Refund withheld under revenue-protection approval, but penalty recovery must be returned after provisions were held ultra vires

Refund under the refund-control provision was not directed where the Deputy Commissioner's approval to withhold refund on prejudice-to-revenue grounds had been obtained during revision; the writ court did not compel repayment contrary to that approval. By contrast, penalty recovered under section 57 was ordered to be refunded because an earlier Division Bench had already declared sections 57, 58 and 59 of the Madhya Pradesh Commercial Tax Act, 1994, and rule 75, ultra vires. The assessee was required to maintain separate accounts so recovery could be enforced if the State later succeeded.

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Issues: (i) Whether refund of tax could be directed despite approval of the Deputy Commissioner under section 33-C of the Madhya Pradesh Commercial Tax Act, 1994 being obtained for withholding refund on the ground of prejudice to the revenue. (ii) Whether the penalty recovered under section 57 of the Madhya Pradesh Commercial Tax Act, 1994 was liable to be refunded in view of the earlier declaration that sections 57, 58 and 59 of the Act and rule 75 were ultra vires.

Issue (i): Whether refund of tax could be directed despite approval of the Deputy Commissioner under section 33-C of the Madhya Pradesh Commercial Tax Act, 1994 being obtained for withholding refund on the ground of prejudice to the revenue.

Analysis: The approval mechanism under section 33-C required the assessing authority to obtain the Deputy Commissioner's approval for withholding refund within the prescribed period where refund would be prejudicial to the revenue. The approval having been granted during the pendency of revision, the extraordinary writ jurisdiction was not invoked to compel refund contrary to that approval.

Conclusion: The request for refund on this ground was declined.

Issue (ii): Whether the penalty recovered under section 57 of the Madhya Pradesh Commercial Tax Act, 1994 was liable to be refunded in view of the earlier declaration that sections 57, 58 and 59 of the Act and rule 75 were ultra vires.

Analysis: The issue was governed by the earlier Division Bench decision which had already declared sections 57, 58 and 59 of the Madhya Pradesh Commercial Tax Act, 1994 and rule 75 of the Rules ultra vires. Following that binding decision, the petitioner was directed to maintain separate accounts so that recovery would remain possible if the State ultimately succeeded, and the amount collected as penalty under section 57 was ordered to be refunded within a reasonable time.

Conclusion: The penalty recovered under section 57 was directed to be refunded.

Final Conclusion: The matter ended in favour of the assessee to the extent that the penalty recovery was ordered to be returned, while the separate prayer for refund based on the section 33-C approval was not accepted.

Ratio Decidendi: Where a statutory provision has already been declared ultra vires, recovery made under it cannot be retained, though a court will not ordinarily direct refund in disregard of a valid approval to withhold refund granted under the governing refund-control provision.

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