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Synopsis

The Supreme Court said the timeline for refund mentioned under Section 38(3) of the Delhi Value Added Tax Act, 2004 must be mandatorily followed and dues cannot be adjusted against such amount. 

A bench of Justices P S Narasimha and Prasanna Bhalachandra Varale dismissed an appeal by the Commissioner of Trade and Taxes against the Delhi High Court's judgment of September 21, 2023 whuch quashed the adjustment order.

"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," the bench said.

On a plea by respondent FEMC Pratibha Joint Venture, the High court directed refund of Rs 17,10,15,285 for the 4th quarter of 2015-16 and Rs 5,44,39,148 for the 1st quarter of 2017-18, along with interest as per Section 42 till the date of realisation.

The respondent was a joint venture engaged in the execution of works contracts for the Delhi Metro Rail Corporation and makes purchases for this purpose. It claimed refund of excess tax credit.

The appellant did not pay the refund even until 2022. The Value Added Tax Officer passed an adjustment order against dues under default notices.

The High Court, however, held the department does not have any legal right or justification to retain the amount beyond the time limit prescribed under Section 38. In the facts of the present case, it was held that the mandate of the Act has not been followed and hence the adjustment order is not maintainable.

In its appeal, the department contended the timeline cannot be used to denude the power to adjust refund amounts against outstanding dues under Section 38(2). The refund can be adjusted as long as outstanding dues exist at the time when the refund is processed, even if it is beyond the stipulated timeline. 

The respondent supported the reasoning of the High Court and has placed reliance on several judgments of the Delhi High Court that affirm this position of law.

"We find no reason to interfere with the impugned judgment, which follows the view that has been consistently adopted by the High Court. The finding of the High Court is based on the plain language of Section 38 of the Act," the bench said.

The court said by the time when the refund should have been processed as per the provisions of the Act, the dues under the default notices had not crystallised and the respondent was not liable to pay the same at the time. 

"The appellant-department is therefore not justified in retaining the refund amount beyond the stipulated period and then adjusting the refund amount against the amounts due under default notices that were issued subsequent to the refund period," the bench said.

The court also rejected a contention that the purpose of the timeline provided under sub-section (3) is only for calculation of interest under Section 42 would defeat the object of the provision.

"Such an interpretation would effectively enable the department to retain refundable amounts for long durations for the purpose of adjusting them on a future date. This would go against the object and purpose of the provision," the bench said.

The court thus affirmed the High Court's judgment directing the refund of amounts along with interest as provided under Section 42 of the Act.