2010 (11) TMI 874 - HC - VAT and Sales Tax

Whether there is a transfer of property in the refrigerated vehicles of the petitioner to another concern, as defined in article 366(29A)(d)) of the Constitution of India and section 5E(a) of the Act? Held that - The argument that the delayed refund would attract interest at 12 per cent per annum is no answer if one appreciates the fact that no businessman or merchant would like the money to be locked up just for the sake of 12 per cent return on the refund, which might come long after the requirement for money is over. Keeping this in view, we direct the Government to pass appropriate orders in all pending refund matters within a period of six weeks. In the result, for the above reasons, the writ petition is allowed as prayed for. The respondents shall consider refunding the amount of ₹ 2,87,14,114 (rupees two crores eighty seven lakhs fourteen thousand one hundred and fourteen only) within a period of four weeks from the date of receipt of a copy of this order

Issues Involved:
1. Authority of the State and its agents in refunding VAT.
2. Procedures for claiming VAT refund under relevant sections and rules.
3. Power to withhold VAT refunds under Section 40(2) of the VAT Act.
4. Compliance with constitutional provisions regarding tax refunds.

Detailed Analysis:

1. Authority of the State and its Agents in Refunding VAT:
The court examined the recurring issue of the State's authority in VAT refunds. The petitioner, a VAT dealer, sought a refund for the 2005-06 assessment year. The initial refund claim was reduced through multiple inquiries, and eventually, the Joint Commissioner disallowed the refund. The petitioner appealed to the Sales Tax Appellate Tribunal, which allowed the appeal. Despite this, the refund was withheld pending a tax revision case, leading to the current writ petition.

2. Procedures for Claiming VAT Refund:
Sections 15, 38, 39, and 40 of the VAT Act, along with Rule 35 and Rule 59 of the VAT Rules, outline the procedures for VAT refunds. Section 15 grants the Government discretionary power to refund tax in public interest, while Sections 38 and 39 provide a right to VAT dealers to claim refunds. Rule 59 specifies the authorities responsible for processing refunds based on the amount involved. The court highlighted the distinction between discretionary government refunds and the enforceable rights of dealers under these sections.

3. Power to Withhold VAT Refunds under Section 40(2) of the VAT Act:
Section 40(2) allows the prescribed authority to withhold refunds if it is likely to adversely affect revenue, with prior approval from the Deputy Commissioner. The court noted that mere pendency of an appeal is not sufficient grounds for withholding refunds. The authority must exercise discretion based on relevant facts and circumstances. The court referenced previous judgments, emphasizing that withholding refunds without valid reasons violates constitutional principles.

4. Compliance with Constitutional Provisions Regarding Tax Refunds:
The court reiterated that any withholding of refunds beyond the determined tax liability violates Article 265 of the Constitution, which mandates that no tax shall be levied or collected except by authority of law. The court criticized the State's practice of delaying refunds and emphasized the need for timely approvals to comply with constitutional requirements. The court directed the State to pass orders in all pending refund matters within six weeks to ensure fairness and compliance with the law.

Conclusion:
The writ petition was allowed, and the respondents were directed to refund the amount of Rs. 2,87,14,114 within four weeks. The judgment underscores the importance of adhering to statutory and constitutional provisions in tax administration and the necessity for the State to act fairly in processing tax refunds.

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