Refund adjustment and statutory interest under Tamil Nadu VAT Act barred interest on amounts already held by the Department.

Madras HC held that interest under Section 42(3) of the Tamil Nadu Value Added Tax Act, 2006 was not leviable where the dealer's refundable amount was already lying with the Department and was available for adjustment against tax liability. The Court found that charging interest for alleged non-payment in those circumstances was unreasonable and unsustainable. It further held that any balance remaining after adjustment had to be refunded with statutory interest at 2% under Section 42(5) because the Department continued to retain the amount without justification.

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Issues: (i) Whether interest under Section 42(3) of the Tamil Nadu Value Added Tax Act, 2006 could be levied when the dealer's refundable amount was already available with the Department for adjustment. (ii) Whether the dealer was entitled to refund of the balance amount with interest under Section 42(5) of the Tamil Nadu Value Added Tax Act, 2006.

Issue (i): Whether interest under Section 42(3) of the Tamil Nadu Value Added Tax Act, 2006 could be levied when the dealer's refundable amount was already available with the Department for adjustment.

Analysis: The refundable amount due to the petitioner had already been determined and was lying with the respondent Department. The petitioner had sought adjustment of that amount against the tax liability. In those circumstances, levying interest at 2% under Section 42(3) on the premise of non-payment was held to be unreasonable and unwarranted, particularly when the Department itself retained funds available for adjustment.

Conclusion: The levy of interest under Section 42(3) was unjustified and unsustainable.

Issue (ii): Whether the dealer was entitled to refund of the balance amount with interest under Section 42(5) of the Tamil Nadu Value Added Tax Act, 2006.

Analysis: After adjusting the tax liability against the refundable amount, a balance still remained with the Department. The Court held that this balance ought to have been refunded together with statutory interest at 2% under Section 42(5), since the amount continued to be retained by the Department without justification.

Conclusion: The petitioner was entitled to refund of the balance amount with interest under Section 42(5).

Final Conclusion: The writ petition succeeded, and the impugned demand of interest was set aside while refund of the balance amount with statutory interest was directed.

Ratio Decidendi: When money refundable to a dealer is already in the Department's hands and available for adjustment, interest for alleged non-payment cannot be levied under Section 42(3), and any balance refundable amount must carry statutory interest under Section 42(5).

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