Rejection of GST refund claims through deficiency memo – Implications on limitation and interest on delayed grant of refund

by | Nov 27, 2020 | Outlook

Upcoming litigations on rejection of GST refund claims through deficiency memo and implications on limitation and interest on delayed grant of refund. Legal provisions governing the field and its implications are discussed as under:

  1. Legal Provisions
  • Section 54 of the Central Goods & Services Tax Act, 2017 (‘CGST Act’) provides that any person claiming refund of any tax and interest may make an application within 2 years from relevant date.
  • Section 56 of the CGST Act provides that where any tax ordered to be refunded under Section 54 to any applicant, is not refunded within sixty days from the date of receipt of application, interest is payable from date immediately after expiry of sixty days from date of receipt of refund application till date of refund of such tax.
  • Rule 89 of the Central Goods & Services Tax Rules, 2017 (‘CGST Rules’) provides for form and manner of filing of refund application.
  • Rule 90 provide for procedure for grant of refund. As per Rule 90, the authorities need to scrutinize refund application within 15 days of its filing to ensure its completeness.
  • Rule 90(3) provides that where the authorities notice any deficiencies, proper officer needs to communicate the same to taxpayer, requiring him to file fresh refund application after rectification of such mistakes.
  • Basis above, if any deficiency is noticed in original refund application, the same is deemed as rejected and the taxpayer needs to file fresh refund application.

    2. Analysis

  • The treatment of corrected refund application (on issuance of deficiency memo) as fresh application has direct bearing on two aspects of refund claim:

– Limitation period

– Interest on delayed grant of refund

  • Section 54 provides for grant of refund within 2 years from relevant date. If a taxpayer’s refund claim is rejected upon minor deficiency, it may lose his right of refund due to expiry of limitation period. Similarly, interest on delayed grant of refund will be granted from expiry of sixty days from date of filing of corrected refund application and not from date of original application.
  • The above analysis suggests that the aforesaid provisions are amenable to abuse by the authorities. The vires of these provisions have already been challenged before the Courts.
  • In the case of Insitel Services Private Limited v. UOI, 2020-VIL-456-Del, the Delhi High Court admitted matter challenging Rule 90(3) of the CGST Rules for being arbitrary, illegal and ultra vires the CGST Act as it effectively results in outright rejection of refund application without affording any opportunity of hearing to the applicant. It further deprives right to interest in case of delayed refund to an applicant. The matter stands admitted before the Court and is pending final disposal.
  • A similar issue also came up for consideration before the Karnataka High Court in the case of CC Gimpex Limited, 2020 (5) TMI 370-Karnataka High Court. The issue was to identify date from which interest on delayed refund under the Customs Act, 1962 will accrue. In that case, the Proper Officer returned refund claim for deficiencies thrice and proposed to grant interest from date of re-filing of fresh application. The Court held that deficiencies are an irregularity and not illegality in refund claim. Thus, it cannot lead to denial of right of interest.
  • It is also pertinent to note the case of Jian International v. CGST, 2020-VIL-328-Del¸ the Delhi High Court observed that there was delay in issuance of deficiency memo and rejected department’s request to issue it post facto. The Court held that allowing department to issue such deficiency memo will lead to rejection of application, leading to impact on limitation period and interest. 

NITYA Comments: 

If a refund application is filed in correct form and manner as per Rule 89 of the CGST Rules, refund claim cannot be considered as deficient. However, practically the department seeks additional information or document under garb of deficiency memo. All such deficiencies may, at best, be termed as irregularities and should not have any bearing on limitation period and interest.

If the taxpayer’s right of limitation period and interest are jeopardized, it can consider challenging Rule 90(3) before the High Court. To give detailed understanding on this issue, Dharnendra Kumar Rana, Partner at NITYA Tax Associates has coherently discussed the issue and our take in a short video titledRejection of refund claim on issuance of deficiency memo’ at

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