The mandatory timeline for processing refunds under Section 38(3) of the Delhi Value Added Tax Act must be adhered to, and adjustments against refunds are only permissible when enforceable dues exist.

PAMIDIGHANTAM SRI NARASIMHA, J.

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 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 1 Hereinafter ‘the Act’.

Digitally signed by Indu Marwah Date: 2024.05.02 10:30:19 IST Reason:

Signature Not Verified 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 In respect of the default notices, the High Court gave liberty to the respondent to avail statutory appeal under Section 74 of the Act.

2 WP (C) 2491/2023, judgment dated 21.09.2023 (‘Impugned judgment’).

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 v. Value Added Tax Officer, Ward 3003 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 .4 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.5

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 3 2023 SCC OnLine Del 5201 .

4 Impugned judgment, para 10.

5 ibid, para 11.

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.6

6. We find no reason to interfere with the impugned judgment, which follows the view that has been consistently adopted by the High Court.7 The finding of the High Court is based on the plain language of Section 38 of the Act, which reads as follows:

“38. Refund