2012 (1) TMI 145 - HC - VAT and Sales Tax

Penalty Order Overturned, Refund Granted for Cash Security, Illegal Withholding, Revenue Impact

The appellate authority set aside the penalty order, allowing the appellant to claim a refund of penalties taken as cash security for goods release. The ... Claim of the refund along with interest withheld - whether once order withholding refund had been held to be illegal, the State was justified in not granting refund to the petitioner? Held that:- The respondents while withholding the amount under section 41(1) of the Act had nowhere recorded any satisfaction that the withholding of the refund was in the interest of the Revenue. In the absence of any valid sanction authorizing the State to retain the amount which had been deposited by the petitioner as cash security, the State was duty-bound to refund the same when the appeal had been decided in favour of the petitioner. The only conclusion that follows is that the amount which was withheld by the respondent was beyond jurisdiction. Once that is so, the assessee was entitled to refund along with interest after the expiry of the period of 60 days from the date the appellate authority decided the appeal in favour of the petitioner, i.e., August 31, 2010. As per stand of the State, the amount has already been released to the petitioner. Under the circumstances, WP disposed of by directing the State to pay the interest on the amount of refund in accordance with law within two months from the date of receipt of a certified copy of the order. Issues:1. Refund of penalties taken as cash security for the release of goods.2. Withholding of refund under section 41(1) of the Punjab Value Added Tax Act, 2005.3. Legality of order dated July 22, 2011, withholding the refund.4. Justification for not granting refund after the order withholding refund was held illegal.Analysis:Issue 1: Refund of PenaltiesThe appellant sought a writ for the refund of penalties totaling Rs. 2,70,800 and Rs. 2,95,903, which were taken as cash security for the release of goods. The appellate authority set aside the penalty order, declaring the appellant entitled to claim the refund along with interest under section 51(10) of the Act.Issue 2: Withholding of RefundThe respondents withheld the refund based on an order dated June 24, 2011, invoking section 41(1) of the Act. The appellant challenged this withholding through a separate writ petition (CWP No. 14972 of 2011) on the grounds that the requirements of section 41(1) were not met.Issue 3: Legality of Order Withholding RefundThe court found the order withholding the refund (annexure P5) in CWP No. 14972 of 2011 to be contrary to established principles, as per a previous judgment. The court referred to section 41(1) of the Act and emphasized that the power to withhold refund must be exercised only if it is likely to adversely affect revenue, which was not demonstrated in this case. Therefore, the order withholding refund was quashed.Issue 4: Justification for Not Granting RefundAfter ruling the order withholding refund as illegal, the court considered whether the State was justified in not granting the refund. The court held that in the absence of a valid sanction for retaining the cash security, the State was obligated to refund the amount to the appellant after the appeal decision. The court directed the State to pay interest on the refund amount within two months from the date of the order.This comprehensive analysis of the judgment addresses all the issues involved, detailing the legal arguments, relevant provisions, and the court's findings on each matter.