2025 (1) TMI 1770 - HC - Income Tax

Vivad Se Vishwas refund delay: interest awarded for post-Form 5 delay, revenue directed to pay 6% annually.

Form 5 certificate issued on 24.11.2021 created a mandatory 30 day period within which a consequential refund order should have been made; the ... Delay issuing refund issued under the Vivad Se Vishwas Scheme - claim of interest on the refund - Obligation to issue consequential order after Form 5 certificate within prescribed time - obligation of Revenue for delayed refunds HELD THAT:- Since Form 5 certificate was issued to the petitioner on 24.11.2021, the consequential order granting a refund ought to have been issued by 23.12.2021. However, as seen from Ext.P4, the consequential order was issued only on 29.11.2023, i.e., almost after 23 months. Section 7 of VSV Act stipulates that no interest is payable on the amount of refund. The said provision is relied upon by the department to deny petitioner’s claim for interest. A reading of the above provision and its explanation indicates that if the declarant had paid any amount in excess of tax found payable under section 3, he will be entitled only to refund of the excess amount paid, but without interest. According to me, the said provision cannot enable the department to deny interest due to the petitioner in the instant case as the situation is different. True that the aforenoted provision interdicts the grant of interest on payments made prior to the submission of the declaration by the declarant. However, after the declaration is made by the department in Form 5, identifying the amount of arrears due from the declarant, the delay thereafter, in refunding any excess amount paid earlier, cannot be protected by the explanation in section 7 of VSV Act. The above view is fortified by the decision in Anjul [2022 (8) TMI 1438 - DELHI HIGH COURT] wherein it was held that there is no provision in the VSV Act prohibiting award of interest on delayed refund. though the petitioner is not entitled to interest for any excess amounts paid earlier until the declaration was issued, the delay caused in issuing the consequential order and payment of refund is not immune from the interest component, by recourse to section 7 of VSV Act. Once the Form 5 certificate was issued, respondents were bound to pass consequential orders within 30 days. Failure to issue the consequential order and grant refund is a default on the part of the respondents. After determining that refund is due to an assessee, it remains a debt payable by the revenue. Retention of the said debt without authority renders the person in possession of the amount liable to compensate the other. Thus, the period from 24.11.2021, (i.e. expiry of 30 days from the date of issue of Form 5), till 29.11.2023, (the date of order of refund), cannot be protected by the explanation in section 7 of VSV Act. The competent amongst respondents 1 and 2 are directed to issue orders granting interest on the amount refunded as per Ext.P3 calculated at the rate of 6% per annum from 24.11.2021 till 29.11.2023. The interest shall be quantified and be paid within thirty days from the date of receipt of a copy of this judgment. Issues: (i) Whether the petitioner is entitled to interest on the amount ordered to be refunded pursuant to a Form 5 certificate under the Direct Tax Vivad Se Vishwas Act, 2020, for the period of delay between issuance of the certificate and actual payment of the refund.Analysis: The statutory scheme under the Direct Tax Vivad Se Vishwas Act, 2020 contemplates submission of a declaration (Section 4), determination by the Designated Authority and issuance of a certificate of amount payable (Section 5), and contains a provision regarding non-refund and exclusion of interest in specific circumstances (Section 7). Where a Form 5 certificate issues, consequential orders are required to be passed within the prescribed period and any refund crystallised by such certificate becomes a debt payable by the revenue. The Explanation to Section 7 of the VSV Act bars interest only on amounts paid prior to making the declaration, and does not immunise the revenue from liability for interest arising from wrongful or delayed retention after the certificate has issued. Principles established by precedent recognise that retention and use of money without right attracts an obligation to repay with interest; where a departmental timeline for issuing consequential orders exists, failure to comply and consequent delayed payment gives rise to entitlement to interest. The rate applicable for such interest has been treated as the rate under Section 244A of the Income-tax Act, 1961 in comparable authorities.Conclusion: The petitioner is entitled to interest on the refunded amount from the date on which interest liability arose following issuance of the Form 5 certificate (24.11.2021) until the date of actual refund (29.11.2023), to be calculated at the rate of 6% per annum and paid within thirty days.