Interest on tax refund denied where statutory demand was later set aside; no unconstitutional discrimination found in refund rules.

Rule 35(1)(b) of the Haryana General Sales Tax Rules, 1975 was upheld as constitutional because the absence of a matching interest provision for tax refunds did not create arbitrariness or hostile discrimination. The Court held that a tax demand raised by the assessing authority under the statute does not become illegal merely because it is later set aside for legal or factual error, so no automatic right to interest on refund arose. It further found that an assessee in default and the State in refund matters are not similarly situated, and the classification had a rational basis. The petitioner was therefore denied interest on the refunded tax amount.

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Issues: Whether rule 35(1)(b) of the Haryana General Sales Tax Rules, 1975 was unconstitutional and whether the petitioner was entitled to interest on delayed refund of tax paid pursuant to an assessment order later set aside.

Analysis: The claim for interest rested on the premise that the assessment demand, once set aside in appeal, must be treated as an illegal collection of tax. The Court rejected that premise and held that a demand raised by the assessing authority while acting under the statute does not become illegal merely because it is later set aside for error of law or fact. On that basis, no automatic right to refund with interest arose. The Court further held that the assessee in default and the State in the matter of refund are not similarly situated. A defaulter who delays payment of tax cannot be equated with the State, and the distinction has a rational basis. The Court therefore found no violation of the equality guarantee or other constitutional provisions relied upon. The statutory scheme under the Haryana General Sales Tax Act, 1973 and the Haryana General Sales Tax Rules, 1975 was treated as valid, and the absence of a similar interest provision for refund did not make rule 35(1)(b) arbitrary or discriminatory.

Conclusion: The challenge to rule 35(1)(b) failed and the petitioner was not entitled to interest on the refunded tax amount.

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