When a Refund Is Delayed: Deficiency Memos, Withholding and Interest

The refund rules set short deadlines for the department: fifteen days to accept or reject an application as complete, seven days for a provisional refund, sixty days for the final order. Claimants who wait past those dates rarely know what the delay means. A deficiency memo looks like a request for papers, but in law it ends the application and requires a new one, and the two-year clock keeps running. A withholding order stops payment of an amount already sanctioned. And interest is payable once sixty days pass, but only for the period the rules allow, at a rate that depends on how the refund arose.

This guide covers the stages at which a refund can stall: the deficiency memo in RFD-03 and its effect on limitation, withholding in RFD-07 under section 54(10) and (11), the payment order in RFD-05, and interest under section 56 and rule 94, with the courts’ decisions on when interest starts. The general procedure is in Refund of Unutilised Credit: Who Can Claim and How. Interest on a refunded pre-deposit, which follows section 115, is in Getting the Pre-Deposit Back.

The timetable the law sets

Stage	Form	Time limit	Provision
Filing and ARN	RFD-01	Two years from the relevant date, except a cash ledger balance	Section 54(1)
Acknowledgement, or deficiency memo	RFD-02 or RFD-03	Fifteen days from filing (none for a cash ledger claim, which is acknowledged at once)	Rule 90
Provisional refund of 90 per cent (zero-rated supplies)	RFD-04	Seven days from acknowledgement	Rule 91(2)
Notice proposing rejection, and reply	RFD-08, RFD-09	Reply within fifteen days	Rule 92(3)
Final order	RFD-06	Sixty days from receipt of a complete application	Section 54(7)
Withholding, and release	RFD-07 Part A, Part B	When section 54(10) or (11) applies	Rule 92(2)
Payment order	RFD-05	With RFD-04 or RFD-06	Rules 91(3), 92(4)
Interest	Order with RFD-05	When the refund is paid after sixty days	Section 56, rule 94

Circular No. 125/44/2019-GST para 34 asks officers to issue RFD-06 and RFD-05 “within 45 days of the date of generation of ARN, so that the disbursement is completed within 60 days”.

The deficiency memo: RFD-03

What it is. Rule 90(2) requires the officer to scrutinise the application “within a period of fifteen days of filing” for completeness “in terms of sub-rule (2), (3) and (4) of rule 89”. This means the documents and statements, the ledger debit and the formula. If it is complete, RFD-02 issues. Under rule 90(3), “Where any deficiencies are noticed, the proper officer shall communicate the deficiencies to the applicant in FORM GST RFD-03 … requiring him to file a fresh refund application after rectification of such deficiencies.”

What it does to the application. Circular No. 125/44/2019-GST sets out the effects:

• “After a deficiency memo has been issued, the refund application would not be further processed and a fresh application would have to be filed” (para 10).
• Any credit or cash debited is re-credited “automatically”, with no PMT-03 (para 10; rule 93(1)).
• The fresh application has “a new and distinct ARN” (para 10).
• No second memo may issue for the same period “unless the deficiencies pointed out in the original deficiency memo remain un-rectified, either wholly or partly, or any other substantive deficiency is noticed subsequently” (para 11).
• “Once an acknowledgement has been issued in relation to a refund application, no deficiency memo, on any grounds, may be subsequently issued” (para 9).

Its effect on limitation. Para 12 of the circular says the rectified application, being fresh, “shall also have to be submitted within 2 years of the relevant date”. A memo received near the end of the two years could therefore defeat the claim. Notification No. 15/2021-Central Tax added a proviso to rule 90(3), in force from 18 May 2021:

Provided that the time period, from the date of filing of the refund claim in FORM GST RFD-01 till the date of communication of the deficiencies in FORM GST RFD-03 by the proper officer, shall be excluded from the period of two years as specified under sub-section (1) of Section 54, in respect of any such fresh refund claim filed by the applicant after rectification of the deficiencies.

