2024 (5) TMI 323 - HC - VAT and Sales Tax

Petitioner entitled to 6% simple interest on delayed VAT refund under Section 42 of Delhi VAT Act 2017

M/s. Satbir Filing Station Versus Delhi Value Added Tax Officer Ward 101 & Ors.

Delhi HC held that petitioner was entitled to simple interest at 6% per annum on delayed VAT refund under Section 42 of Delhi Value Added Tax Act, 2017. ... Computation/quantification of interest on the delayed refund in terms of Section 42 of Delhi Value Added Tax Act, 2017 w.e.f. 01.06.2015 - Time Limitation - expiry of two months from the date of filing of refund of the application till 23.05.2023 when the refund was disbursed to the petitioner - HELD THAT:- Section 42 (1) of the Act mandates grant of simple interest at the annual rate notified by the Government from time to time, to a person who is found entitled to refund in case of any delayed payment. In the instant case, refund has been sanctioned without any interest. It is an admitted position that annual rate notified by the Government for the purposes of Section 42 of the Act is simple interest @ 6% per annum. The petition is disposed off. ISSUES PRESENTED AND CONSIDERED 1. Whether a person entitled to a refund under the Delhi Value Added Tax Act is entitled to simple interest on a delayed refund under Section 42(1). 2. When does the period for computation of interest under Section 42(1) commence where a refund claim is filed by furnishing a return for a quarterly tax period - i.e., whether the refund becomes due on expiry of two months under Section 38(3)(a)(ii). 3. Whether any statutory or factual bar (including delay attributable to the claimant under the Explanation to Section 42(1) or requirements/exclusions under Section 38) precludes payment of interest in the facts of the case. 4. What relief/directions are appropriate where a refund has been disbursed without interest and the annual rate for interest has been notified by the Government. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Entitlement to interest on delayed refund under Section 42(1) Legal framework: Section 42(1) of the Delhi Value Added Tax Act provides that a person entitled to a refund shall receive, in addition to the refund, simple interest at the annual rate notified by the Government, computed on a daily basis from the later of (a) the date the refund was due or (b) the date the overpaid amount was paid, until refund is given; with provisos for deduction of other dues and adjustment if refund amount is varied. Precedent treatment: No prior authority was cited in the judgment; the Court addressed the statutory entitlement on its terms. Interpretation and reasoning: The statutory language of Section 42(1) is mandatory ('shall be entitled'), creating a substantive right to interest where a refund is delayed. The Court emphasized the mandatory nature of entitlement and noted the admitted factual position that the refund was sanctioned and disbursed without interest. Ratio vs. Obiter: Ratio - Section 42(1) confers a statutory right to simple interest on delayed refunds; the Court applies the provision directly to the admitted facts. No obiter reliance on external principles was necessary. Conclusion: A person entitled to a refund under the Act is entitled to simple interest on delayed refunds in accordance with Section 42(1), subject to the statutory provisos and exclusions. Issue 2 - Commencement of interest period where refund claim arises from quarterly return (Section 38(3)(a)(ii)) Legal framework: Section 38(3)(a)(ii) states that where the tax period is a quarter, refund shall be refunded within two months after the date on which the return was furnished or claim for refund was made; Section 42(1) calculates interest from the later of the date refund was due or date of overpayment. Precedent treatment: None cited; Court construed the statutory timing together. Interpretation and reasoning: The Court held that a refund claim filed in the VAT return for a quarterly period becomes due on expiry of the two-month period specified in Section 38(3)(a)(ii). Applying those provisions to the facts (refund claim filed on 31.03.2015 for the fourth quarter 2013-14), the refund became due on 01.06.2015. Consequently, the interest period under Section 42(1) runs from that date (subject to the provisos and Explanation). Ratio vs. Obiter: Ratio - Date on which refund is due for purposes of Section 42(1) is the expiry of the statutory period prescribed in Section 38(3)(a)(ii) where refund claim arises from a quarterly return. Conclusion: Interest computation period commences on expiry of the two-month period under Section 38(3)(a)(ii); in the present facts, from 01.06.2015. Issue 3 - Applicability of exclusions/defences (delay attributable to the claimant; statutory conditions under Section 38) Legal framework: Section 38 contains conditions and exclusions (e.g., carry-forward where audit/investigation or demand for security under subsection (5)); Section 42(1) contains an Explanation excluding the period of delay attributable to the person seeking refund. Precedent treatment: None cited; Court applied statutory text to the admitted facts. Interpretation and reasoning: The Court noted the statutory safeguards - the Commissioner may require security within 15 days and may exclude periods where additional information or security is awaited (Section 38(5)-(7)); Section 42(1) excludes from interest any period of delay attributable to the claimant. However, on the admitted record the refund had been sanctioned and disbursed without any claim that delay was attributable to the petitioner or that statutory conditions (e.g., outstanding returns, security, or ongoing audit/investigation) justified non-payment of interest. The Court therefore directed the respondents to consider the claim for interest; if the proper officer concludes interest is not payable, a speaking order must be issued within the prescribed time. Ratio vs. Obiter: Ratio - Statutory exclusions apply where established on the record, but in their absence the entitlement to interest prevails. The obligation to issue a speaking order if interest is denied is also treated as part of the operative directions. Conclusion: Exclusions to interest apply only where the delay is attributable to the claimant or statutory conditions are engaged; absent such findings on the record, interest should be considered and, if payable, sanctioned. Issue 4 - Rate of interest and appropriate relief/directions Legal framework: Section 42(1) fixes entitlement to interest at the annual rate notified by the Government; Section 42 contains provisos concerning deduction of other dues and adjustment if refund amount varies. Precedent treatment: None cited. Interpretation and reasoning: The Court recorded the admitted position that the Government has notified simple interest at 6% per annum for the purposes of Section 42. Given the admitted disbursement without interest, The Court directed respondents to consider the petitioner's claim for interest and, if found entitled, to sanction and disburse interest within four weeks; if the officer is of the view that interest is not payable, a speaking order explaining the reasons must be communicated within four weeks. The Court also preserved the petitioner's right to avail further remedies if aggrieved by the respondents' order. Ratio vs. Obiter: Ratio - Where interest rate has been notified, interest should be computed at that rate and paid if statutory entitlements are met; administrative decision rejecting interest must be accompanied by a speaking order. Procedural directions to decide within a fixed short period are operative orders of the Court. Conclusion: Interest is to be computed at the notified rate (6% p.a. as admitted) from the date refund became due; respondents must decide and, if appropriate, disburse interest within four weeks or issue a reasoned order within four weeks, with the petitioner entitled to further legal remedies if aggrieved.