Refund of pre-deposit and statutory interest follow once tax demand is finally set aside

A pre-deposit taken as a condition for hearing an appeal must be refunded once the underlying tax demand is set aside and that annulment attains finality. Continued retention of the amount is unlawful where the demand no longer survives, even if the recovery issue remains against other entities. Where refund is wrongfully withheld after final appellate relief, statutory interest becomes payable under Section 29(2) of the U.P. Trade Tax Act, 1948 from the relevant delay period, reflecting the legal consequence of an illegal retention by the State.

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Issues: (i) Whether the amount deposited by the petitioner as a precondition for hearing of the appeal was refundable after the demand against him was set aside; (ii) whether interest was payable on the delayed refund.

Issue (i): Whether the amount deposited by the petitioner as a precondition for hearing of the appeal was refundable after the demand against him was set aside.

Analysis: The appellate order had quashed the demand and remitted the matter only for recovery proceedings against the concerned companies. Once the demand raised against the petitioner stood annulled and the revision against that order failed, the amount retained by the Department could no longer be justified. Continued retention of the pre-deposit, after the underlying demand had been set aside, was inconsistent with the State's authority to collect and retain tax.

Conclusion: The petitioner was entitled to refund of the amount deposited by him.

Issue (ii): Whether interest was payable on the delayed refund.

Analysis: The refund was withheld despite the appellate relief having attained finality, and the delay was held to be patently illegal. In such circumstances, statutory interest under Section 29(2) of the U.P. Trade Tax Act, 1948 was attracted from January 2018 onwards at the rates prescribed by that provision. The Court also held that the State should not bear the burden of interest caused by the officer's illegal action.

Conclusion: Interest on the refunded amount was payable in terms of Section 29(2) of the U.P. Trade Tax Act, 1948.

Final Conclusion: The writ petition succeeded, and the respondents were directed to refund the deposited amount with statutory interest and costs.

Ratio Decidendi: Once a tax demand is set aside and the related proceedings attain finality, the State cannot retain a pre-deposit collected only as a condition for hearing the appeal, and delayed refund carries statutory consequences including interest where provided by law.

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