1. Refund claim under Delhi Value Added Tax Act — Adjustment of refund against subsequent default notices — Challenge to adjustment order. (Para 2 )
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2024 Supreme(SC) 445
SUPREME COURT OF INDIA
PAMIDIGHANTAM SRI NARASIMHA, PRASANNA BHALACHANDRA VARALE, JJ.
Commissioner of Trade and Taxes – Appellant
Versus
FEMC Pratibha Joint Venture – Respondent
Civil Appeal No. 3940 of 2024
Decided On : 01-05-2024
Important Points
IMPORTANT POINT
Refund of VAT – Department must adhere to timeline stipulated therein to fulfil object of provision which is to ensure that refunds are processed and issued in a timely manner.
Refund of VAT – Department must adhere to timeline stipulated therein to fulfil object of provision which is to ensure that refunds are processed and issued in a timely manner.
Subject
Taxation Law - Value Added Tax
Act Referred
DELHI VALUE ADDED TAX ACT: S.38, S.42, S.58, S.59, S.74
Headnote
Delhi Value Added Tax Act, 2004 – Section 38(3) – Refund – Timeline – Language of Section 38(3) is mandatory and department must adhere to timeline stipulated therein to fulfil object of provision which is to ensure that refunds are processed and issued in a timely manner – By the time when refund should have been processed as per provisions of the Act, dues under default notices had not crystallised and respondent was not liable to pay the same at the time – Appellant-department is not justified in retaining refund amount beyond stipulated period and then adjusting refund amount against amounts due under default notices that were issued subsequent to refund period – Impugned judgment directing refund of amounts along with interest as provided under Section 42 of Act affirmed. (Paras 8, 9 and 11)
Facts of the case:
Present appeal is restricted to the issue of quashing the adjustment order. High Court quashed the adjustment order and directed refund of Rs. 17,10,15,285/- for the 4th quarter of 2015-16 and Rs. 5,44,39,148/- for the 1st quarter of 2017-18, along with interest as per Section 42 till the date of realisation.2 [W.P. (C) No. 2491/2023, judgment dated 21.09.2023 (‘Impugned judgment’)] In respect of the default notices, the High Court gave liberty to the respondent to avail statutory appeal under Section 74 of the Act.
Findings of Court:
In present case, Section 38(3)(a)(ii) is relevant as both refunds in present case pertain to quarter tax periods. Therefore, as per Section 38(3)(a)(ii), refund should have been processed within two months from when returns were filed (31.03.2017 and 29.03.2019), which comes up to 31.05.2017 and 29.05.2019.
Result : Appeal dismissed.
Legal Category Hierarchy
Advocates:
Advpcates appeared :
For the Appellant(s) : Mr. N Venkataraman, A.S.G. Mr. Mukesh Kumar Maroria, AOR Mr. V C Bharathi, Adv. Mr. Udai Khanna, Adv. Mr. Siddharth Sinha, Adv. Mr. Sanjay Kumar Dubey, Adv.
For the Respondent(s): Mr. Avadh Bihari Kaushik, AOR
Advpcates appeared :
For the Appellant(s) : Mr. N Venkataraman, A.S.G. Mr. Mukesh Kumar Maroria, AOR Mr. V C Bharathi, Adv. Mr. Udai Khanna, Adv. Mr. Siddharth Sinha, Adv. Mr. Sanjay Kumar Dubey, Adv.
For the Respondent(s): Mr. Avadh Bihari Kaushik, AOR
Table of Contents
2. Whether statutory timelines for processing refunds are mandatory or merely for interest calculation, and whether refunds can be adjusted against dues crystallizing after the refund deadline. (Para 5 )
3. Section 38(3) timelines are mandatory; adjustment under Section 38(2) requires dues to be existing at the time of refund processing to prevent indefinite retention of funds. (Para 6 , 7 , 8 , 9 , 10 )
4. Statutory timelines for issuing refunds under Section 38(3) of the Delhi Value Added Tax Act are mandatory and preclude adjustment against dues crystallizing after such periods. (Para 8 , 9 )
