2021 (8) TMI 1437 - HC - Indian Laws

State Must Resolve VAT Reimbursement Within 4 Weeks, Pay 9% Interest Escalating to 18% for Delayed Settlement

M/s. Kota Dall Mill Versus State of Gujarat

HC ruled in favor of writ-applicants, directing State Purchase Committee to resolve outstanding VAT reimbursement within 4 weeks. The court mandated 9% ... Obligation of Commissionerate of Women and Child Development and the Director of Integrated Child Development Services Scheme (ICDS) to pay/reimburse the writ-applicants the outstanding differential VAT amount - HELD THAT:- It is quite disturbing to note that since 2016 the writ applicant has been requesting the respondent no. 2 to make the necessary payment/reimbursement to the tune of Rs. 2,94,81,844/- with interest of the amount of Rs. 4,47,16,002/- towards the outstanding differential VAT amount of 0.5% for the 62 invoices issued by the writ-applicant no.1 – Firm arising from the Agreement dated 03.02.2010. In last 05 years, how many times, the State Purchase Committee must have met to discuss other issues. This is something which is quite disturbing and a matter of concern. A huge amount is to be paid to the writ-applicants. This amount has to be utilized for the business. Withholding such a huge amount for an indefinite period would create trouble in the business. Post this matter for final disposal on 14.09.2021 on top of the board. 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered by the Court in this writ-application under Article 226 of the Constitution of India are:Whether the respondents, namely the Commissionerate of Women and Child Development and the Director of Integrated Child Development Services Scheme (ICDS), are obligated to pay/reimburse the writ-applicants the outstanding differential VAT amount of 0.5% along with accrued interest for the 62 invoices issued under the agreement dated 03.02.2010;Whether the respondents have a duty to take a final decision on the pending issue of payment of differential VAT as per the Government Resolution dated 23.05.2012 and subsequent communications;Whether the respondents should be directed to deposit the outstanding amount and interest with the Registry of the Court pending final disposal of the writ-application;What is the appropriate rate of interest applicable on the delayed payment of the differential VAT amount;Whether the prolonged delay by the respondents in deciding the matter is justifiable and what remedial directions the Court can issue to ensure timely resolution.2. ISSUE-WISE DETAILED ANALYSISObligation to Pay Outstanding Differential VAT and InterestThe legal framework relevant to this issue includes the terms of the agreement executed between the writ-applicant firm and the State under the Integrated Child Development Services Scheme, which expressly provides that the applicable Value Added Tax (VAT) shall be payable to the supplier. The VAT rate was initially 4%, subsequently revised to 5% during the 2010-11 budget session, and further revised to 5.5% by the Government of Rajasthan vide Notification dated 01.02.2016.The Court noted that the writ-applicants have been requesting reimbursement of the differential VAT amount (0.5%) arising from the increase from 5% to 5.5% for invoices issued under the agreement. The respondents have not disputed the contractual obligation to pay VAT as applicable, nor have they pointed out any fault on part of the writ-applicants or the contract. The evidence comprises the tender inquiry, executed agreement, Government notifications revising VAT rates, and numerous representations by the writ-applicants over a period of five years.The Court emphasized that the respondents' failure to pay the outstanding amount despite the clear contractual and statutory basis is unjustified. The writ-applicants have a legitimate expectation to receive the differential VAT amount along with interest for the delay, as the amount is due and payable under the terms of the agreement and applicable tax laws.Duty to Take Final Decision on Pending Payment IssueThe respondents have repeatedly stated that the matter is under active consideration by the State Purchase Committee and that the ICDS will disburse the amount once a final decision is taken. However, the Court found this indefinite delay-spanning over five years-unacceptable and unexplained. The Court questioned the rationale behind the State's inaction and noted the absence of any reasonable justification or fault attributed to the writ-applicants.The Court observed that the State Purchase Committee must have convened multiple times to discuss other matters during this period, yet no decision was taken on this significant issue involving a substantial sum. The Court highlighted the negative impact of withholding such a large amount on the writ-applicant's business operations and financial health.Accordingly, the Court directed the State Purchase Committee to convene a meeting within four weeks to examine the invoices and take an appropriate decision. The Court made clear that the matter must be referred to the ICDS for disbursement following the Committee's decision.Direction for Deposit of Amount Pending Final DisposalThe writ-applicants sought a direction for the respondents to deposit the outstanding differential VAT amount and interest with the Registry of the Court pending final disposal. While the Court did not explicitly order immediate deposit, it emphasized the urgency and seriousness of the matter and directed the respondents to act promptly to avoid further delay.Appropriate Rate of Interest on Delayed PaymentThe Court specified that the amount sanctioned and disbursed shall carry interest at the rate of 9% per annum. Furthermore, any further delay beyond the four-week period granted to the State Purchase Committee would attract an enhanced interest rate of 18% per annum until the amount is fully realized. This directive underscores the Court's intent to penalize unwarranted delay and ensure timely compliance.Remedial Directions to Ensure Timely ResolutionThe Court's order serves as a final opportunity to the respondents to resolve the matter expeditiously. The Court instructed the learned Additional Government Pleader to communicate the order to the concerned authorities and impress upon them the importance of compliance. The Court scheduled the matter for final disposal shortly thereafter, indicating a strict timeline for resolution.3. SIGNIFICANT HOLDINGSThe Court held:'The State does not seem to be finding any fault of any nature with the writ-applicants and the contracts entered into with the writ-applicants.''A huge amount is to be paid to the writ-applicants. This amount has to be utilized for the business. Withholding such a huge amount for an indefinite period would create trouble in the business.''We would like to give one last chance to the State Purchase Committee to convene a meeting, look into the invoices produced by the writ-applicants and take an appropriate decision and refer the matter to the ICDS.''Ultimately whatever amount is sanctioned and disbursed, it shall carry interest at the rate of 9% and if there is any further delay, the rate of interest shall be 18% till the amount is fully realized.'These pronouncements establish the principle that contractual obligations regarding tax payments must be honored promptly by State authorities, and unreasonable delay in payment entitles the aggrieved party to interest at penal rates. The Court emphasized the State's responsibility to act diligently and not cause financial prejudice to suppliers through inordinate delay.The final determination directs the State Purchase Committee to take a decision within four weeks, failing which higher interest will accrue, thereby enforcing accountability. The Court's intervention underscores the importance of timely administrative action and adherence to contractual and statutory obligations in government procurement processes.