VAT refund retention was unlawful where assessment lapsed and no pending proceeding justified withholding deposited search .

Amount deposited during search could not be retained once no assessment order had been passed and the assessment period under section 34 of the VAT Act had expired. Section 36 required refund of excess payment, subject only to lawful adjustment of recoverable dues, and section 39 allowed withholding of refund only where a pending appeal or similar process justified it. As those conditions were absent, retention of the sum was unlawful. The reliance on section 34(8A)(a) was found inapplicable on the facts, and the applicants were entitled to refund with statutory interest.

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Issues: Whether the amount recovered during search could be withheld and refund denied in the absence of a completed assessment and after expiry of the limitation period under the VAT Act.

Analysis: The writ applicants had deposited an amount during search, but no assessment order had been passed for the relevant years. The Court held that, once the period for completing assessment under section 34 had expired, the respondents had no legal justification to retain the amount. Section 36 required refund of excess payment, subject to adjustment only of amounts lawfully recoverable, and section 39 permitted withholding of refund only in the limited situation where an appeal or other pending processing justified such action. The Court found those conditions absent. The reliance on section 34(8A)(a) was also held to be inapplicable on the facts.

Conclusion: The withholding of the refund was unlawful, and the writ applicants were entitled to refund of the deposited amount together with statutory interest.

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