5. Appeal dismissed and High Court judgment affirmed, directing refund of amounts with interest. (Para 11 )
6. Is the timeline for processing refunds under Section 38(3) of the Delhi Value Added Tax Act mandatory?
Yes, the language of Section 38(3) is mandatory. The department must adhere to the stipulated timelines to ensure that refunds are processed and issued in a timely manner. (Para 8 )
7. Can a refund be adjusted against dues that arise after the statutory refund timeline has expired?
No. Adjustment under Section 38(2) is only permitted for amounts due under the Act. If dues have not crystallized by the time the refund should have been processed, the department cannot retain the refund for future adjustment. (Para 9 )
8. Is the purpose of the refund timeline under Section 38(3) limited to the calculation of interest?
No. Interpreting the timeline solely for interest calculation would allow the department to retain refundable amounts for long durations for future adjustments, which would defeat the object and purpose of the provision. (Para 10 )
1. The issue for consideration before us is whether the timeline for refund under Section 38 (3) of the Delhi Value Added Tax Act, 20041 [Hereinafter ‘the Act’] must be mandatorily followed while recovering dues under the Act by adjusting them against the refund amount.
2. The brief facts relevant for our purpose are as follows. The respondent is a joint venture engaged in the execution of works contracts for the Delhi Metro Rail Corporation and makes purchases for this purpose. It claimed refund of excess tax credit amounting to Rs. 17,10,15,285/- for the 4th quarter of 2015-16 through revised return filed on 31.03.2017 and Rs. 5,44,39,148/- for the 1st quarter of 2017-18 through return filed on 29.03.2019, along with applicable interest under Section 42 of the Act. The appellant did not pay the refund even until 2022, pursuant to which the respondent sent a letter dated 09.11.2022 for the consideration of their refund. The Value Added Tax Officer passed an adjustment order dated 18.11.2022 to adjust the respondent’s claims for refund against dues under default notices dated 30.03.2020, 23.03.2021, 30.03.2021, and 26.03.2022. The respondent then filed a writ petition before the Delhi High Court for quashing the adjustment order and the default notices.
3. By judgment dated 21.09.2023, impugned herein, the High Court quashed the adjustment order and directed refund of Rs. 17,10,15,285/- for the 4th quarter of 2015-16 and Rs. 5,44,39,148/- for the 1st quarter of 2017-18, along with interest as per Section 42 till the date of realisation.2 [W.P. (C) No. 2491/2023, judgment dated 21.09.2023 (‘Impugned judgment’)] In respect of the default notices, the High Court gave liberty to the respondent to avail statutory appeal under Section 74 of the Act.
4. The present appeal is restricted to the issue of quashing the adjustment order. The High Court placed reliance on the Delhi High Court’s judgment in Flipkart India Private Limited vs. Value Added Tax Officer, Ward-300, 2023 SCC Online Del. 5201 to summarise the law on refund under Section 38 . It held that the department must scrupulously adhere to the time limit for processing and issuing the refunds under Section 38 . Whenever the department seeks to obtain necessary information under Section 59 of the Act, it must take steps within the time limit envisaged under the Act. Further, the refund amount can be adjusted only when an enforceable demand in the nature of tax or duty is pending against the assessee. The department does not have any legal right or justification to retain the amount beyond the time limit prescribed under Section 38 .3 [Impugned judgment, Para 10] In the facts of the present case, it was held that the mandate of the Act has not been followed and hence the adjustment order is not maintainable.4 [ibid, Para 11]
5. We have heard the learned ASG for the department and Mr. Rajesh Jain, learned counsel for the respondent-assessee. The learned ASG has submitted that the timelines specified in Section 38 (3) are only to ensure that interest is paid if the refund is delayed beyond the statutorily prescribed period. However, he has argued, the timeline cannot be used to denude the power to adjust refund amounts against outstanding dues under Section 38 (2). The refund can be adjusted as long as outstanding dues exist at the time when the refund is processed, even if it is beyond the stipulated timeline. The learned counsel for the assessee has supported the reasoning of the High Court and has placed reliance on several judgments of the Delhi High Court that affirm this position of law. [ Swarn Darsan Impex vs. Commissioner, Value Added Tax , 2010 SCC Online Del. 4697, Nucleus Marketing and Communication vs. Commissioner of Delhi Value Added Tax, 2016 SCC Online Del. 3941, Rockwell Industries vs. Commissioner of Trade and Taxes, 2019 SCC Online Del. 8432, ITD-ITD CEM JV vs. Commissioner of Trade and Taxes , 2019 SCC Online Del. 9568, Ramky Infrastructure Ltd. vs. Commi
