The Bombay High Court has reaffirmed that interest on refunds under the IGST Act is not discretionary but mandatory, even when the principal amount has been repaid. The Court found prima facie contempt of a prior order that explicitly directed payment of interest, underscoring that statutory mandates cannot be ignored by administrative delay.
Background & Facts
The Dispute
The petitioner, Satyen Ploymers Private Limited, a manufacturer and exporter, paid Integrated Goods and Services Tax (IGST) on exports classified as zero-rated supplies under Section 16 of the IGST Act, 2017. The petitioner filed shipping bills for export and claimed refund of the IGST paid, as permitted under the law. The Revenue authorities, however, initially denied the refund claim, prompting the petitioner to file Writ Petition No. 4332 of 2022 before the Bombay High Court.
Key Facts
- The petitioner made exports under shipping bills between 2020 and 2022
- IGST amount of Rs.17,04,127/- was paid on these zero-rated supplies
- Refund claim was rejected by the tax authorities on procedural grounds
- Writ Petition No. 4332 of 2022 was filed on 15.07.2022
- The petition was heard by a Bench including Justice G. S. Kulkarni
Procedural History
- 11.09.2023: Order passed by a co-ordinate Bench of the Bombay High Court in Writ Petition No. 4332 of 2022
- Allowed the petition in terms of prayer clause (c)
- Directed refund of Rs.17,04,127/- with interest as per the IGST Act
- Ordered release of amount within two weeks of receipt of authenticated copy
- No costs awarded
- 12.09.2023: Authenticated copy of the order received by the Revenue authorities
- 25.10.2023: Principal amount of Rs.17,04,127/- was refunded to the petitioner
- 15.04.2026: Petitioner filed the present Writ Petition No. 2410 of 2025, alleging non-payment of interest
Relief Sought
The petitioner seeks enforcement of the 11.09.2023 order, direction for payment of interest on Rs.17,04,127/- from the date of payment until the date of refund, and appropriate action for contempt of court for non-compliance.
The Legal Issue
The central question is whether the failure to grant interest on a refund of IGST paid on zero-rated supplies, after a court order explicitly directing such interest under the IGST Act, constitutes a breach of statutory obligation and contempt of court.
Arguments Presented
For the Petitioner
The petitioner’s counsel argued that the IGST Act, 2017, under Section 56, mandates payment of interest on delayed refunds of tax paid, including on zero-rated supplies. The 11.09.2023 order was clear, unambiguous, and binding. Payment of the principal amount without interest is a partial compliance that defeats the purpose of the order. The delay of over two and a half years in paying interest amounts to deliberate non-compliance and contempt.
For the Respondent
The Revenue’s counsel conceded that interest was not paid but submitted that the delay was due to internal procedural bottlenecks and administrative oversight. They requested time to verify the interest calculation and assured compliance, denying any mala fide intent or contumacious conduct.
The Court's Analysis
The Court observed that the 11.09.2023 order was not merely directory but mandatory in its terms. The phrase "interest as per the IGST Act" was not an invitation to discretion but a reference to a statutory obligation under Section 56 of the IGST Act, 2017, which provides that interest shall be paid on refunds due to the taxpayer from the date of payment of tax until the date of refund.
"The statutory mandate under Section 56 of the IGST Act is not subject to administrative convenience. When a court order incorporates this statutory provision, it becomes a judicial command that cannot be diluted by delay or oversight."
The Court emphasized that the Revenue authorities had fully complied with the principal refund obligation but deliberately omitted the interest component. This selective compliance undermines the authority of the court and the integrity of the tax regime. The Court noted that the IGST Act does not permit any exemption from interest on zero-rated supplies, and the petitioner’s entitlement was absolute.
The Court further held that the failure to pay interest, despite a clear directive, prima facie amounts to contempt of court. The Revenue’s explanation of administrative delay is insufficient to excuse non-compliance with a judicial order that explicitly incorporated a statutory duty.
The Verdict
The Court granted the petitioner relief. It directed the Revenue authorities to pay interest on Rs.17,04,127/- at the rate of 9% per annum from the date of payment of IGST until the date of refund, calculated as per Section 56 of the IGST Act, 2017. The interest amount shall be computed and paid within 14 days from the date of this order. The Court warned that failure to comply will result in initiation of contempt proceedings. The petitioner’s costs shall be awarded in the contempt proceedings, if initiated.
What This Means For Similar Cases
Interest Under IGST Act Is Non-Negotiable
- Practitioners must insist on interest as a statutory right under Section 56, even if the principal refund is paid
- Administrative delays or internal bottlenecks cannot override judicial orders incorporating statutory interest mandates
- Refund applications must be accompanied by explicit claims for interest, and failure to pay it post-order can trigger contempt
Judicial Orders Incorporating Statutory Provisions Are Binding in Full
- Courts will not tolerate partial compliance with orders that reference statutory obligations
- Any omission, even if unintentional, may be treated as contempt if the statutory duty is clear
- Tax authorities must treat court orders as immediate directives, not advisory suggestions
Proactive Compliance Required in Tax Litigation
- Taxpayers should file applications for interest calculation immediately after refund of principal
- Legal notices should be issued within 7 days of non-payment of interest post-order
- Contempt petitions may be filed without waiting for final adjudication if the breach is clear and unambiguous
