Tax demands cannot be adjusted against refund claims while objections pending before OHA under Section 38

Delhi HC allowed writ petition challenging refund adjustment. Court held that tax demands cannot be adjusted against refund claims while objections remain pending before OHA, as demand has not crystallized until objections are decided. Relying on Flipkart precedent, HC ruled that adjustments made for FY 2010-11 and Q1 FY 2017-18 were contrary to Section 38 of the Act. Court found Section 74(9) deeming fiction applied where OHA failed to decide objections within 15 days, rendering demand unenforceable. Hearing Notice dated 24 May 2022 was quashed and Refund Order of 29 April 2022 set aside regarding adjustment of Rs. 13,60,14,547.

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Issues Involved:
1. Legality of the Hearing Notice dated 24 May 2022.
2. Adjustment of tax demand and refund claims for FY 2010-2011 and FY 2017-2018.
3. Entitlement to refund along with interest.

Summary:

Issue 1: Legality of the Hearing Notice dated 24 May 2022

The petitioner challenged the Hearing Notice dated 24 May 2022, arguing that the Objection Hearing Authority (OHA) lacked jurisdiction to commence hearings on objections filed against the Assessment Order dated 29 March 2017 for FY 2010-2011. The petitioner cited Section 74(9) of the Delhi Value Added Tax Act, 2004, which states that objections would be deemed allowed if not disposed of within 15 days from the service of notice under Section 74(8). The court held that the objections were deemed accepted due to the OHA's failure to decide within the statutory period, rendering the Hearing Notice unsustainable.

Issue 2: Adjustment of Tax Demand and Refund Claims

The petitioner contested the Refund Order dated 29 April 2022, which adjusted Rs. 13,60,14,547/- against the refund claim for the first quarter of FY 2016-2017. The court noted that the tax demand for FY 2010-2011 and the first quarter of FY 2017-2018 could not be enforced as the objections were pending before the OHA. The court referred to Section 35(2) and Section 38(2) of the Act, emphasizing that tax demands under objection cannot be considered "due" or "enforceable" and thus cannot be adjusted against refund claims. This position was supported by the court's previous rulings in Combined Traders and Flipkart India Private Limited cases.

Issue 3: Entitlement to Refund Along with Interest

The court concluded that the adjustments made in the Refund Order of 29 April 2022 were contrary to the provisions of the Act. The demand for FY 2010-2011 was deemed nullified due to the statutory fiction under Section 74(9), and the demand for the first quarter of FY 2017-2018 was unenforceable due to pending objections. Consequently, the court quashed the Hearing Notice dated 24 May 2022 and the Refund Order to the extent of the adjustments made. The petitioner was held entitled to the refund along with interest as per Section 42 of the Act.

Conclusion:

The writ petitions were allowed, and the respondents were directed to compute and disburse the refundable amounts along with interest. The court's order emphasized adherence to statutory provisions and previous legal precedents in determining the enforceability of tax demands and the entitlement to refunds.

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