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of <h1>Tax department cannot retain refunds beyond mandatory timeline under Section 38(3) then adjust against later dues</h1> The SC held that the tax department cannot retain refund amounts beyond the mandatory timeline under Section 38(3) of the Delhi Value Added Tax Act, 2004 ... Recovery of dues by adjusting them against the refund amount - Delay in processing refund - The default notices were issued after the period within which the refund should have been processed - requirement to follow timeline for refund under Section 38(3) of the Delhi Value Added Tax Act, 2004 - HELD THAT:- The language of Section 38(3) is mandatory and the department must adhere to the timeline stipulated therein to fulfil the object of the provision, which is to ensure that refunds are processed and issued in a timely manner. In the present case, Section 38(3)(a)(ii) is relevant as both the refunds in the present case pertain to quarter tax periods. Therefore, as per Section 38(3)(a)(ii), the refund should have been processed within two months from when the returns were filed (31.03.2017 and 29.03.2019), which comes up to 31.05.2017 and 29.05.2019. The default notices are dated 30.03.2020, 23.03.2021, 30.03.2021, and 26.03.2022. It is therefore evident that the default notices were issued after the period within which the refund should have been processed. Sub-section (2) only permits adjusting amounts towards recovery that are “due under the Act”. By the time when the refund should have been processed as per the provisions of the Act, the dues under the default notices had not crystallised and the respondent was not liable to pay the same at the time. The appellant-department is therefore not justified in retaining the refund amount beyond the stipulated period and then adjusting the refund amount against the amounts due under default notices that were issued subsequent to the refund period. The impugned judgment directing the refund of amounts along with interest as provided under Section 42 of the Act affirmed - appeal dismissed. Issues Involved:The issue involves the consideration of whether the timeline for refund under Section 38(3) of the Delhi Value Added Tax Act, 2004 must be strictly followed when recovering dues by adjusting them against the refund amount.Judgment Summary:Issue 1: Quashing of Adjustment OrderThe respondent, a joint venture, claimed refunds for specific quarters but the appellant did not pay until much later. The Value Added Tax Officer adjusted the refund claims against outstanding dues, prompting the respondent to challenge this in a writ petition. The High Court quashed the adjustment order, directing refund with interest and allowing appeal for default notices under Section 74 of the Act.Issue 2: Interpretation of Section 38The High Court relied on precedents to emphasize that the department must adhere to the time limit for processing refunds under Section 38. Refunds can only be adjusted if there is an enforceable demand pending against the assessee. The High Court found that the department did not follow the Act's mandate, making the adjustment order invalid.Issue 3: Adherence to TimelinesThe Supreme Court upheld the High Court's decision, noting that Section 38(3) mandates a timeline for refunds to ensure timely processing. In this case, the refunds should have been processed within two months, but the default notices were issued later. Adjusting refunds against dues issued after the refund period is not justified.Issue 4: Purpose of TimelinesThe argument that the timeline is only for calculating interest was rejected, as it would allow the department to retain refunds for extended periods. Such an interpretation would defeat the purpose of the provision, which aims for timely refund processing.Conclusion:The Supreme Court dismissed the appeal and affirmed the High Court's judgment, directing the refund of amounts with interest as per Section 42 of the Act. The Court emphasized the mandatory nature of Section 38(3) timelines to ensure timely refund processing and prevent unjustified adjustments against future dues.
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