Timeline For Refund Must Be Mandatorily Followed While Recovering Dues Under Delhi VAT Act: SC
The Supreme Court ruled that the Department of Trade and Taxes must adhere to the timeline stipulated under Section 38(3) of the Delhi Value Added Tax Act, 2004 so that refunds are processed and issued promptly.
The bench of Justice P S Narasimha and Justice P B Varale observed, “The language of Section 38(3) is mandatory and the department must adhere to the timeline stipulated therein to fulfil the object of the provision, which is to ensure that refunds are processed and issued in a timely manner.”
Brief Facts-
The respondent FEMC Pratibha Joint Venture is working on contracts for Delhi Metro Rail Corporation. It claimed excess tax credit refunds for the 4th quarter of 2015-16 and the 1st quarter of 2017-18. Despite filing for refunds in 2017 and 2019, the appellant didn't pay until 2022. The respondent sent a letter in November 2022 for refund consideration. The Value Added Tax Officer then issued an adjustment order to offset the refund against dues from 2020 to 2022. This led the respondent to file a Writ Petition in the Delhi High Court to challenge the adjustment order and default notices.
The High Court quashed the adjustment order and directed a refund along with interest as per Section 42 till the date of realisation. Hence, this appeal.
The Court noted that to summarise the law on Section 38 the High Court relied on the Delhi High Court’s decision in Flipkart India Private Limited v. Value Added Tax Officer and according to the Supreme Court the Court held, “the department must scrupulously adhere to the time limit for processing and issuing the refunds under Section 38. Whenever the department seeks to obtain necessary information under Section 59 of the Act, it must take steps within the time limit envisaged under the Act.”
“…the refund amount can be adjusted only when an enforceable demand in the nature of tax or duty is pending against the assessee. The department does not have any legal right or justification to retain the amount beyond the time limit prescribed under Section 38.”, the Court added.
The Court stated that Section 38(3)(a)(ii) is relevant as both the refunds in the present case pertain to quarter tax periods. Therefore, according to the Court as per Section 38(3)(a)(ii), the refund should have been processed within two months from when the returns were filed.
According to the Court, the default notices were issued after the period within which the refund should have been processed. Sub-section (2) only permits adjusting amounts towards recovery that are “due under the Act” and by the time when the refund should have been processed the dues under the default notices had not crystallised and the respondent was not liable to pay the same at the time.
The division bench dismissed the appeal and affirmed the impugned judgment directing the refund of amounts along with interest as provided under Section 42 of the Act.
The Court disposed of the Petition.
Cause Title: Commissioner of Trade And Taxes v. FEMC Pratibha Joint Venture