Delhi VAT Act | Authorities Must Strictly Follow Time Limit To Process & Issue Refunds : Supreme Court

In a recent decision, the Supreme Court held that the department must mandatorily adhere to the time limit for processing and issuing the refunds under Section 38 of the Delhi Value Added Tax Act, 2004.

“The language of Section 38(3) is mandatory and the department must adhere to the timeline stipulated therein to fulfill the object of the provision, which is to ensure that refunds are processed and issued in a timely manner.”, the bench comprising Justices PS Narasimha and PB Varale said.

Affirming the decision of the Delhi High Court, the court rejected the contentions of the department represented by Additional Solicitor General Mr. N Venkataraman who submitted that the purpose of the timeline provided under sub-section (3) of Section 38 is only for calculation of interest under Section 42.

“Such an interpretation (by ASG) 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.”, the judgment authored by Justice PS Narasimha said.

The assessee/respondent claimed excess duty from the department in light of Section 38 of the Act, however, the department hasn't refunded the excess duty amount to the assessee. Following this, the assesse approached the High Court.

The High Court passed an adjustment order in light of Section 38 (3) of the Act directing the department to refund the excess duty of Rs. 17,10,15,285/- and Rs. 5,44,39,148/- for different quarters to the respondent/assessee.

The High Court placed reliance on another judgment of Flipkart India Private Limited v. Value Added Tax Officer, Ward 300, where it was held that the department must scrupulously adhere to the time limit for processing and issuing the refunds under Section 38.

“The department does not have any legal right or justification to retain the amount beyond the time limit prescribed under Section 38.”, the High Court said.

Finding no infirmity in the High Court's decision, the court held that the department wasn't justified in not refunding the excess duty to the respondent/assessee.

“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 court said.

Accordingly, the appeal preferred by the department was dismissed, directing the department to refund of amounts along with interest as provided under Section 42 of the Act.

Counsels For Petitioner(s) Mr. N Venkataraman, A.S.G. Mr. Mukesh Kumar Maroria, AOR Mr. V C Bharathi, Adv. Mr. Udai Khanna, Adv. Mr. Siddharth Sinha, Adv.

Counsels For Respondent(s) Mr. Rajesh Jain, Adv. Mr. Virag Tiwari, Adv. Mr. Rishabh Jain, Adv. Mr. Ramashish, Adv. Mr. K. J. Bhat, Adv. Mr. Avadh Bihari Kaushik, AOR

Case Title: COMMISSIONER OF TRADE AND TAXES VERSUS FEMC PRATIBHA JOINT VENTURE

Citaiton : 2024 LiveLaw (SC) 348

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