An example. The relevant date for a claim is 1 April 2024, so the two years end on 31 March 2026. The claimant files on 1 March 2026. A memo is communicated on 14 March 2026. The thirteen days from filing to the memo are excluded, so the fresh claim may be filed up to 13 April 2026. The time from the memo to refiling is not excluded. Only the time the department held the first application is.

A memo issued late. The fifteen days in rule 90(2) bind the officer. In Jian International v Commissioner of Delhi GST (Delhi High Court, 2020), as quoted by the Telangana High Court in Qualcomm (below), neither RFD-02 nor RFD-03 had issued within fifteen days. The Delhi court held that the application “would be presumed to be complete in all respects”. It said a late deficiency memo would let the department “process the refund application beyond the statutory timelines” and “impair petitioner’s right to claim interest from the relevant date of filing of the original application”.

Withholding: section 54(10) and (11), and RFD-07

Section 54(10): defaults by the claimant. Where a refund is due to a registered person “who has defaulted in furnishing any return or who is required to pay any tax, interest or penalty, which has not been stayed by any court, Tribunal or Appellate Authority by the specified date”, the officer may:

• “(a) withhold payment of refund due until the said person has furnished the return or paid the tax, interest or penalty”
• “(b) deduct from the refund due, any tax, interest, penalty, fee or any other amount which the taxable person is liable to pay but which remains unpaid”

From 1 October 2022, the Finance Act, 2022 removed the words that had limited the sub-section to refunds of unutilised credit. It now reaches every refund. An adjustment against a demand is recorded in RFD-06 (Circular No. 125/44/2019-GST para 35).

Section 54(11): appeals and fraud. Where an order giving rise to a refund “is the subject matter of an appeal or further proceedings or where any other proceedings under this Act is pending”, the Commissioner may withhold the refund “till such time as he may determine”. This requires the Commissioner to be “of the opinion that grant of such refund is likely to adversely affect the revenue … on account of malfeasance or fraud committed”, and to give “the taxable person an opportunity of being heard”. Under section 54(12), if the person finally succeeds, it is entitled to interest “at such rate not exceeding six per cent”, notwithstanding section 56. Notification No. 13/2017-Central Tax fixes 6 per cent.

The order. Rule 92(2) requires an order “in Part A of FORM GST RFD-07 informing him the reasons for withholding”. The proviso, inserted by Notification No. 15/2021-Central Tax, provides for release “in Part B of FORM GST RFD-07” once the refund “is no longer liable to be withheld”. The portal’s FAQ on replies and orders still describes the withholding order as “Form GST RFD-07 (Part B)”. Under the rule as amended, Part A withholds and Part B releases. While a withholding order is in force, no RFD-05 issues.

Limits. Circular No. 125/44/2019-GST para 17 says that “no adjustment or withholding of refund, as provided under sub-sections (10) and (11) of section 54 … shall be allowed in respect of the amount of refund which has been provisionally sanctioned”. An officer who expects to recover dues may instead pass a final order early and adjust it. An RFD-01 once withheld cannot be withdrawn: RFD-01W is barred once RFD-07 issues (rule 90(5)). For IGST on exported goods, withholding works through rule 96(4) instead. See Refund of IGST Paid on Exports.

Provisional refund, and why it may not come

For zero-rated supplies, section 54(6) allows 90 per cent of the claim to be refunded provisionally. From 1 October 2025, rule 91(2), as substituted by Notification No. 13/2025-Central Tax, requires the RFD-04 order “on the basis of identification and evaluation of risk by the system” within seven days of acknowledgement. The officer may, “for reasons to be recorded in writing”, refuse a provisional refund and proceed to a final order.

No provisional refund is allowed to:

• persons prosecuted for evasion above Rs 250 lakh in the five preceding years (rule 91(1))
• from 1 October 2025, persons who have not undergone Aadhaar authentication, and suppliers of areca nuts, pan masala, tobacco and essential oils (Notification No. 14/2025-Central Tax)

Section 155 of the Finance Act, 2026 extends section 54(6) to inverted duty refunds, but CBIC’s text of section 54 records it as not yet in force.

