Interest on delayed Vivad Se Vishwas refunds runs from 1 August 2021 until actual credit.

The petitioner sought interest on refunds arising under the Direct Tax Vivad se Vishwas Act, 2020 (“VSV Act”).

Form-5 certificates were issued on 24 May 2021, certifying that the amounts payable under the scheme had been fully settled and that the amounts earlier deposited were refundable.

Although the CBDT’s Central Action Plan 2021–2022 required consequential orders and refunds in cases where Form-5 was issued up to 30 June 2021 to be processed by 31 July 2021, the consequential orders were passed only on 17 June 2022.

Refund orders were thereafter issued on 7 February 2024, and the refund amounts were credited to the petitioner’s account on 2 March 2024, resulting in a delay of 1,013 days.

During the pendency of the writ petitions, the Revenue passed orders under Section 154 of the Income-tax Act, 1961, granting interest at 6% per annum from 1 July 2022 to 7 February 2024.

Whether the petitioner was entitled to interest on the delayed refund from 1 August 2021, after expiry of the deadline prescribed under Clause 9 of Chapter VI of the CBDT Central Action Plan 2021–2022, rather than only from 1 July 2022?

Whether the time limit under Section 153 of the Income-tax Act, 1961, could be invoked to justify the delay in passing consequential orders giving effect to Form-5 under the VSV Act?

Whether interest was payable until the actual date on which the refund was credited to the petitioner’s account, namely, 2 March 2024, rather than merely until the date of the refund order?

The Court applied Sections 5(1) and 5(2) of the VSV Act, 2020, under which the Designated Authority determines the amount payable, receives intimation of payment, and issues an order recording payment; Rule 7 of the VSV Rules prescribes Form-5 as the relevant order.

Section 10 of the VSV Act empowers the CBDT to issue directions, pursuant to which Circular No. 3 of 2021 directed Assessing Officers to pass consequential orders under the Income-tax Act.

Clause 9 of Chapter VI of the CBDT Central Action Plan 2021–2022 required consequential orders to be passed and refunds issued by 31 July 2021 where Form-5 had been issued up to 30 June 2021.

The Court held that the limitation under Section 153 of the Income-tax Act could not be imported for this purpose because neither the Circular nor the Central Action Plan referred to Section 153.

The Court also relied on the principle under Section 244A of the Income-tax Act, as explained in Union of India v. Tata Chemicals Ltd., 2014 (6) SCC 335, that interest compensates the assessee for the Department’s unauthorised retention and use of money.

It considered UPS Freight Services India (P.) Ltd. v. Deputy Commissioner of Income Tax, [2023] 156 taxmann.com 489 (Bombay), Sahil Total Infratech (P.) Ltd. v. Assistant Commissioner of Income Tax, [2025] 172 taxmann.com 230 (Gujarat), and Samarpan Foundation v. Commissioner of Income Tax (Exemption), [2025] 174 taxmann.com 1010 (Gujarat).

The Court held that Form-5 issued on 24 May 2021 established that the petitioner’s tax arrears had been fully settled and that the amounts already deposited were refundable.

Since Form-5 had been issued before 30 June 2021, Clause 9 of the Central Action Plan required the consequential order and refund process to be completed by 31 July 2021.

The Revenue passed the consequential order only on 17 June 2022 and offered no explanation for the delay.

The Court rejected the Revenue’s reliance on Section 153, observing that the provision was not invoked in the relevant departmental orders and that neither Circular No. 3 of 2021 nor the Central Action Plan made Section 153 applicable to consequential orders under the VSV Act.

Applying the compensatory principle recognised in Tata Chemicals, the Court found that the Revenue had retained the petitioner’s money without justification and that interest should run from 1 August 2021, immediately after the CBDT’s deadline expired, until the refund was actually credited—not merely until the refund order was issued.

The Court directed the respondents to pay interest at 6% per annum on the refund amounts from 1 August 2021 to 2 March 2024, the date on which the refunds were credited to the petitioner’s account.

The directions were to be implemented within six weeks from receipt of the writ of the order.

If the amount was not paid within that period, it would carry further interest at 9% per annum, recoverable from the defaulting officer(s).