2007 (2) TMI 587 - HC - VAT and Sales Tax

Petition for issuance of direction - release the payment deposited - manufacture of yarn - Rejection of refund application - Assessment order set aside - HELD THAT - We find that the respondents have no right to retain the amount in the absence of any finding that the refund would adversely affect the recovery as per the provisions of section 12(6) of the 1948 Act. The reliance of the respondents on the order (R1) passed u/s 12(6) of the 1948 Act is wholly misplaced because the aforementioned order lacks complete application of mind and the primary requirements of section 12(6) of the 1948 Act remains unsatisfied. A perusal of section 12(6) shows that power to withhold refund could be exercised in cases where appeal or further proceedings under the 1948 Act are pending and the Assessing Authority is of the opinion that the refund is likely to adversely affect the recovery then refund may be withheld and the case be referred to the Commissioner whose order is to be considered final. The order withholding refund is blissfully silent as to how the refund would adversely affect the recovery. The order is absolutely laconic. There is not even a whisper of the material on the basis of which satisfaction has been recorded by the Commissioner. Accordingly the same cannot be sustained in the eyes of law nor can the same be relied upon for the purpose of defeating the claim of the petitioner. Thus the writ petition is allowed. The order is set aside and a direction is issued to the respondents to refund the amount along with statutory interest expeditiously but not later than two weeks from the date a certified copy of this order is supplied to them. The writ petition is disposed of in above terms.

Summary

Issues:
1. Petitioner's prayer for the release of deposited payment.
2. Interpretation of Section 12(6) of the Punjab General Sales Tax Act, 1948.
3. Validity of the order withholding refund.
4. Entitlement to refund after successful appeal and remand.
5. Compliance with legal requirements for withholding refund.

Issue 1: Petitioner's prayer for the release of deposited payment
The petitioner filed a petition under Article 226 seeking direction for the release of Rs. 5,50,000 deposited as a pre-condition for filing an appeal against an additional demand created by the assessing authority. Despite the appeal being accepted and the matter remanded back, the assessing authority failed to decide on the refund request. The petitioner argued that once the appeal was accepted, they were entitled to a refund as no demand was considered pending.

Issue 2: Interpretation of Section 12(6) of the Punjab General Sales Tax Act, 1948
The order withholding the refund was based on Section 12(6) of the Act, which allows the assessing authority to withhold a refund if it may adversely affect recovery. The authority cited this provision to justify withholding the refund, stating that the refund would impact revenue recovery. However, the court found that the order lacked complete application of mind and did not satisfy the requirements of Section 12(6) as it did not explain how the refund would affect recovery.

Issue 3: Validity of the order withholding refund
The court held that the order withholding the refund was misplaced and lacked proper reasoning as required by Section 12(6). The order did not provide any basis for how the refund would adversely affect recovery, making it legally unsustainable and insufficient to defeat the petitioner's claim.

Issue 4: Entitlement to refund after successful appeal and remand
After analyzing the legal provisions and circumstances, the court concluded that the respondents had no right to retain the deposited amount once the appeal was accepted and remanded back. The court emphasized that the respondents could not justify withholding the refund without demonstrating how it would impact recovery as per the Act.

Issue 5: Compliance with legal requirements for withholding refund
The court highlighted that the power to withhold a refund under Section 12(6) could only be exercised when certain conditions were met, including pending appeals or proceedings and a demonstrated adverse effect on recovery. Since the order lacked essential reasoning and failed to meet the legal requirements, the court set aside the order and directed the respondents to refund the amount along with statutory interest within two weeks.

In conclusion, the court allowed the writ petition, set aside the order withholding the refund, and instructed the respondents to refund the deposited amount to the petitioner expeditiously. The court rejected the state counsel's request for passing a fresh order due to lack of supporting material and the petitioner's rightful request for a decision on the case after remand.