2021 (12) TMI 356 - HC - VAT and Sales Tax

Court dismisses petition for interest on VAT refund, citing statutory distinctions and lack of unjust enrichment

The court dismissed the petitions, ruling that the petitioner was not entitled to interest on the refund under the VAT Act. The court emphasized that ... Entitlement to Interest on delayed payment of refund - section 40(2) of the U.P. Value Added Tax Act, 2008 - U.P. Trade Tax Act, 1948 - HELD THAT:- Since, on the date of repeal, the earlier rebate notification dated 27.02.1998 stood withdrawn and only a challenge thereto was pending before this Court (under Article 226 of the Constitution of India), it may never be said that any right or privilege as to rebate had been acquired or had accrued in favour of the petitioner as may have been protected or saved under section 81(2)(b) of the VAT Act. By way of effect caused by the repeal of the Erstwhile Act and by virtue of section 6(e) of the UP General Clauses Act, 1904, any remedy or legal proceeding if it had been commenced before the repeal (with respect to any right, privilege etc.) would remain intact. However, the proceeding here being a constitutional remedy availed by the petitioner, the same may even otherwise have survived the repeal - the principle of unjust enrichment may have disentitled a refund claim irrespective of its absence - as a statutory principle incorporated in that enactment itself. It being a judicially evolved principle, unjust enrichment would find its applicability to all cases of indirect taxation - wherever an assessee/claimant was found to have passed on the disputed tax liability to another, while resisting its imposition qua the State. Present is not a case of amendment of section 29 of the Erstwhile Act but of repeal and replacement of the Erstwhile Act itself by a completely new enactment namely, VAT Act - Since section 40(1) of the VAT Act is found to be wholly inapplicable viz-a-viz the claim for refund of trade tax for the A.Ys. 2004-04 to 2007-08, the language of section 40(2) of the VAT Act is of no help to the petitioner. That provision of law providing for interest on delayed payment of refund would apply to only those cases that fall under the purview of section 40(1) of the VAT Act, and to no other. That is the plain effect of sub-section (2) of section 40 of the VAT Act. In the present case, the order of refund was passed on 29.6.2020 whereas the refund was adjusted against the demand of entry tax on 07.07.2020 i.e. within the statutory period of thirty (30) days - the petitioner is found not entitled to interest on the amount of refund of trade tax ₹ 17,90,61,418/-, up to the date 07.07.2020. Petition dismissed. Issues Involved:1. Entitlement to interest on delayed payment of refund under Section 40(2) of the U.P. Value Added Tax Act, 2008 (VAT Act).2. Applicability of the VAT Act versus the Erstwhile Act for refund claims.3. Adjustment of refund against outstanding dues.4. Principle of unjust enrichment.Detailed Analysis:1. Entitlement to Interest on Delayed Payment of Refund:The petitioner sought interest on delayed refunds under Section 40(2) of the VAT Act for assessment years 2004-05 to 2007-08. The court held that Section 40(2) of the VAT Act, which provides for interest on delayed refunds, is applicable only to refunds due under the VAT Act. Since the refunds in question pertained to the Erstwhile Act, Section 40(2) did not apply. The court emphasized that the petitioner could not rely on the VAT Act to claim interest on refunds of trade tax under the Erstwhile Act. The petitioner should have pursued the claim under Section 29 of the Erstwhile Act, which did not provide for interest on delayed refunds.2. Applicability of the VAT Act versus the Erstwhile Act:The court examined the statutory provisions of both the Erstwhile Act and the VAT Act. It noted that the Erstwhile Act was repealed by the VAT Act effective from January 1, 2008. Section 81 of the VAT Act preserves rights and obligations under the repealed Act. However, since the petitioner’s claim for rebate was under challenge and not settled by the time of repeal, no right to rebate had accrued that could be protected under Section 81(2)(b) of the VAT Act. Consequently, the petitioner could not claim interest under the VAT Act for refunds due under the Erstwhile Act.3. Adjustment of Refund Against Outstanding Dues:The petitioner challenged the adjustment of the refund amount against outstanding entry tax dues. The court noted that the refund was quantified on June 29, 2020, and adjusted against entry tax dues on July 7, 2020, within the statutory period of thirty days. Thus, no delay occurred in the refund process that would warrant interest. The court also highlighted that the petitioner had not raised the issue of interest in the initial litigation challenging the rebate notification, which could now be barred by constructive res judicata.4. Principle of Unjust Enrichment:The court reiterated the principle of unjust enrichment, which disallows refunds if the tax burden has been passed on to consumers. The Supreme Court had directed verification of the refund claims against unjust enrichment principles. The court found that the petitioner had not passed on the tax liability, and thus, the principle of unjust enrichment did not apply to deny the refund. However, this principle did not affect the interest claim under the VAT Act, as the refund was governed by the Erstwhile Act.Conclusion:The court dismissed the petitions, concluding that the petitioner was not entitled to interest on the refund under the VAT Act. The refund was processed within the statutory period, and the petitioner had not pursued interest claims in earlier litigation. The court emphasized the statutory differences between the Erstwhile Act and the VAT Act, and the applicability of the principle of unjust enrichment. No costs were awarded.