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Commissioner of Trade and Taxes Vs. FEMC Pratibha Joint Venture (Neutral Citation: 2024 INSC 364) - (Supreme Court) (01 May 2024)

Department must adhere to the timeline for refund stipulated under Section 38(3) of the Delhi Value Added Tax Act


Sales Tax/VAT

The issue for consideration is whether the timeline for refund under Section 38(3) of the Delhi Value Added Tax Act, 2004 must be mandatorily followed while recovering dues under the Act by adjusting them against the refund amount.

The Respondent is a joint venture engaged in the execution of works contracts for the Delhi Metro Rail Corporation and makes purchases for this purpose. It claimed refund of excess tax credit. The Appellant did not pay the refund even until 2022, pursuant to which the Respondent sent a letter for the consideration of their refund. The Value Added Tax Officer passed an adjustment order to adjust the Respondent's claims for refund against dues under default notices. The Respondent then filed a writ petition before the High Court for quashing the adjustment order and the default notices. High Court quashed the adjustment order and directed refund. The present appeal is restricted to the issue of quashing the adjustment order.

The language of Section 38(3) of Act, 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.

In the present case, Section 38(3)(a)(ii) of Act, is relevant as both the refunds in the present case pertain to quarter tax periods. Therefore, as per Section 38(3)(a)(ii) of Act, the refund should have been processed within two months from when the returns were filed. 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. The impugned judgment directing the refund of amounts along with interest as provided under Section 42 of the Act is affirmed. Appeal dismissed.


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