Pre-Deposit Made Before OHA Can’t Be Adjusted Against Any Other Tax Dues: Delhi High Court Allows Refund To Flipkart India

The Delhi High Court, while allowing the refund to Flipkart India, held that a pre-deposit made before the Objection Hearing Authority (OHA) cannot be adjusted against any other tax dues.

The bench of Justice Yashwant Varma and Justice Dharmesh Sharma has observed that Section 38(2) of the Delhi Value Added Tax Act, 2004 (DVAT Act) uses the expression "recovery of any other amount due under this Act". The Commissioner, in terms of Section 38(2), is thus entitled to apply any amount found to have been paid by an assessee in excess of the amount due from him before making a refund only if there exists an enforceable demand against that assessee. As is manifest on a conjoint reading of Sections 35(2) and 38(2) of the DVAT Act, as long as objections remain pending with the OHA, any amount claimed by the respondents would clearly not meet the description of an amount due or payable as contemplated under Section 38(2).

The petitioner/assessee, Flipkart, has sought the direction commanding the respondents/department to process a refund application and give effect to a claim for refund of Rs. 6,62,74,405 in terms of Section 38 along with interest in terms of Section 42 of the DVAT Act.

In the absence of any valid claim in respect of an amount due at the time the application was made, the respondents were bound to acknowledge it and ensure that the refund was granted within two months.

The assessee questioned the validity of the order. The assessee submitted that any claim for refund that had fructified in accordance with the timelines prescribed by Section 38(3)(a)(ii) of the DVAT Act could not have been nullified by any demand for tax. It may have either sprung into existence after the period of two months from the filing of the return, or such an adjustment could have been affected during the pendency of objections made by the petitioner with reference to Section 35 of the DVAT Act.

These default assessment demands were also assailed by the petitioner by filing objections before the OHA on July 15, 2014. The petitioner made a pre-deposit of Rs. 1,00,00,000 in terms of the statutory mandate of Section 73(1) of the DVAT Act. The pre-deposit was made in respect of the objections that had been preferred before the OHA pertaining to the default assessment notices. The OHA proceeded to dispose of the objections and remanded the matter to the file of the department.

The issue raised was whether the pre-deposit made before the OHA could have been adjusted against any other tax dues.

The assessee contended that a pre-deposit has never been understood to constitute a deposit of tax or duty that could be utilised for the purposes of adjustment.

The department contended that the petitioner itself was responsible for the delay in effecting the refund on account of incorrect and incomplete information that had been provided to the department. Thus disabling them from processing the application for a refund.

The department urged that at the time the application came to be made, certain other demands had come to be raised against the petitioner. The department was clearly justified in adjusting the refunds claimed against the demands. The refunds that were claimed by the petitioner were adjusted against tax demands of Rs. 23,50,50,928 that existed as of May 6, 2022, and thus the respondents were clearly justified in proceeding further in accordance with Section 38(2) of the DVAT Act.

The court noted that once the objections had been duly lodged online, the mere fact that the respondents were unable to trace out the objections filed physically would not detract from the right of the petitioners to claim a refund.

"The failure of the respondents to refund the amount of pre-deposit and even adjust the sum of Rs. 1,00,00,000/- deposited in that respect on November 16, 2015 is also clearly arbitrary and untenable. Our court has consistently taken the position that a pre-deposit does not have the character of a tax or duty. Those are sums that are deposited by an assessee solely for the purposes of pursuing its remedy of appeal," the court said.

The court held that the respondents were neither entitled in law to retain the pre-deposit amount of Rs. 1,00,00,000 nor could it have been utilised for adjustment purposes.

The court found that the department clearly appears to have acted arbitrarily in making numerous adjustments after May 31, 2015, thus illegally depriving the petitioner of the refund as claimed. The various adjustments clearly appear to have been made even though objections before the OHA had been duly lodged online by the petitioner. The respondents thus clearly appear to have acted contrary to the clear mandate of Section 38 of the DVAT Act.

Case Title: Flipkart India Private Limited Versus Value Added Tax Officer

Citation: 2023 LiveLaw (Del) 730

Date: 21/08/2023

Counsel For Petitioner: Tarun Gulati

Counsel For Respondent: Satyakam

Click Here To Read The Order