Bombay High Court Directs Sales Tax Dept. To Refund Rs. 10.70 Crores Excess Paid Under Settlement Scheme

The Bombay High Court has directed the sales tax department to refund Rs. 10.70 crore.

The bench of Justice K. R. Shriram and Justice Jitendra Jain has observed that, on reading Section 11 of the Settlement Scheme, the defect notice is issued when there is a shortfall in making the payment and not when an applicant has paid the correct amount.

The bench noted that the amount payable was Rs. 66,17,057, whereas the petitioner has paid Rs. 8,46,84,821, which is an excess payment and not a short payment. Therefore, even on this count, a defect notice is contrary to Section 11 of the Settlement Scheme.

The petitioner is in the business of trading vehicles and is registered with the Respondent-Tax Authority. For the year 2010–2011, an assessment order was passed by the respondent demanding a sum of Rs. 17,76,93,422. The order was challenged in appeal, and the Appellate Authority passed an order in appeal in which the demand was reduced to Rs. 14,00,74,890. For the year 2011–2012, an assessment order was passed demanding a sum of Rs. 9,67,02,366. The order was subject to appeal, and the appeal for the years 2011–2012 was allowed, resulting in a refund of Rs. 10,69,89,606.

The Maharashtra Government issued an ordinance for settlement of arrears of tax, interest, penalty, and late fee outstanding as of April 1, 2019 upon payment of the amount specified in the said Settlement Scheme. The scheme was named the Maharashtra Settlement of Arrears of Tax, Interest, Penalty, or Late Fee Act, 2019.

The petitioner informed respondents and departments that they are considering availing themselves of the settlement scheme for the years 2010–2011, for which there was a demand of Rs. 14,00,74,890. The petitioner informed respondents not to adjust the refund of Rs. 10,69,89,606, which arose on account of the appeal order for the year 2011–12 against the demand for the year 2010–2011.

The petitioner informed respondents that they had made an online application under the Settlement Scheme for the years 2010–2011 and paid Rs. 8,46,84,821 as per the scheme against the original outstanding dues. The petitioner also enclosed with the letter the challan evidencing the said payment and the acknowledgement of respondents having received the application in Form 1.

The defect notice was issued by Respondents under Section 11 of the Settlement Scheme, by which it was informed to Petitioner that the requisite amount payable for the year 2010–2011 under the scheme is only Rs. 66,17,057. It seems that the requisite amount of Rs. 66,17,057 is arrived at after adjusting the refund for the year 2011–2012, amounting to Rs. 10,69,89,606 and post-application made by the petitioner.

The petitioner challenged the defect notice and refund adjustment. The written petition was disposed of by remanding the matter back to the respondents to consider the refund application filed by the petitioner after giving them the opportunity to hear it.

The refund application came to be rejected on the ground that the refund of Rs. 10,69,89,606 was adjusted against the demand for the years 2010–2011.

The petitioner contended that the adjustment sought to be made is also contrary to Rule 60 of the MVAT Rules since the adjustment could be made against the demand of subsequent orders and not of the prior years. The petitioner is entitled to a refund of Rs. 10,69,89,606 for the year 2011–2012, along with interest.

The department contended that Section 18 of the Settlement Scheme provides that under no circumstances, the applicant shall be entitled to get a refund of the amount paid under the Act. The petitioner is not entitled to the refund as claimed. At the same time, Ms. Vyas agreed that, purely by numbers, there has been an excess payment by the petitioner of Rs. 10,69,89,606.

The court noted that the defect notice issued under Section 11 stated that the outstanding amount as per the respondent's record is shown as a difference between the outstanding amount for the years 2010–2011, amounting to Rs. 14,00,74,890, and the adjustment of the refund of Rs. 10,69,89,606 for the years 2011–2012. The court failed to understand how, on May 14, 2019, respondents arrived at the outstanding amount of Rs. 3,30,85,284 after adjusting the refund for the years 2011–2012, when the refund adjustment order itself was May 23, 2019. Therefore, the defect notice itself is defective and not in accordance with the law.

The court directed the department to refund to the petitioner a sum of Rs. 10,69,89,606/- along with interest at 6% per annum as per Section 52 read with Rule 88 of the MVAT Rules from June 1, 2019 until the date of payment.

Counsel For Petitioner: Rafiq A. Dada

Counsel For Respondent: S. D. Vyas

Case Title: M/s. TML Business Services Ltd. Versus The Deputy Commissioner of Sales Tax

Case No.: Writ Petition No.12714 Of 2023

Click Here To Read The Order