger. In both situations, the taxpayer remained deprived of the use of the amount until refund or restoration.
The department had failed to identify any statutory provision authorising denial of interest on a delayed refund merely because the original demand was discharged through the credit ledger.
Accordingly, the tribunal rejected the original payment route and subsequent restoration through PMT-03 as grounds for refusing the interest claim.
On the payment of the entire disputed demand, the tribunal examined Sections 107(6) and 107(7), which govern the appellate pre-deposit and the resulting stay against recovery of the balance disputed amount.
The bench explained that the statutory provisions do not prohibit a taxpayer from depositing the entire demand. They also do not provide that an amount deposited above the mandatory pre-deposit amounts to surrendering the right to refund or interest.
A taxpayer may reasonably choose to pay the full demand to avoid further consequences if the demand is ultimately upheld. Such payment, when lawfully made, cannot be treated as a waiver of refund and interest rights if the demand is subsequently overturned.
The tribunal held that the prescribed pre-deposit represents the minimum payment required to invoke the appellate remedy and obtain statutory protection against recovery.
It cannot be interpreted to benefit a taxpayer who deposits only the prescribed amount while depriving another taxpayer of statutory interest merely because the latter paid the full demand.
Allowing the second appeal, GSTAT set aside the first appellate authority’s order rejecting the interest claim.
The tribunal directed the taxpayer to submit a copy of its order, together with the calculation of interest payable, before the proper officer.
The officer must examine the calculation within three weeks from the application and disburse the interest payable to the bank account provided by the taxpayer.
The appeal was disposed of without any order as to costs.
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