2018 (4) TMI 1669 - HC - VAT and Sales Tax

Attachment of Bank accounts - Section 54 of the Gujarat Sales Tax Act - interest of delayed refund - Held that - Division Bench in case of Doshi Printing Press 2015 (3) TMI 211 - GUJARAT HIGH COURT has also in the latter portion of the decision discussed the compensatory nature of interest to be paid and the Department is in appeal before the Supreme Court. However, as far as first portion of the judgment; reproduced hereinabove, we have no hesitation in respectful concurrence. When the statutory appellate authority allows the appeal of an assessee, it only corrects the order of assessment. In other words, he gives legal shape to the contours of the matter, which in any case the Assessing Officer should have adopted. In terms of Section 54 1 of the Gujarat Sales Tax Act, therefore, in such a situation, it cannot be stated that the refund claim of the assessee arises out of an order other than an order of assessment. There is a mandate for granting interest @ 6% per annum from the date of closure of the accounting year, or from the date of payment of the amount by the Dealer till the date of payment of amount of refund, if such refund becomes due and payable by virtue of an order of assessment. This section therefore also recognizes the right of a dealer to receive refund with interest at the prescribed rate from the date of payment or from the date of closure of accounting year; whichever is later, till the actual refund is made - Undoubtedly, therefore, the petitioner was required to be refunded the recovered amount, pursuant to the order of assessment from the date of its refund till the actual payment - whether applying Gujarat Sales Tax Act or Gujarat Value Added Tax Act provisions. With the repeal of the Gujarat Sales Tax Act, 1969 and its substitution by the Gujarat Value Added Tax Act, 2003 the petitioner would be covered by the provisions of the VAT Act concerning the assessment, recovery and refund of the tax; including the prescribed rate of interest for refund. The amounts were recovered from the petitioners only in the month of February 2010, that is long after the VAT Act was brought in force. The petitioner cannot seek interest on the refund at the rate prescribed under the repealed Gujarat Sales Tax Act merely because the amount involved was in relation to a period when the Gujarat Sales Tax Act was in force. The petitioner would be entitled to interest from the date amounts in question were recovered till the actual payment was made with simple interest @ 6% per annum. Deficient interest would be paid latest by 30th May 2018 - petition disposed off.

Summary

Issues Involved:
1. Entitlement to interest on the refund from the date of deposit with the Department until actual payment.
2. Applicable rate of interest for the refund—whether it should be 9% per annum or 6% per annum.

Detailed Analysis:

Entitlement to Interest on Refund:
The petitioner, a private limited company and a registered Dealer under the Central Sales Tax Act, 1969, was subject to an audit assessment for the Financial Year 2005-2006, resulting in a tax demand of ?3,39,83,894/=. The petitioner appealed against this assessment, but the Department recovered the entire amount through the attachment of the petitioner’s bank accounts before the appeal was decided. The Deputy Commissioner of Commercial Tax later allowed the petitioner’s appeal, making the amount refundable. The petitioner requested the refund with interest, but the Department delayed the payment, eventually issuing a cheque which was credited after some errors were corrected.

The petitioner argued that interest should be granted from the date of deposit with the Department until actual payment, citing Section 54 of the Gujarat Sales Tax Act, which prescribes interest from the date of the assessment order. The Department, however, limited the interest to the period after the Deputy Commissioner allowed the appeal. The Court referred to the Division Bench's judgment in State of Gujarat v. Doshi Printing Press, which held that the doctrine of merger applies, and the assessment order merges with the appellate order. Therefore, the refund claim arises from the order of assessment, and interest should be calculated from the date of recovery by the Department until actual payment.

Applicable Rate of Interest:
The petitioner contended that the interest should be calculated at 9% per annum as per the Gujarat Sales Tax Act, whereas the Department calculated it at 6% per annum under the Gujarat Value Added Tax Act. The Court examined Section 54 of the Gujarat Sales Tax Act and Section 38 of the Gujarat Value Added Tax Act. While Section 54 prescribes a 9% interest rate, Section 38 prescribes a 6% interest rate for refunds arising from an assessment order.

The Court noted that with the repeal of the Gujarat Sales Tax Act and its substitution by the Gujarat Value Added Tax Act, the petitioner would be covered by the provisions of the VAT Act, including the prescribed rate of interest for refunds. Since the amounts were recovered after the VAT Act came into force, the petitioner cannot claim the higher interest rate under the repealed Sales Tax Act. Thus, the applicable rate of interest is 6% per annum.

Final Judgment:
The Court held that the petitioner is entitled to interest from the date the amounts were recovered until the actual payment at a simple interest rate of 6% per annum. The deficient interest should be paid by 30th May 2018. The petitions were disposed of with these directions.