Bombay High Court Sets Aside Customs Orders On IGST Refund Interest To Jindal Drugs, Directs Fresh Determination

The Bombay High Court has recently set aside orders passed by customs authorities determining the interest payable on an IGST refund to Jindal Drugs Pvt. Ltd., holding that the authorities failed to explain how the interest had been calculated under Section 56 of the Central Goods and Services Tax Act, 2017.

A division bench of Justice G. S. Kulkarni and Justice Aarti Sathe found that the impugned orders contained no reasoning showing that the statutory provision governing interest on delayed refunds had been applied.

“On perusal of the impugned orders, we do not find, as to on what basis, a reduction in the interest being earlier granted to the petitioner, has been made and / or the calculation of interest whether at all is made as per the provisions of Section 56 of the CGST Act, for the reason that no reasons or discussion on such aspect is borne out by the impugned order.,” the Court said.

The dispute traces back to an earlier writ petition filed by Jindal Drugs seeking directions to the authorities to sanction refund along with interest in terms of Section 16(3)(b) of the Integrated Goods and Services Tax Act, 2017 read with Section 54 of the Central Goods and Services Tax Act and Rule 96 of the CGST Rules.

On May 2, 2022, the High Court directed the authorities to sanction the refund along with statutory interest.

Following that order, the Assistant Commissioner of Customs sanctioned interest of Rs 1,94,195 on the IGST refund through an order dated August 20, 2022.

However, a corrigendum issued on September 13, 2022, reduced the sanctioned interest to Rs 92,801.

In a separate order dated September 1, 2022 relating to other shipping bills, another customs officer sanctioned a refund of Rs 64,36,666 and granted interest of Rs 50,390.

Jindal Drugs challenged these orders before the High Court, contending that the authorities had failed to calculate the interest in accordance with Section 56 of the CGST Act.

The petitioner relied on earlier Bombay High Court rulings in Altisource Business Solutions India Pvt. Ltd. v. Union of India and Lupin Ltd. v. Union of India.

During the hearing, counsel for the revenue sought to justify the orders but was unable to show that the statutory mandate under Section 56 had been applied while determining the interest, the court recorded.

The bench declined to determine the interest amount itself, observing that it would not step into the role of the authorities to undertake the calculation.

The bench set aside the order dated August 20, 2022 insofar as it determined the interest amount. It also quashed the corrigendum dated September 13, 2022, that reduced the interest earlier sanctioned, as well as the September 1, 2022 order fixing interest at Rs 50,390.

The judges directed the designated customs officer to recompute the interest payable to Jindal Drugs strictly under Section 56 of the CGST Act. While doing so, the officer must also take into account the principles laid down in the Bombay High Court's earlier rulings in Altisource Business Solutions India Pvt. Ltd. v. Union of India and Lupin Ltd. v. Union of India.

A fresh order must be passed after giving the petitioner an opportunity of hearing. The Court said the exercise should be completed within 30 days.

For Petitioner: Advocates Jas Sanghavi, instructed by PDS Legal.

For Respondents: Advocates Jitendra B. Mishra with Abhishek Mishra and Rupesh Dubey for respondent nos. 1 and 2 (Union of India); Raju R. Thalekar with Priyanshu Doshi for respondent no. 3.