2024 (8) TMI 84 - HC - VAT and Sales Tax

VAT refund delay triggers automatic 6% interest under Section 42(1) despite department's investigation claims

Mangalam Traders Versus Commissioner of Delhi Value Added Tax Department of Trade And Taxes And Anr

Delhi HC held that petitioner was entitled to interest on delayed VAT refund under DVAT Act. Court ruled that refund became due after statutory timeframe ... Refund of the amount claimed for the 4th quarter of assessment year 2016-17 and the first quarter of Assessment Year 2017-18 - Entitlement of the petitioner to interest on delayed refund under the DVAT Act - HELD THAT:- The Commissioner has powers to first apply such excess amount towards the recovery of any other amount due under the DVAT Act. Section 38 (3) (a) (i) & (ii) make it further clear that where the tax period for claiming the refund is one month, interest would accrue from the date one month elapses after the date of filing of the return or the date when the claim for refund is lodged. Where, however the dealer’s tax period for claiming the refund is a quarter, interest accrues two months after the return is filed or a claim for refund is made. If a notice is issued under Section 58 or an additional information is sought under Section 59, the refund will be carried forward to the next tax period as a tax credit. If a notice is issued under Section 58 or an additional information is sought under Section 59, the refund will be carried forward to the next tax period as a tax credit. Requirement to file DVAT-21 was considered by this Court in Flipkart India Private Limited Vs. Value Added Tax Officer [2023 (8) TMI 987 - DELHI HIGH COURT]. This Court had held that once a claim for refund stands embodied in the return itself, there is no obligation upon the assessee to file Form DVAT-21. There is no material on record to indicate that Petitioner was in any manner responsible for the delay in processing of the refund. There is not even any such allegation in the Impugned Orders dated 11.04.2023 and 10.05.2023. In terms of the statutory time frame which stands constructed by Section 38 (3) (a) (ii) of the DVAT Act, the said amount had become refundable post 1st August 2017 and 29th September 2017 respectively. The proceedings undertaken thereafter i.e. issuance of notice under Section 59 (2) followed by Default Assessment Order dated 29.08.2020 are to be regarded as non-est in the eyes of law - Petitioner cannot be denied interest on the amount of interest withheld unjustifiably. Since the refund was withheld, assessee automatically becomes entitled to the interest under Section 42 (1) of the DVAT Act. The petitioner is entitled for interest on refund and such claim cannot be defeated on the mere ground of investigation and involvement of legal issues, which ultimately came to be decided in favour of the petitioner by orders passed by the High Court - Admittedly, statutory rate of Interest is 6% by virtue of notification dated 30.11.2005. Accordingly, the Impugned orders dated 11.04.2023, 10.05.2023 & 03.10.2023 passed by the Respondents are set aside. Petition allowed. Issues Involved:1. Validity of the impugned orders dated 11-04-2023, 10-05-2023, and 03-10-2023.2. Entitlement to interest on delayed tax refunds under the DVAT Act.3. Claim for exemplary damages due to alleged mala-fide actions by the Respondents.Detailed Analysis:1. Validity of the Impugned Orders:The petitioner sought to set aside the impugned orders dated 11-04-2023, 10-05-2023, and 03-10-2023, which rejected their claim for interest on delayed refunds. The court examined the factual background, noting that the petitioner had filed quarterly returns for the 4th quarter of AY 2016-17 and the 1st quarter of AY 2017-18, claiming refunds based on 'C' Forms. The refunds were delayed due to investigations and legal issues, which were ultimately resolved in favor of the petitioner by the High Court. The court found that the impugned orders were not justified as they failed to acknowledge the statutory obligation to pay interest on delayed refunds as per Section 42 of the DVAT Act.2. Entitlement to Interest on Delayed Tax Refunds:The central issue was whether the petitioner was entitled to interest on delayed tax refunds under the DVAT Act. The court referred to Sections 38 and 42 of the DVAT Act, which mandate the Commissioner to refund excess tax paid and to pay interest if the refund is delayed. The court emphasized that the statutory guidelines for granting refunds are mandatory, not discretionary, and cited previous judgments affirming this position. It was noted that the petitioner had filed returns on 01.06.2017 and 29.07.2017, making the refunds due by 01.08.2017 and 29.09.2017, respectively. The court concluded that the petitioner was entitled to interest from these dates as per Section 38 (3) (a) (ii) and Section 42 (1) of the DVAT Act.3. Claim for Exemplary Damages:The petitioner also sought exemplary damages, alleging that the Respondents acted in a mala-fide and colorable exercise of power by withholding the interest. However, the court did not specifically address the claim for exemplary damages in the judgment. The focus remained on the statutory entitlement to interest on delayed refunds.Conclusion:The court set aside the impugned orders dated 11-04-2023, 10-05-2023, and 03-10-2023, ruling that the petitioner is entitled to simple interest at the rate of 6% per annum from the date the refund fell due. The Respondents were directed to effect the refund within four weeks from the date of the judgment. The writ petition was accordingly allowed.