Interest on tax refunds applies when refundable amounts are actually returned late, not merely adjusted against liabilities.

Interest is payable on tax amounts actually refunded when the refund remains unpaid beyond the prescribed period under the refund provisions of the U.P. Trade Tax Act, 1948 and the U.P. VAT Act. The Court distinguished such refunds from amounts merely adjusted against existing liabilities, which are dealt with through the adjustment mechanism and do not stand on the same footing as cash refunds. Relying on earlier Division Bench authority and the departmental circular, the Court held that the department cannot retain money that ought to have been returned and directed computation and payment of interest in accordance with law.

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Issues: Whether interest was payable on the amount refunded to the petitioner under the refund provisions of the tax law without any separate demand or application, and whether amounts merely adjusted against existing liabilities stood on the same footing as amounts actually refunded.

Analysis: The Court noted that the refund provisions under Section 29(2) of the U.P. Trade Tax Act, 1948 and Section 40 of the U.P. VAT Act contemplate payment of interest where refundable tax is not returned within the prescribed time. It distinguished between amounts adjusted against future demands and amounts actually refunded, holding that the former may be dealt with under the adjustment mechanism, while the latter attract statutory interest once refund becomes due. The Court also relied on the earlier Division Bench view and the departmental circular requiring prompt refund so that the department does not retain money that ought to have been returned.

Conclusion: Interest was held payable on the amount actually refunded to the petitioner, and the respondents were directed to compute and pay such interest in accordance with law.

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