2025 (9) TMI 672 - HC - VAT / Sales Tax

Section 29: Refund rejection dated 11.3.2024 set aside; respondent exceeded jurisdiction, process TDS and VAT refund claims

Larsen & Toubro Ltd. Versus The State of Tripura, The Commissioner of Taxes, Government of Tripura, The Additional Commissioner of Taxes, Tripura, The Superintendent of Taxes Charge I & II, (Other than Adjudication and recovery Cell), Tripura VAT Department, Agartala, The Superintendent of Taxes-Charge I, Agartala.

The HC set aside the respondent's 11.3.2024 refund rejection under Section 29 and held that respondent exceeded its jurisdiction by effectively ... Entitlement of the petitioner to refund of Value Added Tax (VAT) for the financial years 2006-07 to 2013-14 - applicability of period of 21 days prescribed under sub–Rule (3) of Rule 35 to petitioner - works contracts service and not export sales - HELD THAT:- Admittedly the petitioner is the beneficiary of the TDS deducted for payments made to it by ONGC and the PWD Department of the State Government - Under Rule 7(1), TDS is to be deducted by the above referred organizations and under Rule 7(3), and ONGC and the PWD Department of the State have to pay it by challan to the State Government. On 15.2.2024, petitioner filed a rejoinder enclosing thereto as Annexure P-18, a 6 page VAT TDS reconciliation with corresponding details of Treasury Vouchers date and Sl.No. They also enclosed as Annexure P-19, a Letter dt.22.12.2023 of the Executive Engineer, PWD Department details of deposit of VAT to the Government exchequer deducted from petitioner from 2005-06 to 2017-18 - In spite of having all the above material with it, on 11.3.2024, the Superintendent of Taxes, Charge-I, Agartala (respondent no.5) passed a refund rejection order under Section 29 of the Act. When the respondents had accepted the quarterly returns filed within time by petitioner without demur, and there is under Section 29(3) of the Act, a deemed ‘self assessment’, in 2024, long after 5 years limitation for assessment under section 33 of the Act has expired, it is not open to the respondent no.5 to find fault with the returns filed by petitioner - This is wholly without jurisdiction as the respondent no.5 cannot act contrary to the Act and do a re-assessment of the returns which is utterly time barred. Admittedly, when the Act was passed and the Rules were made in 2005, the respondents had omitted to prescribe the format for the Chartered Accountant’s certificate under Section 53 of the Act for filing the statutory VAT audit report and the same came to be prescribed only on 7.12.2021 through a notification of the Tripura Value Added tax (Eighth Amendment) Rules,2021. Rule 45A was inserted and a format Form XLIV was prescribed - In Popatrao Vyankatrao Patil v. State of Maharashtra [2020 (2) TMI 1301 - SUPREME COURT] the Supreme Court directed that the State should act as a model litigant; that it is no ordinary party trying to win a case against one of its own citizens by hook or by crook; and that it is the State’s interest to meet honest claims, vindicate a substantial defence and never to score a technical point or overreach a weaker party to avoid a just liability or secure an unfair advantage, simply because legal devices provide such an opportunity. In the instant case, the respondents have consistently taken false, vexatious and unjust pleas all through and have exhibited bad faith. The order dt.11.3.2024 passed by the 5th respondent is set aside. The respondents shall take into account the details furnished by petitioner in the statutory VAT audit reports, and the challans, TDS certificates and other documents on record and process and grant refund to the petitioner of the amounts due to it - petition allowed. 1. ISSUES PRESENTED AND CONSIDERED 1. Whether a dealer is entitled to refund of Value Added Tax paid in excess where quarterly returns filed under Section 24 were accepted and deemed self-assessment under Section 29(3), absent any assessment within the five-year window prescribed by Section 33. 2. Whether Rule 35(3) and/or Rule 35(4) of the Rules (prescribing a 21-day statement for export sales and a one-year limitation for refund claims) can be read as prescribing a substantive period of limitation for refunds under Section 43 of the Act, or are ultra vires the statute. 3. Whether a refund claim can be denied on the ground that no formal assessment under Sections 30/31/34 was made, when quarterly returns were accepted as self-assessment and statutory audit reports under Section 53 were filed within the prescribed time. 4. Whether non-compliance with prescribed procedural formalities (non-submission initially in Form XXXIII; alleged absence of challans/TDS certificates in departmental records; later production) can defeat the substantive right to refund under Section 43. 5. Whether the administrative conduct of tax authorities in raising belated or technical objections, failing to maintain records and failing to invoke powers under Section 52 to verify TDS/challan details, bears on entitlement to refund, interest under Section 45 and costs. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Entitlement to refund where quarterly returns accepted as self-assessment Legal framework: Section 43 grants refund where tax paid in excess is shown to be due; Section 24 prescribes returns; Section 29(3) provides that where returns are filed as required they are deemed valid self-assessments; Section 33 prescribes a five-year limitation for assessment. Precedent treatment: The Court relied on statutory text and prior authority regarding the finality and effect of self-assessment; no contrary binding precedent was invoked to negate self-assessment finality where the five-year assessment window has lapsed. Interpretation and reasoning: Quarterly returns accepted without query amount to deemed self-assessment under Section 29(3). Where the Commissioner/assessing authorities did not select the dealer for assessment within the statutory five-year period, they cannot repudiate the earlier acceptance and reopen liabilities long after the limitation has expired. The Court treated the deemed self-assessment as an operative form of assessment for purposes of refund entitlement. Ratio vs. Obiter: Ratio - deemed self-assessment under Section 29(3) precludes reopening beyond the Section 33 period and supports entitlement to refund when returns were accepted. Conclusion: The petitioner was entitled to have the refund claims considered on the basis of accepted self-assessments and statutory audit reports; respondents could not deny refund solely because they had not conducted an assessment within five years. Issue 