The payment order: RFD-05

A sanctioned refund is paid only on a payment order in RFD-05 (rules 91(3) and 92(4)). The Central Government disburses refunds of every head “based on the consolidated payment advice” through PFMS (Circular No. 125/44/2019-GST paras 27 and 28). Two practical points:

• The bank account must validate. The refund goes only to a bank account in the registration, “in the name of applicant and obtained on his Permanent Account Number” (rule 96C). If PFMS rejects it, the applicant corrects or adds an account by a non-core amendment in REG-14 and selects it again. A fresh RFD-05 then issues, with the same ARN and sanction order (paras 29 to 31).
• Revalidation. Under the provisos to rules 91(3) and 92(4), an RFD-05 “shall be required to be revalidated where the refund has not been disbursed within the same financial year”.

Where a sanctioned refund has not been received, the portal provides an “Intimation on account of Refund not Received” under Services > Refunds. Its FAQs say it generates an intimation reference number by SMS, but offers no tracking of the intimation.

Interest under section 56

The rule. Section 56 provides that if tax “ordered to be refunded under sub-section (5) of section 54 … is not refunded within sixty days from the date of receipt of application under sub-section (1)”, interest is payable “for the period of delay beyond sixty days from the date of receipt of such application till the date of refund of such tax, to be computed in such manner and subject to such conditions and restrictions as may be prescribed”. The words from “for the period of delay” were substituted by the Finance Act, 2023 from 1 October 2023.

The rates. Notification No. 13/2017-Central Tax fixes 6 per cent a year for section 56. It fixes 9 per cent for the proviso, which applies where the refund “arises from an order passed by an adjudicating authority or Appellate Authority or Appellate Tribunal or court which has attained finality” and is not paid within sixty days of the application filed after that order. Under the Explanation, an appellate order allowing a refund against an RFD-06 rejection “shall be deemed to be an order passed under the said sub-section (5)”.

Until when. Circular No. 125/44/2019-GST para 34 says that a refund is made “only when the amount has been credited to the bank account of the applicant”. Interest runs to that date.

What rule 94 excludes. Rule 94(1) requires the officer to make an order “along with a payment order in FORM GST RFD-05”, specifying the delayed refund, “the period of delay for which interest is payable” and the interest. It does not depend on a separate claim. Rule 94(2), from 1 October 2023 (Notification No. 38/2023-Central Tax), excludes from the period of delay:

• “(a) any period of time beyond fifteen days of receipt of notice in FORM GST RFD-08 … that the applicant takes to (i) furnish a reply in FORM GST RFD-09, or (ii) submit additional documents or reply”
• “(b) any period of time taken either by the applicant for furnishing the correct details of the bank account … or for validating the details of the bank account so furnished”

The courts on interest

Union of India v Willowood Chemicals Pvt Ltd (Supreme Court, U.U. Lalit and S. Ravindra Bhat JJ, Civil Appeal Nos. 2995 to 2998 of 2022, 19 April 2022; read on Indian Kanoon). Two exporters, Willowood Chemicals and Saraf Natural Stone, received refunds of IGST paid on exports with delays “ranging from 94 to 290 days”. The Gujarat High Court had awarded interest at 9 per cent. The Supreme Court held that, where a statute specifies the rate, interest is payable in terms of the statute. Higher equitable interest was confined to extraordinary delays such as those in Sandvik Asia. “In terms of the principal part of Section 56 of the CGST Act, the interest would be awarded at the rate of 6 per cent.” The 9 per cent rate is “attracted only if the matter was covered by the proviso”. The appeals were allowed to that extent.

