Delayed no-deduction certificate and excessive tax deduction at source found arbitrary, with partial refund relief directed.

The competent authority's prolonged failure to decide a no-deduction or reduced-deduction application under section 13-AA(5)(a) of the Orissa Sales Tax Act and rule 37-D led to excessive tax being withheld at source. The Court held that such collection was arbitrary and illegal, since tax can be collected only in accordance with law and Article 265 of the Constitution. Pending assessment proceedings did not justify making the assessee bear the consequences of unlawful delay and excess deduction. Partial relief was granted, and a refund was directed subject to an undertaking for any future demand for the relevant subsequent periods.

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Issues: Whether the assessee was entitled to relief against excessive tax deduction at source and delay in grant of a no-deduction certificate, and whether a refund could be ordered in the circumstances.

Analysis: The statutory scheme under section 13-AA(5)(a) of the Orissa Sales Tax Act, 1947 and rule 37-D of the Orissa Sales Tax Rules, 1947 required the competent authority to decide an application for no-deduction or reduced deduction within the prescribed time. The record showed prolonged inaction, resulting in deduction of a far larger amount than could legally have been withheld. The Court found that the collection was made in an arbitrary and illegal manner and emphasised that tax collection must conform to law and Article 265 of the Constitution of India. Although questions relating to assessment and other proceedings were pending in part before the statutory forum, the Court held that the assessee could not be made to suffer the consequences of unlawful delay and excessive deduction at source.

Conclusion: The assessee was entitled to partial relief, and a refund of Rs. 40 lakhs was directed on furnishing an undertaking to meet any future demand for the relevant subsequent periods.

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