DVAT Act | Assessee 'Automatically' Becomes Entitled To Interest U/S 42 On State's Failure To Adhere To Mandatory Timelines For Refund: Delhi HC

Section 38(1) “obligates” the Commissioner to refund the amount of tax, penalty or interest, if paid by a person in excess of the amount due from him.

Section 38(3)(a) provides the timeline for a refund from the date on which the return is furnished or the claim for refund is made as (i) one month, if the period for refund is one month; (ii) two months if the period for refund is a quarter.

Section 42 of the DVAT Act deals with payment of interest. 

A division bench of Justices Ravinder Dudeja and Justice Yashwant Varma highlighted that guidelines for grant of refund under the Act are “mandatory and not discretionary”.

It further observed that any delay in payment of refunds to an assessee will make the State liable to pay interest under Section 42 read with Section 38(3) of the Act.

“Admittedly, the refund was not released within the stipulated period of two months from the date of submitting the Form DVAT 2 in terms of Section 38(3)(a)(ii) of the DVAT Act. 17. The State having received the money without rights 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 the money received and retained without right implies and carries with it the right to interest.”

In the case at hand, Petitioner Ashok Leyland, a motor vehicle manufacturer, had initially sought refund of excess payment of Rs. 94,71,440/- for the four quarters of AY 2011-12. It had filed applications in form DVAT-21 on October 26, 2021, following which, refund was sanctioned for the first three quarters of AY 2011-12 but without payment of interests. 

Petitioner, therefore, amended the petition for claiming the refund for the fourth quarter of AY 2011-12 of Rs. 72,87,677/- and also claimed interest on the refund for all the four quarters.

Subsequently, a refund of Rs. 72,87,677/- for the fourth quarter also came to be sanctioned but interest thereon was not paid.

As per Rule 34(1) of the DVAT Rules, the claim for refund of tax, penalty or interest paid in excess of the amount due under the DVAT Act is required to be made in Form DVAT-21 setting out the grounds for claiming such a refund. Once Form DVAT21 is submitted by the assessee, there is no additional obligation placed upon him. 

The High Court observed that in terms of Section 38(3)(a)(ii), the State should have processed the refund within 2 months. However, the same was not done. In this backdrop it observed,

“There is no material on record to indicate that the petitioner was in any manner responsible for delay in processing of the refund…Respondent has collected, retained and enjoyed benefit of money of the petitioner for a long time without authority of law. Petitioner therefore automatically becomes entitled to interest under Section 42 of the DVAT Act.”

Court relied on M/s Shiv Shankar Dal Mills and Others Vs. State of Haryana and Others (1980), where the Supreme Court had held “Where public bodies, under colour of public laws, recover people's money. Later discovered to be erroneous levies, the dharma of the situation admits of no equivocation there is no law of limitation, especially for public bodies, on the virtue of returning what was wrongly recovered to whom it belongs.”

It therefore ordered payment of interest at 6% from the date it fell due, within four weeks.

Appearance: Advocates Ravi Chauhan & Vasdev Lalwani for Petitioner; ASC Rajeev Aggarwal with Advocates Prateek Badhwar, Shaguftha H.Badhwar & Samridhi Vats

Case title: Ashok Leyland Ltd. v. The Commissioner, Value Added Tax

Case no.: W.P.(C) 11710/2023