Arbitrary sales tax refund procedure held invalid where exempt-period tax was collected and deposited, preserving purchaser's refund entitlement.

A circular under the Bihar Finance Act and Bihar Sales Tax Rules was found invalid to the extent it required refund of sales tax collected from a purchasing dealer to be pursued only through the selling dealer, because the procedure was cumbersome, delayed relief, and failed where the seller would not return the amount or its assessment was already complete. Where exemption for the relevant period was admitted and tax had been collected from the purchasing dealer and deposited with the State, the purchasing dealer retained substantive entitlement to refund or adjustment. The competent authority was required to consider refund after notice to the selling dealer and verification of collection and deposit.

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Issues: (i) Whether the circular prescribing that refund of sales tax collected from a purchasing dealer could be pursued only through the selling dealer under section 42 of the Bihar Finance Act, 1983 read with rule 34 of the Bihar Sales Tax Rules, 1983 was valid; (ii) whether the purchasing dealer was entitled to refund or adjustment of the tax collected and deposited for the exempt period.

Issue (i): Whether the circular prescribing that refund of sales tax collected from a purchasing dealer could be pursued only through the selling dealer under section 42 of the Bihar Finance Act, 1983 read with rule 34 of the Bihar Sales Tax Rules, 1983 was valid.

Analysis: The procedure in the circular was found to be cumbersome and dilatory. It did not provide an effective answer where the selling dealer refused to return the amount or where the assessment of the selling dealer had already been completed. The refund mechanism was held to place unnecessary burdens on both selling and purchasing dealers and to delay relief contrary to fair administrative action.

Conclusion: The circular was held to be arbitrary and invalid to the extent it prescribed such a restrictive and cumbersome refund procedure.

Issue (ii): Whether the purchasing dealer was entitled to refund or adjustment of the tax collected and deposited for the exempt period.

Analysis: Once exemption for the relevant period was admitted and the tax had in fact been collected from the purchasing dealer and deposited with the State, the State was bound to refund the amount to the person entitled to it. Technical reliance on the refund mechanism under the Act and Rules could not defeat substantive entitlement where the situation was not effectively covered by the prescribed procedure.

Conclusion: The purchasing dealer was entitled to seek refund or adjustment through the concerned authority after notice to the selling dealer and verification of collection and deposit.

Final Conclusion: The impugned refund procedure was struck down in its practical operation, and the petitioner obtained a direction for fresh consideration of refund through the competent authority, resulting in relief in its favour.

Ratio Decidendi: Where sales tax has been collected from a purchasing dealer for an exempt transaction and deposited with the State, refund cannot be defeated by an arbitrary or dilatory procedure that leaves the purchaser remediless; the competent authority must provide an effective refund mechanism consistent with fairness.

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