The Gujarat High Court delivered a ruling on July 16, 2026, in the case of Anas Enterprise vs. Union of India & Another, addressing the issue of whether interest on GST is payable when the tax has already been deposited in the Electronic Cash Ledger before the due date, despite a late filing of returns. Anas Enterprise, involved in manufacturing and selling chewing tobacco, had filed GST returns late but had deposited the tax on time, except for April 2021. They paid interest following an audit objection but later sought a refund based on the Gujarat High Court's previous ruling in Arya Cotton Industries. The department rejected the refund, citing that the amendment to Rule 88B was prospective.
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The Court found that the department ignored the binding judgment in Arya Cotton Industries by treating Rule 88B as prospective. The amendment was meant to reflect the legal principle already established by the Court. The Bench criticized the department for arbitrarily rejecting the refund by selectively denying the applicability of the earlier judgment. The Court quashed the refund rejection order and recovery notice, directing the refund of excess interest with 6% statutory interest and additional interest for delays beyond six weeks. Additionally, the Court imposed costs of ₹5,000 on the department for its arbitrary exercise of power.
Order Date - 16 July 2026
Parties: Anas Enterprise Vs Union of India & Another
Facts -
- Petitioner, Anas Enterprise, engaged in manufacturing and selling chewing tobacco, had filed certain GST returns belatedly. However, except for April 2021, it had already deposited the tax amount into its Electronic Cash Ledger before the due date. Later, based on an audit objection, it paid interest through Form GST DRC-03.
- The petitioner applied for a refund of excess interest paid, relying on the Gujarat High Court's ruling in Arya Cotton Industries. After curing deficiencies and refiling the application, the department issued a notice proposing rejection on the ground that the amendment to Rule 88B was only prospective.
- Despite detailed replies citing the earlier High Court judgment, the refund claim was rejected through Form GST RFD-06 dated 17.06.2025 solely because the proviso to Rule 88B came into force from 10.07.2024 and was considered prospective.
- Aggrieved by the rejection, the petitioner approached the Gujarat High Court seeking quashing of the refund rejection order and recovery notice, contending that the department ignored a binding judicial precedent.
Issue -
- Whether GST interest is payable after the tax has already been deposited in the Electronic Cash Ledger before the due date?
Order -
- The Court observed that the refund was rejected only because the department treated the proviso to Rule 88B as prospective, while completely ignoring the binding judgment in Arya Cotton Industries. The authority failed to examine the petitioner's claim in light of the law already declared by the High Court.
- The Court noted that the proviso to Rule 88B was introduced following the recommendations of the GST Council after the decision in Arya Cotton Industries. The amendment reflected the legal principle already recognised by the Court and could not be used to disregard the earlier judicial interpretation.
- The Bench criticised the department for adopting a "selective denial" approach. While accepting that the petitioner's case was covered by the earlier judgment, it still rejected the refund by taking shelter under the prospective operation of Rule 88B, which amounted to arbitrary exercise of power.
- Holding that the impugned order suffered from total non-application of mind, the Court quashed both the refund rejection order and the recovery notice. It directed refund of the excess interest with 6% statutory interest, enhanced interest for delay beyond six weeks, and imposed costs of ₹5,000 on the department.
