2026 (2) TMI 1264 - HC - VAT / Sales Tax

Settlement under Maharashtra Settlement Act prevents adjustment of earlier refunds; refund must be released with interest.

Whether departmental adjustment of a 2007-08 VAT refund against demands for 2008-09 and 2009-10 was permissible where those later demands were settled ... Refund adjustment - settlement under the Maharashtra Settlement of Arrears of Tax, Interest, Penalty or Late Fees Act, 2023 has overriding effect - entitlement to refund - retention/collection of tax contrary to law (Article 265) - payment of refund with interest as per rules - HELD THAT:- Admittedly the department in no manner has questioned the settlement, which was arrived for the Tax Period 2008-09 and 2009-10. We are of the opinion that the petitioner would clearly entitled for the refund of tax for the Tax Period 2007-08. Hence, the action on the part of the respondent to adjust the said refund for the subsequent Tax Period 2008-09 and 2009-10 is in fact rendered inconsequential and irrelevant in view of the settlement order referred by us hereinabove for the said period. Thus, there being no dispute whatsoever in regard to the demand for the said years, as such demands stood settled in the amnesty scheme issued by the respondent. In these circumstances, there was no occasion for the department to retain the refund entitled to the petitioner for the Tax Period 2007-08 to be adjusted for the purported demands for the next year, in view of the demand being settled. In this view of the matter, we are inclined to allow this petition. The petition is accordingly allowed Issues: (i) Whether the departmental adjustment of the refund payable for tax period 2007-08 against alleged dues for tax periods 2008-09 and 2009-10 was permissible where those subsequent period demands stood settled under the Maharashtra Settlement of Arrears of Tax, Interest, Penalty or Late Fees Act, 2023; (ii) Whether the petitioner is entitled to release of the refund for 2007-08 along with interest.Issue (i): Whether the department could retain or adjust the refund for 2007-08 against demands for 2008-09 and 2009-10 after those demands were settled under the Settlement Act, 2023.Analysis: The settlement orders for tax periods 2008-09 and 2009-10 were not challenged by the department and the demands for those periods stood settled under the amnesty scheme. The provisions of the Settlement Act, 2023 and the authorities cited establish that a valid settlement removing or fixing liabilities operates to preclude later adjustment of a separate refund. The departmental action to adjust the 2007-08 refund against purported dues for the subsequently settled periods was therefore inconsistent with the settlement outcome and the governing statutory scheme.Conclusion: The departmental adjustment of the 2007-08 refund against the settled demands for 2008-09 and 2009-10 was not permissible. This conclusion is in favour of the assessee.Issue (ii): Whether the petitioner is entitled to the release of the refund for 2007-08 and interest.Analysis: Given that the adjustment was impermissible and the refund for 2007-08 was retained without lawful basis, the petitioner is entitled to release of the refund. Interest entitlement follows the statutory provisions governing delayed refunds under the Maharashtra Value Added Tax framework; the Court directed release of the refund with interest as per rules.Conclusion: The petitioner is entitled to the refund for 2007-08 and to interest as per the applicable rules. This conclusion is in favour of the assessee.Final Conclusion: The petition is allowed and the departmental retention/adjustment of the 2007-08 refund is set aside; the refund shall be released to the petitioner with interest in accordance with the relevant rules.Ratio Decidendi: A valid settlement under the Maharashtra Settlement of Arrears of Tax, Interest, Penalty or Late Fees Act, 2023 that extinguishes or fixes liabilities for later tax periods prevents the revenue from lawfully adjusting or retaining a previously due refund for an earlier period; therefore refunds wrongfully retained contrary to such settlement must be released with interest as per applicable refund rules.