Recent Delhi HC’s ruling for allowing interest on the refunds issued under Direct Tax Vivad Se Vishwas Act, 2020 (‘VSV Act’).

Interest on refunds under VSV – Delhi HC ruling

• The Assessee was granted final certificate in Form – 5 under the VSV Act setting forth the particulars of the amount refundable to the assessee; The Assessee seeked interest must be paid on refunds at the rate of nine percent on account of delay in payment;
• Revenue contended that no interest is payable on refunds determined under VSV Act.
• Revenue also stated that the refund amount could not be processed earlier as there was a technical issue at the Central Processing Centre (‘CPC’) and only once the same was resolved, refund was issued;

Key excerpts of the ruling

• The Court contended that there is no provision in the VSV Act explicitly prohibiting award of interest on delayed refund;
• As far as the technical issue at CPC is concerned, this Court is of the view that the same cannot ensure to the benefit of the Tax Department;
• The Court took reference of the Supreme Court ruling in Tata Chemicals Limited that the State having received the money without right and having retained and used it, is bound to make the party good, just as an individual would be under similar circumstances. The obligation to refund money received and retained without right implies and carries with it the right to interest . Consequently, this Court was of the view that the assessee is entitled to interest on the refund amount which was delayed beyond the period of ninety days from the date of determination of the refund amount;
• Court directed Revenue to make a payment of simple interest @ 5% per annum on delayed refund amount with effect from a period of ninety days from the date of determination of the refund amount till date of actual payment.