Adjustment of Interest Permissible on Tax Liability Against IGST Refund Claim

By: Admin
September 14, 2024
Categories: Important Pronouncements
4 Min Read

The Hon’ble Supreme Court, in M/s Grapes Digital Private Limited v. Principal Commissioner, CGST, Delhi & Ors. [SLP (Civil) Diary No. 35601/2024, dated September 06, 2024], granted leave and admitted the SLP against a Delhi High Court judgment. The High Court had ruled that the department can adjust interest on the tax paid by the Assessee, even when the amount had already been sanctioned for refund.

Facts:

M/s Grapes Digital Private Limited (“the Petitioner”) provides digital media management and advertising services. From July 2017 to March 2018, the Petitioner exported services under a Letter of Undertaking (LUT) without paying IGST. To avoid blocking funds under the Reverse Charge Mechanism (RCM), the Petitioner refrained from depositing IGST, which was payable under the Integrated Goods and Services Tax Act, 2017 (IGST Act).

In August 2018, the Petitioner paid IGST on input supplies under RCM and sought a refund of the same. The refund was granted, but the interest due on the delayed payment of IGST was adjusted by the department. The Delhi High Court upheld this adjustment, prompting the Petitioner to appeal to the Supreme Court.

Key Points from the High Court’s Judgment:

  • Statutory Levy: The interest on delayed tax payment is statutory and cannot be avoided, even if the Petitioner is entitled to an Input Tax Credit (ITC) refund at a later stage.
  • Revenue Neutrality: The court dismissed the argument that the transaction being revenue-neutral absolves the Petitioner from paying GST or interest. Refund claims must adhere to statutory provisions.
  • No Equity in Tax Law: The court reiterated that tax laws must be interpreted strictly, with no room for presumptions or equity.

The Petitioner, aggrieved by this ruling, has filed an appeal before the Supreme Court.

Issue:

Is the adjustment of interest permissible against the claim for an IGST refund?

Held:

The Hon’ble Supreme Court granted leave and admitted the Special Leave Petition (SLP) against the Delhi High Court’s decision, allowing the case to proceed.

Relevant Provisions:

  • Section 75 of the CGST Act: Relates to the determination of tax.
  • Section 79 of the CGST Act: Discusses the recovery of unpaid tax or interest.

Our Comments:

  • Interest Adjustment Against Refund: The Delhi High Court allowed the adjustment of interest on delayed IGST payments against the refund claim.
  • No Demand Notice Needed: The court ruled that no demand notice is necessary for such interest adjustments, as they are automatic due to delayed payment.
  • Tax Neutrality Does Not Exempt Interest: Even in revenue-neutral situations, the interest and tax liability are statutory and cannot be avoided.

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