2018 (4) TMI 1601 - HC - VAT and Sales Tax

Time limitation - delay and latches in the action of the respondents in initiating and completing the process of recovery - refund of CST - Held that - For more than six years, there was no communication from the Department. Only on 30.10.2013, the first communication, in the form of a request to the petitioner to return the amount, was made. There was no clarity in such communication why the petitioner should refund such amount. The petitioner made a representation opposing any such payment for return of the CST refund. Several years thereafter, in February 2017, the showcause Notice came to be issued, which is the first formal step initiated by the competent authority to put the adjudicatory mechanism into motion. Thus, more than nine years after refund was paid, the authority issued the showcause Notice calling upon the petitioner why the same should not be recovered with penalty. Only on the ground of delay and latches, therefore, we would not permit such an action. Looking to the amount involved and the extent of delay, we have decided the issue only on this ground keeping the main issue of validity of the stand of the Department open - Impugned order set aside - petition disposed off.

Summary

Issues:
Challenge to order directing deposit in Government account and penalty imposition.

Analysis:
The petitioner, a Company registered under the Companies Act engaged in manufacturing and exporting goods, challenged an order directing a deposit of a sum in the Government account and imposing a penalty. The petitioner's unit is in the Kandla Free Trade Zone and registered as an Export Oriented Unit (EOU). The petitioner purchased goods from units in the Domestic Tariff Area (DTA) and Export Oriented Units. The Import Export policy granted benefits to the petitioner, including a refund of Central Salestax (CST) on goods purchased. The policy also allowed the petitioner to sell a percentage of production in the domestic market subject to approval.

In a similar case, the High Court previously held that CST refund benefits would be available to an EOU even if production was from a DTA unit. The Court also emphasized that after processing and paying the refund, recovery could not be made after an unreasonably long period without any fault on the petitioner's part. In the present case, the petitioner received a CST refund for specific quarters but was later asked to return the amount due to goods sold in the local market. The petitioner opposed this request, citing compliance with export obligations and minimal sales in the local market.

The competent authority issued a notice calling for the refund amount to be recovered with a penalty after several years. The Court focused on the delay and inaction by the authorities, noting that more than nine years had passed since the refund was paid before the show cause notice was issued. Due to the significant delay and lack of clarity in the communication regarding the refund, the Court set aside the impugned order based on delay and latches, leaving the main issue of the Department's stand validity open for future consideration.