Full Judgment Text
REPORTABLE
IN THE SUPREME COURT OF INDIA
2024 INSC 364
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 3940 OF 2024
COMMISSIONER OF TRADE AND TAXES ...APPELLANT(S)
VERSUS
FEMC PRATIBHA JOINT VENTURE …RESPONDENT(S)
J U D G M E N T
PAMIDIGHANTAM SRI NARASIMHA, J.
1. The issue for consideration before us is whether the timeline
for refund under Section 38(3) of the Delhi Value Added Tax Act,
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2004 must be mandatorily followed while recovering dues under
the Act by adjusting them against the refund amount.
2. The brief facts relevant for our purpose are as follows. The
respondent is a joint venture engaged in the execution of works
contracts for the Delhi Metro Rail Corporation and makes
Signature Not Verified
purchases for this purpose. It claimed refund of excess tax credit
Digitally signed by
Indu Marwah
Date: 2024.05.02
10:30:19 IST
Reason:
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Hereinafter ‘the Act’.
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th
amounting to Rs. 17,10,15,285/- for the 4 quarter of 2015-16
through revised return filed on 31.03.2017 and Rs. 5,44,39,148/-
st
for the 1 quarter of 2017-18 through return filed on 29.03.2019,
along with applicable interest under Section 42 of the Act. The
appellant did not pay the refund even until 2022, pursuant to
which the respondent sent a letter dated 09.11.2022 for the
consideration of their refund. The Value Added Tax Officer passed
an adjustment order dated 18.11.2022 to adjust the respondent’s
claims for refund against dues under default notices dated
30.03.2020, 23.03.2021, 30.03.2021, and 26.03.2022. The
respondent then filed a writ petition before the Delhi High Court
for quashing the adjustment order and the default notices.
3. By judgment dated 21.09.2023, impugned herein, the High
Court quashed the adjustment order and directed refund of
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Rs. 17,10,15,285/- for the 4 quarter of 2015-16 and
st
Rs. 5,44,39,148/- for the 1 quarter of 2017-18, along with
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interest as per Section 42 till the date of realisation. In respect of
the default notices, the High Court gave liberty to the respondent
to avail statutory appeal under Section 74 of the Act.
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WP (C) 2491/2023, judgment dated 21.09.2023 (‘Impugned judgment’).
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4. The present appeal is restricted to the issue of quashing the
adjustment order. The High Court placed reliance on the Delhi
High Court’s judgment in Flipkart India Private Limited v . Value
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Added Tax Officer, Ward 300 to summarise the law on refund
under Section 38. It held that 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. Further, 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
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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
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maintainable.
5. We have heard the learned ASG for the department and
Mr. Rajesh Jain, learned counsel for the respondent-assessee. The
learned ASG has submitted that the timelines specified in Section
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2023 SCC OnLine Del 5201.
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Impugned judgment, para 10.
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ibid, para 11.
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38(3) are only to ensure that interest is paid if the refund is delayed
beyond the statutorily prescribed period. However, he has argued,
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 learned counsel for the assessee has
supported the reasoning of the High Court and has placed reliance
on several judgments of the Delhi High Court that affirm this
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position of law.
6. We find no reason to interfere with the impugned judgment,
which follows the view that has been consistently adopted by the
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High Court. The finding of the High Court is based on the plain
language of Section 38 of the Act, which reads as follows:
“ 38. Refunds
(1) Subject to the other provisions of this section and the rules, the
Commissioner shall refund to a person the amount of tax, penalty and
interest, if any, paid by such person in excess of the amount due from
him.
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Swarn Darsan Impex v. Commissioner, Value Added Tax , 2010 SCC OnLine Del 4697;
Nucleus Marketing and Communication v. Commissioner of Delhi Value Added Tax , 2016 SCC
OnLine Del 3941; Rockwell Industries v. Commissioner of Trade and Taxes , 2019 SCC OnLine
Del 8432; ITD-ITD CEM JV v. Commissioner of Trade and Taxes , 2019 SCC OnLine Del 9568;
Ramky Infrastructure Ltd v. Commissioner of Trade and Taxes , 2023 SCC OnLine Del 4236;
Commissioner of Trade and Taxes v. Corsan Corviam Construction S.A. Sadbhav Engineering
Ltd JV , 2023 SCC OnLine Del 1900; Flipkart India (supra).
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ibid.
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(2) Before making any refund, the Commissioner shall first apply such
excess towards the recovery of any other amount due under this Act,
or under the CST Act, 1956 (74 of 1956).
(3) Subject to sub-section (4) and sub-section (5) of this section, any
amount remaining after the application referred to in sub-section (2)
of this section shall be at the election of the dealer, either –
(a) refunded to the person, –
(i) within one month after the date on which the return was furnished
or claim for the refund was made, if the tax period for the person
claiming refund is one month;
(ii) within two months after the date on which the return was
furnished or claim for the refund was made, if the tax period for the
person claiming refund is a quarter; or
(b) carried forward to the next tax period as a tax credit in that period.
(4) Where the Commissioner has issued a notice to the person under
section 58 of this Act advising him that an audit, investigation or
inquiry into his business affairs will be undertaken or sought
additional information under section 59 of this Act, the amount shall
be carried forward to the next tax period as a tax credit in that period.
