Bombay High Court Clarifies Interest on Delayed GST Refunds: What Businesses Must Know

 

Introduction: A Landmark Decision for GST Refunds

In a landmark ruling in September 2025, the Bombay High Court (HC) clarified a long-standing issue regarding interest on delayed GST refunds. The court confirmed that taxpayers are entitled to interest under Section 56 of the CGST Act, 2017, at 6% per annum, if the refund is not paid within 60 days of the original application, even when the refund was initially rejected and later allowed on appeal.

This decision has far-reaching implications. For businesses, it ensures predictable cash flow and financial compensation for delays. For revenue authorities, it emphasizes accountability—administrative delays now carry a tangible cost.

The case in question, Altisource Business Solutions India Pvt Ltd vs. Union of India & Ors., finally resolves ambiguity over when interest begins to accrue, strengthening taxpayer rights and setting a precedent for fair refund practices.

 

Understanding GST Refunds and the Legal Context

How GST Refunds Work

Under the CGST Act, 2017, businesses can claim refunds in several situations:

• Excess tax paid: When GST is inadvertently overpaid.
• Unutilized input tax credit (ITC): Especially relevant for exporters.
• Inverted duty structure: When tax on inputs exceeds output tax.

Two sections of the law are particularly relevant:

Section 54:

• Permits taxpayers to apply for refunds of taxes, interest, or other amounts within a prescribed period.

Section 56:

• Mandates interest payment if a refund is delayed beyond 60 days from the date the refund application is received.
• Basic interest: 6% per annum.
• Special cases involving appellate or adjudicating authority orders may carry interest up to 9%.

For businesses, these sections aren’t just procedural—they directly affect cash flow, liquidity, and financial planning. Even small delays can significantly impact working capital, especially for exporters or SMEs.

 

Why the Law Needed Clarification

Previously, courts were divided on when the 60-day interest clock starts. The confusion:

• Does it start from the original application, or
• From a subsequent re-application following an appeal or rectification?

This ambiguity created uncertainty. Businesses were unsure when they could claim interest, and revenue authorities sometimes leveraged this uncertainty to delay payments.

The Bombay HC ruling resolves this: interest starts accruing from the original application date, even if the refund was initially rejected.

 

The Case in Detail: Altisource Business Solutions vs. Union of India

Timeline of Events

1. Refund Application: Filed under Section 54 of CGST Act.
2. Initial Rejection: Adjudicating authority rejected the claim on 14 September 2020.
3. Appeal: Appellate authority allowed the refund on 27 October 2023.
4. Re-Application: Filed on 28 November 2023.
5. Refund Sanctioned: 15 January 2024, credited on 5 February 2024.

Revenue authorities argued that interest under Section 56 wasn’t applicable since the refund was granted within 60 days of the re-application.

Court Observations

The Bombay HC disagreed, emphasizing that:

• A combined reading of Sections 54 and 56 supports taxpayer protection.
• Rejection of the initial claim cannot reset the interest clock.
• Interest accrues from the 61st day after the original application, not from the re-filing date.

Key takeaway: The ruling ensures administrative delays do not penalize taxpayers and reinforces the principle of fairness in GST refunds.

 

Breaking Down Sections 54 and 56

Section	Provision	Trigger	Interest Rate
54	Refund of tax, interest, or other amounts	Receipt of application by proper officer	-
56	Interest on delayed refunds	Refund not granted within 60 days	6% p.a. (basic), up to 9% in special appellate cases

Bottom line: The 60-day period starts from the original application date. Any attempt to reset it via a new filing undermines the protective intent of Section 56.

 

Who Benefits from This Ruling?

Businesses and Taxpayers

• Stronger protection for legitimate refund claims.
• Reduced cash flow uncertainty, especially for exporters and ITC-heavy businesses.
• Micro, small, and large enterprises all benefit.

Chartered Accountants and Tax Advisors

• Need to revisit pending refund cases.
• Interest must be calculated from the original application date.
• Potential for recoveries previously overlooked.

Revenue Authorities

• Administrative accountability increases.
• Delays now come with a clear financial cost, incentivizing timely processing.

 

Practical Implications for Businesses

1. Verify application dates: Always note the original filing date.
2. Calculate interest: Start from the 61st day post original application.
3. Track appeals: If an initial rejection is overturned, ensure interest calculation reflects the original application.
4. Financial reporting: Include potential interest receivables in accounting statements.
5. Internal dashboards: Use tracking systems to monitor pending refunds and avoid missed claims.

 

Broader Economic Impacts

• Faster refund processing boosts business liquidity.
• Export competitiveness improves when input taxes are reimbursed promptly.
• Judicial enforcement reinforces taxpayer rights.
• Aligns with India’s “Ease of Doing Business” goals by discouraging bureaucratic delays.

 

Clearing Common Misunderstandings

• Interest does not start from the re-application date.
• 9% interest is not automatic; it applies under specific appellate circumstances.
• Rejection of the original refund does not break continuity; interest accrues once overturned.
• Interest is mandatory, not discretionary.
• Small businesses benefit too—not just large corporations.

 

Expert Insights

A senior tax journalist notes:

"This ruling is subtle but powerful. It removes procedural advantages previously enjoyed by revenue authorities. The 60-day clock cannot be reset, ensuring predictable interest compensation. Businesses now have a stronger case for timely recovery."

Manika TaxWise advises: always calculate interest under Section 56 proactively, as it now represents a more predictable and enforceable claim.

 

Actionable Steps for Taxpayers

1. Review all pending refund applications and record original filing dates.
2. Compute interest under Section 56 for claims pending beyond 60 days.
3. For appeals, ensure interest calculation uses the original filing date, not the re-filing date.
4. Update accounting statements to include potential interest receivables.
5. Stay in close touch with tax advisors to monitor refund processing.

Pro tip: This ruling may encourage new claims and litigation, as businesses assert their right to interest. It also pressures revenue authorities to streamline processes.

 

FAQs: GST Refund Interest Clarified

Q1: When does interest start under Section 56?
A: From the 61st day after the original refund application, even if initially rejected.

Q2: What is the applicable interest rate?
A: 6% per annum for delays beyond 60 days; in some appellate scenarios, up to 9%.

Q3: Are interest claims valid if the refund was initially rejected?
A: Yes, the original application is treated as continuous once the appellate order allows the refund.

Q4: Who is eligible for interest?
A: Any taxpayer with an undisputed refund claim where the delay is not the applicant’s fault.

Q5: What should businesses do now?
A: Review pending refunds, calculate interest, consult tax advisors, and monitor processing.

 

Conclusion: Strengthening Taxpayer Rights

The Bombay High Court ruling is a win for taxpayers, CAs, and compliance teams alike:

• Interest accrues from the original application date, even after initial rejection.
• Administrative delays now carry a tangible financial cost, incentivizing timely resolution.
• Businesses should track applications meticulously, compute interest proactively, and engage with authorities confidently.

Manika TaxWise recommends that all businesses and accountants treat this ruling as a signal: be proactive, protect your cash flow, and ensure full compliance. With proper monitoring and professional guidance, GST refunds and related interest can now become a predictable part of financial planning rather than a bureaucratic headache.

 

References

• TaxGuru – “Interest on Delayed GST Refund Payable from Original Application Date: Bombay HC”
• Taxscan – “Interest on Delayed GST Refunds to Accrue from Original Application Date, Not from Post-Appeal Refiling”
• TaxTMI – “Interest is payable at 6% if refund is not granted within 60 days from date of the original refund application”
• Ernst & Young Tax Alert – “HC interprets relevant date and applicable rate for interest computation on delayed refund under GST”