2020 (4) TMI 832 - HC - VAT and Sales Tax

Court orders respondent to pay costs, deems withholding refund illegal, and directs refund with interest.

The court allowed the writ petition, directing the 5th respondent to pay costs of Rs. 25,000 to the petitioner. The impugned order withholding the refund ... Payment by demand draft deemed payment and discharges the payer - Power to withhold refund under Section 33-C of the APGST Act - Entitlement to interest on delayed refund under Section 33-F of the APGST Act - Withholding of refund for administrative failure not a permissible ground - Violation of Articles 14, 19, 265 and 300-A by arbitrary withholding of tax refundPayment by demand draft deemed payment and discharges the payer - Handing over of two Demand Drafts by the petitioner for the assessed years 1979-80 and 1980-81 constituted payment, thereby discharging the petitioner of its liability and placing onus of realization on the respondents. - HELD THAT: - The respondents admitted receipt of DD Nos. 014826 and 014827 both dated 31.5.1988. Under the Negotiable Instruments Act and consistent precedents cited, presentation/handing over of a demand draft is equivalent to payment and completes the payer's obligation; encashment is the recipient's responsibility. The Court applied authorities holding that handing over DDs or posting cheques/money orders amounts to payment and the date/place of handing over is the operative event. Consequently any failure by the tax authorities to present or realise the drafts cannot be used to deny or withhold the refund due to the petitioner. [Paras 25, 26, 27, 28, 29]The payment by the petitioner by means of the two Demand Drafts was complete and discharged the petitioner; respondents cannot rely on their failure to realize the drafts to withhold refund.Power to withhold refund under Section 33-C of the APGST Act - Withholding of refund for administrative failure not a permissible ground - Whether the respondents validly withheld the refund of the sum due to the petitioner under Section 33-C by relying on inability to cross-verify challan particulars and on administrative non-traceability of treasury challans. - HELD THAT: - Section 33-C permits withholding of refund only when an order giving rise to refund is subject matter of an appeal or further proceeding, or where other proceedings under the Act are pending, and then only if the authority forms an opinion that grant of the refund is likely to adversely affect the revenue and with previous approval of the Deputy Commissioner. In the present case there was no appeal or other proceeding pending against the petitioner; the stated reason - lack of challan particulars/cross-verification owing to departmental or treasury record lapse - is not a statutory ground under Section 33-C. The Court relied on precedent and statutory scheme to hold that discretion under Section 33-C must be exercised on relevant grounds germane to the statutory purpose and cannot be used to perpetually withhold refund for administrative lapses. Further, a withholding order must specify its period and cannot be indefinite; statutory provisions (Sections 33E/33F) prescribe temporal limits for verification and entitlement to interest on delayed refunds. [Paras 43, 44, 45, 46, 47]Withholding of the refund on the ground of want of cross-verification details/unchallengeable treasury records was arbitrary, beyond the scope of Section 33-C and therefore illegal and without jurisdiction; the withholding order is set aside.Entitlement to interest on delayed refund under Section 33-F of the APGST Act - Violation of Articles 14, 19, 265 and 300-A by arbitrary withholding of tax refund - Whether the petitioner was entitled to interest on the delayed refund and whether withholding violated constitutional provisions. - HELD THAT: - Sections 33E and 33F prescribe periods and rates for interest where refunds are delayed; Section 33F(2) specifically addresses refunds withheld under Section 33C and prescribes payment of interest @12% p.a. for the relevant delayed period once refund is ultimately determined to be due. The Court found that arbitrary and prolonged withholding (over a decade) on non-statutory grounds deprived the petitioner of timely use of funds and constituted a breach of the statutory scheme and the constitutional principles invoked. The Court held that respondents' conduct amounted to an abuse of power and infringed Articles 14, 19, 265 and 300-A by permitting the State to benefit from its own negligence. [Paras 39, 40, 41, 47, 48]Petitioner entitled to refund of the withheld sum and to interest at 12% p.a. for the periods directed by the Court; respondents' action held violative of constitutional guarantees and amounts to abuse of power.Final Conclusion: Writ petition allowed: the order withholding refund dated 5.5.2009 is declared arbitrary, illegal and without jurisdiction and is set aside; respondents directed to refund the withheld amount and to pay interest at 12% per annum for the periods specified by the Court; costs awarded to the petitioner. Issues Involved:1. Assessment and revision of sales tax on packing material.2. Refund of excess tax paid.3. Delay in refund and interest on delayed refund.4. Compliance with court orders and contempt proceedings.5. Legality of withholding the refund.Issue-wise Detailed Analysis:1. Assessment and Revision of Sales Tax on Packing Material:The petitioner, M/s ACC Limited, was assessed to sales tax for the years 1979-80 and 1980-81 on the turnover related to packing material under the APGST Act, 1957. The original adjudicatory authority levied tax at basic rates of 3% and 8% on packing material and cement respectively. These orders were revised by the Deputy Commissioner, who raised additional demands due to an alleged incorrect tax rate applied to packing material.2. Refund of Excess Tax Paid:The petitioner challenged the additional demand before the Supreme Court, which remanded the matter. The 2nd respondent confirmed the levy at 8%, resulting in an additional tax of Rs. 28,10,432/-. The petitioner appealed to the Sales Tax Appellate Tribunal, which allowed the appeals, but the refund of Rs. 28,10,432/- was not processed. The petitioner sought a refund of this amount.3. Delay in Refund and Interest on Delayed Refund:Despite the Tribunal's order, the refund was withheld. The petitioner sought interest on the delayed refund as per Sec.33-F of the Act. The court noted that the respondents admitted the payment by Demand Drafts, which under Sec. 64(1) of the Negotiable Instruments Act, 1881, is equivalent to payment. The court emphasized that the presentation and encashment of the Demand Drafts were the respondents' responsibility.4. Compliance with Court Orders and Contempt Proceedings:The court observed that there was a failure to comply with its order to file a report on the reasons for withholding the refund. The Commissioner did not file the report within the stipulated time, leading to show cause notice for contempt. The Commissioner later filed an affidavit explaining the administrative difficulties in verifying the payment details due to disbandment of the Company Circle and the inability to trace challans.5. Legality of Withholding the Refund:The court held that withholding the refund on the grounds of missing challan details was not valid. The respondents' action was found to be violative of Articles 14, 19, 265, and 300-A of the Constitution of India. The court referenced several precedents establishing that the delivery of Demand Drafts constitutes payment, and any delay in encashment does not affect the payer's obligation. The court also noted that withholding the refund without specifying a period and beyond six months was an abuse of power.Judgment:The writ petition was allowed with costs of Rs. 25,000/- to be paid by the 5th respondent to the petitioner. The court declared the impugned order withholding the refund as arbitrary, illegal, and without jurisdiction. The respondents were directed to refund Rs. 28,10,432/- with interest at 12% p.a. from 2.8.1993 to 22.1.2004 and from 5.11.2009 till the date of payment.