Clear Case Of Unjust Retention Of Money: Delhi HC Quashes Refund Rejection Order & Directs Authorities To Refund ₹3.5Cr With Interest To Ashok Leyland

The Court said that the authorities clearly appeared to have acted arbitrarily in illegally depriving the company of the refund as claimed, in flagrant violation of the mandate of Section 38 of the DVAT Act.

The Court was hearing a Writ Petition after the Respondents failed to refund an amount of Rs. 3.5Cr along with applicable interest as also interest on refunds issued for Assessment Years 2012-13.

The bench of Justice Yashwant Varma and Justice Ravinder Dudeja observed, “Respondent cannot possibly seek to justify the retention of refund claim on account of its having been deposited voluntarily or being barred by limitation. It is a clear case of unjust retention of the money of petitioner.”

Advocate Ravi Chauhan appeared for the Appellant and ASC Rajeev Aggarwal appeared for the Respondent.

Brief Facts-

The Petitioner, a motor vehicle manufacturer registered under the DVAT Act and CST Act, was asked by tax officers to deposit Rs. 3.5 crore. The Petitioner after payment of the amount instructed the tax authorities to retain the amount against any potential demand following an inspection. After an assessment for AY 2012-13 created a tax demand, the Petitioner deposited Rs. 52.52 lakh but later became entitled to a refund of Rs. 16.81 lakh after submitting declaration forms. Despite filing refund claims and sending reminders, the Petitioner received no refund for the Rs. 3.5 crore or the excess payment. A Refund Rejection Order denied the Rs. 3.5 crore refund, which was challenged in the Writ Petition.

The Court observed, “Section 38(2) of the DVAT Act uses the expression “recovery of any other amount due under this Act.” The Commissioner in terms of Section 38(2) is entitled to apply any amount found to have been paid by the assessee in excess of the amount due from him before making a refund only if there exists an enforceable demand against the assessee.”

“Once the taxpayer succeeds in upsetting the assessments framed under Section 32 & 33 of the DVAT Act, which results in vindicating its claim for a refund either in part or as a whole as claimed by either furnishing a return or Form DVAT-21, interest under Section 42(1)(a)of the DVAT Act would be payable from such date as the refund was due to be paid to the tax payer. The expression “the date that the refund was due to be paid” must be construed as the date when such a refund ought to have been paid to the tax payer. After the assessee succeeds in vindicating its stand that its claim for refund was correct, it would follow that that the assessee would be refunded the amount claimed and interest would be payable.”, the Court further observed.

The Court noted, “Interest is the return or compensation for use or retention of another’s money. The State having received the money without right, and having retained and used it, is bound to make the party good, just as an individual would be under the circumstances. The obligation to refund money received and retained without right implies and carries with it the right to interest.”

Accordingly, the Court allowed the Writ Petition and quashed the impugned Refund Rejection Order.