(5) The Commissioner may, as a condition of the payment of a refund,
demand security from the person pursuant to the powers conferred in
section 25 of this Act within fifteen days from the date on which the
return was furnished or claim for the refund was made.
(6) The Commissioner shall grant refund within fifteen days from the
date the dealer furnishes the security to his satisfaction under sub-
section (5).
(7) For calculating the period prescribed in clause (a) of sub- section
(3), the time taken to –
(a) furnish the security under sub-section (5) to the satisfaction of the
Commissioner; or
(b) furnish the additional information sought under section 59; or
(c) furnish returns under section 26 and section 27; or
(d) furnish the declaration or certificate forms as required under
Central Sales Tax Act, 1956,
shall be excluded
(8) Notwithstanding anything contained in this section, where –
(a) a registered dealer has sold goods to an unregistered person; and
(b) the price charged for the goods includes an amount of tax payable
under this Act;
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(c) the dealer is seeking the refund of this amount or to apply this
amount under clause (b) of sub-section (3) of this section;
no amount shall be refunded to the dealer or may be applied
by the dealer under clause (b) of sub-section (3) of this section unless
the Commissioner is satisfied that the dealer has refunded the
amount to the purchaser.
(9) Where –
(a) a registered dealer has sold goods to another registered dealer;
and
(b) the price charged for the goods expressly includes an amount of
tax payable under this Act,
the amount may be refunded to the seller or may be applied by
the seller under clause (b) of sub-section (3) of this section and the
Commissioner may reassess the buyer to deny the amount of the
corresponding tax credit claimed by such buyer, whether or not the
seller refunds the amount to the buyer.
(10) Where a registered dealer sells goods and the price charged for
the goods is expressed not to include an amount of tax payable under
this Act the amount may be refunded to the seller or may be applied
by the seller under clause (b) of sub-section (3) of this section without
the seller being required to refund an amount to the purchaser.
(11) Notwithstanding anything contained to the contrary in sub-
section (3) of this section, no refund shall be allowed to a dealer who
has not filed any return due under this Act.
”
7. Sub-section (1) provides that any amount of tax, penalty and
interest that is in excess of the amount due from a person shall be
refunded to him by the Commissioner. Sub-section (2) permits the
Commissioner to first apply such excess to recover any other
amount that is due under the Act or the Central Sales Tax Act,
1956. Sub-section (3), which is relevant for our purpose, provides
the assessee with the option of getting the refund or carrying it
forward to the next tax period as a tax credit. In case of refund,
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Section 38(3)(a) provides the timeline for refund from the date on
which the return is furnished or claim for refund is made as: (i)
within one month, if the period for refund is one month; (ii) within
two months, if the period for refund is a quarter. Sub-section (4)
provides that if notice has been issued under Section 58 or
additional information has been sought under Section 59, then the
amount shall be carried forward to the next tax period as tax
credit. Sub-sections (5) and (6) pertain to security. Sub-section (7)
provides certain exclusions while calculating the period under
sub-section (3). Sub-sections (8)-(10) pertain to refund in cases of
sale to registered and unregistered dealers. Lastly, sub-section (11)
provides that the refund shall not be allowed to a dealer who has
not filed any return that is due under the Act.
8. 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.
9. In the present case, Section 38(3)(a)(ii) is relevant as both the
refunds in the present case pertain to quarter tax periods.
Therefore, as per Section 38(3)(a)(ii), the refund should have been
processed within two months from when the returns were filed
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(31.03.2017 and 29.03.2019), which comes up to 31.05.2017 and
29.05.2019. The default notices are dated 30.03.2020,
23.03.2021, 30.03.2021, and 26.03.2022. It is therefore evident
that 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”. 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.
10. Further, the learned ASG’s contention that the purpose of the
timeline provided under sub-section (3) is only for calculation of
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interest under Section 42 would defeat the object of the provision.
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The relevant portion of Section 42 reads:
“ 42. Interest
(1) A person entitled to a refund under this Act, shall be entitled to receive, in addition to the refund,
simple interest at the annual rate notified by the Government from time to time, computed on a daily
basis from the later of –
(a) the date that the refund was due to be paid to the person; or
(b) the date that the overpaid amount was paid by the person, until the date on which the refund
is given.
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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. This contention is hence rejected.
11. In view of the above, we dismiss the present appeal and affirm
the impugned judgment directing the refund of amounts along
with interest as provided under Section 42 of the Act.
12. Pending applications, if any, are disposed of.
………………………………. J.
[PAMIDIGHANTAM SRI NARASIMHA]
………………………………. J.
[PRASANNA BHALACHANDRA VARALE]
NEW DELHI;
MAY 01, 2024
PROVIDED that the interest shall be calculated on the amount of refund due after deducting
therefrom any tax, interest, penalty or any other dues under this Act, or under the Central Sales Tax
Act, 1956 (74 of 1956):
PROVIDED FURTHER that if the amount of such refund is enhanced or reduced, as the case
may be, such interest shall be enhanced or reduced accordingly.
Explanation.- If the delay in granting the refund is attributable to the said person, whether wholly or
in part, the period of the delay attributable to him shall be excluded from the period for which the
interest is payable .”
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