Qualcomm India Pvt Ltd v Deputy Commissioner (ST) (Telangana High Court, Division Bench, P. Sam Koshy and N. Tukaramji JJ, W.P. Nos. 8869 and 8871 of 2023, 20 March 2024; the second petition by Microsoft Global Services Center (India) Pvt Ltd). The petitioners had claimed refunds of unutilised credit. They received deficiency memos and replied promptly. The claims were later rejected after show cause notices. On appeal the petitioners substantially succeeded, and the refunds were paid. The department then refused interest for the period the money had been withheld. The court relied on the Supreme Court’s reasoning in Ranbaxy Laboratories under the Central Excise Act, and on Delhi High Court decisions under section 56. It held that interest runs from the expiry of sixty days from the original application. A later application filed to implement an appellate order does not reset the start. The 9 per cent proviso enhances the rate only for the period after sixty days from the application filed after the order. The court directed payment of interest “in terms of sub-section (1) of Section 56 and the proviso thereto”. That reasoning was given on section 56 as it stood before the 2023 substitution. Under the present words, rule 94(2) also applies.

Changes recommended in October 2026

At its 57th meeting on 8 October 2026, the GST Council recommended:

• reducing the time for acknowledgement or deficiency memo “from 15 days to 10 days”, with “Deemed acknowledgement by the system” if neither issues
• automatic sanction by the system of 90 per cent provisional refunds for zero-rated supplies and inverted duty, “on the basis of identification and evaluation of risk”
• automatic sanction of the full refund of an excess cash ledger balance
• in a second phase, system-based acknowledgement and full sanction of zero-rated claims “after adjusting pending dues”
• amending section 115 “to make it a standalone provision in respect of the rate of interest” on refunds of pre-deposit, with a clarifying circular

All of these are recommended, not yet notified.

What to have ready when a refund stalls

Item	Where it comes from
ARN and date of filing; date of RFD-02 or RFD-03	Portal, refund case
The deficiency memo and the date it was communicated	Portal, Notices/Orders tab
RFD-08, RFD-09 and their dates	Portal
RFD-06, RFD-05 and the date of credit to the bank	Portal, bank statement
Any RFD-07, its Part A reasons, and the demands it relies on	Portal; liability register
Bank validation status and any REG-14 amendment	Portal; PFMS status
Appellate orders, for the 9 per cent proviso	Order

What can still be put right

• A deficiency memo. A fresh RFD-01 is filed curing only the points listed. The time from first filing to the memo is excluded from the two years. A second memo on the same points is not permitted unless they remain uncured.
• A late memo, or none. Where neither RFD-02 nor RFD-03 issued within fifteen days, the Delhi High Court’s reasoning in Jian International treats the application as complete.
• A withholding. For section 54(10), filing the return or paying the unstayed dues removes the ground, and release follows in Part B of RFD-07. A section 54(11) order requires a prior hearing and is appealable under section 107.
• Interest not paid, or computed from a later date. Section 56 and rule 94 require the officer to compute it with RFD-05. A shortfall is appealable under section 107, or raised by writ where it rests on a point of law, as in Qualcomm.
• A payment that never arrives. The bank account is checked and corrected through REG-14, and the “Refund not Received” intimation is filed.

The procedure in order

1. Note the ARN date. Expect RFD-02 or RFD-03 within fifteen days and RFD-06 within sixty.
2. On a deficiency memo, note the date it was communicated, cure every point and refile within the two years plus the excluded period.
3. Answer any RFD-08 in RFD-09 within fifteen days. Time taken beyond that does not earn interest.
4. Keep the bank account in the registration valid and on the applicant’s PAN.
5. If RFD-07 issues, read the Part A reasons. File the pending returns or pay the dues, or appeal.
6. When RFD-05 issues after sixty days, check that the interest order covers the period from the sixty-first day to credit, at 6 per cent or 9 per cent as the case requires.
7. If the refund still does not arrive, file the portal intimation, and appeal or seek a writ for unpaid interest.

This is the last guide in “Refunds, step by step”. The guides in “Sectors and special cases” follow, beginning with reverse charge for businesses.