2 - Validity and applicability of Rule 35 limitations vis-à-vis Section 43 Legal framework: Section 43 is substantive (refund right); Section 87 grants rule-making powers including 'the manner in which refunds shall be made'; Rule 35 sets procedural requirements including sub-rule (3) (21-day statement for export sales) and sub-rule (4) (one-year limit from original or final order of assessment). Precedent treatment: The Court relied on the principle from Bharat Barrel & Drum Mfg. Co. Ltd. (followed) that substantive limitation affecting rights cannot be prescribed by delegated rules if the legislature has not done so; that limitation appertains to remedy/substantive rights and ordinarily must be in the statute. Interpretation and reasoning: Rule 35(3)'s 21-day rule is explicitly limited to export sales and thus inapplicable to works-contract dealers. Rule 35(4)'s one-year bar (if read as extinguishing substantive refund rights) would be inconsistent with Section 43 in the absence of statutory prescription of limitation. The Court held that the rule-making power to prescribe 'manner' of refund does not extend to creating substantive limitation on refund claims unless the statute so provides. Reliance was placed on the cited Supreme Court authority that limitations affecting substantive rights cannot be imposed by delegated legislation of procedural character. Ratio vs. Obiter: Ratio - Rule 35 cannot be read to extinguish statutory refund rights by prescribing a substantive limitation not found in Section 43; sub-rule (3) does not apply to works contracts. Conclusion: The limitation in Rule 35 cannot defeat refunds due under Section 43 where the statute does not prescribe such a limitation; thus respondents' reliance on Rule 35 to refuse refund was unsustainable. Issue 3 - Necessity of a formal assessment to establish refund claim Legal framework: Sections 30/31/34 provide for various assessment processes; Section 52 empowers the Commissioner to call for information; Section 53 requires audit for dealers above prescribed turnover. Precedent treatment: The Court treated accepted returns and statutory audit reports as sufficient material for determining refund entitlement where no assessment was initiated within the statutory period; no precedent was cited to compel a formal assessment as prerequisite to refund in such circumstances. Interpretation and reasoning: The administrative practice of selecting dealers for assessment cannot be invoked to deny refund where the authority failed to act within the assessment limitation period. Further, statutory audit reports filed under Section 53 constitute 'additional information' under Section 52 and would ordinarily prompt assessment if they showed under-payment; conversely, where those reports disclose an excess payment, the authority cannot, by its inaction, frustrate the statutory refund right. The Court characterized respondent's position as untenable and time-barred. Ratio vs. Obiter: Ratio - a formal post-hoc assessment is not a prerequisite to a refund claim where quarterly returns were accepted as self-assessment and the statutory assessment period has expired. Conclusion: Respondents could not lawfully refuse refunds on the ground that they had not made a formal assessment. Issue 4 - Effect of procedural non-compliance (Form XXXIII, challans/TDS) on substantive refund right Legal framework: Rule 35 prescribes particulars and Form XXXIII for refund application; Rule 7 deals with TDS and challan issuance; Section 43 confers substantive refund right; Section 52 enables verification from third parties. Precedent treatment: The Court applied the principle that procedural irregularities should not defeat substantive rights (citing Ramnath Exports and Lakshmi Rattan Engg. Works) and emphasized curing of procedural defects where possible. Interpretation and reasoning: The initial omission to file Form XXXIII was belatedly raised by respondents and cured by subsequent filing. Procedural non-compliance, particularly where records were not properly maintained by tax authorities and where the dealer produced statutory audit reports and TDS reconciliation and third-party confirmations (challans/TDS certificates from withholding authorities), cannot be allowed to defeat the substantive refund right. The respondents, having accepted quarterly returns without demur, cannot now rely on misplaced departmental records to negate entitlement. The Court also noted that respondents could have and should have invoked Section 52 to verify challans/TDS with the deductors. Ratio vs. Obiter: Ratio - procedural non-compliance (initial non-use of Form XXXIII or apparent absence of challans from departmental files) does not bar a substantive refund where defects are curable and the substantive entitlement is demonstrated; such objections raised belatedly may be rejected. Conclusion: The refund claims could not be defeated on grounds of procedural non-compliance that were either cured or rooted in departmental record-keeping failures; respondents were required to process the claims. Issue 5 - Administrative conduct, verification duties and relief (interest and costs) Legal framework: Section 45 provides for interest on delayed refunds; Section 52 allows seeking information from third parties; principles of model litigant conduct (cited authority) govern State behaviour in litigation. Precedent treatment: The Court relied on judicial admonitions that the State should act as a model litigant and avoid technical or vexatious objections; such authorities were applied to criticize respondents' conduct. Interpretation and reasoning: The Court found respondents raised successive, belated, and technical objections, failed to maintain receipt registers, did not use Section 52 to verify records with ONGC/PWD, and were otherwise mala fide in resisting legitimate claims. Given such conduct and the resultant delay in refund, the Court directed respondents to process and grant refunds, pay interest under Section 45 and awarded costs to the petitioner to vindicate the public law principle that authorities act fairly and efficiently. Ratio vs. Obiter: Ratio - where tax authorities unreasonably delay, raise belated/technical objections, or fail to use available verification powers, courts may direct payment of refunds with statutory interest and award costs; State must act as a model litigant. Conclusion: Respondents were directed to process refunds taking into account statutory audit reports and supporting challans/TDS certificates, pay interest under Section 45 and pay costs; the refund rejection order was set aside as unlawful and tainted by mala fide and procedural infirmities.