2023 (9) TMI 1429 - HC - VAT and Sales Tax

Adjustment of Demand with the Refund while objections were pending - Refund the amounts claimed along with interest as per the return which was submitted by the petitioner for the first quarter of Financial Year 2016-2017 - deeming fiction as envisaged u/s 74(9) had come into play or not on the failure of the OHA to make the decision against the objections of 2010-11 within a period of 15 days form the service of notice in DVAT-41 - HELD THAT - In the case of FLIPKART INDIA PRIVATE LIMITED VERSUS VALUE ADDED TAX OFFICER, WARD 300 ORS. 2023 (8) TMI 987 - DELHI HIGH COURT it was held that where a refund is claimed and stands embedded in the self-assessment form which is submitted, the respondents are liable to release the amount as claimed within two months from the date when the return is furnished in a situation where the assessee submits return on a quarterly basis. Undisputedly it is the provisions of Section 38(3)(a)(ii) of the Act which apply to the petitioner here. The ambit of Section 38(2) of the Act is explained and it is held that an adjustment against a refund claim could only be made in respect of a tax demand which is due and enforceable . On a conjoint reading of the said provision along with Section 35(2) of the Act, it is concluded that till such time as objections are pending before the OHA, the tax demand cannot be said to have crystalised so as to be adjusted against the refund as claimed. In the facts of the present case it is found that not only have adjustments been made contrary to the mandate of Section 38 of the Act, the demand as raised for FY 2010-2011 and which has been adjusted against the refund as claimed is additionally liable to be set aside on grounds resting on the provisions contained in Section 74 of the Act. The position which therefore emerges is that not only would the Hearing Notice of 24 May 2022 be rendered unsustainable in law, even the adjustments which have been made in the Refund Order of 29 April 2022 would be contrary to the provisions of the Act. It is concluded that since it is manifest that insofar as the demand for FY 2010-2011 is concerned, the objections would be deemed to have been accepted and granted by the Commissioner upon the expiry of 15 days when computed from 04 May 2022. The demand as created in terms of the assessment order as framed would thus clearly not survive - as a consequence of which the Commissioner would stand denuded of the jurisdiction to adjudicate upon those objections once the statutory fiction comes into effect. Section 74(9) in that sense not only accords a closure but commands to hold that the objections preferred by the assessee would be deemed to have been accepted. Turning then to the adjustments which have been made with respect to the demand for the first quarter of FY 2017-2018, the respondents do not dispute that the objections tendered by the petitioner before the OHA remain pending on its board. The demand for the first quarter of FY 2017-2018 is clearly rendered unenforceable and could not have been adjusted against the refund as claimed by the petitioner for the first quarter of FY 2016-2017. This aspect is clearly covered by the decision in Flipkart. The instant writ petitions is allowed and the Hearing Notice dated 24 May 2022 is quashed. The Refund Order of 29 April 2022 shall for reasons aforenoted stand set aside to the extent that it adjusts an amount of Rs. 13,60,14,547/-.

Summary

Issues Involved:
1. Legality of the Hearing Notice dated 24 May 2022.
2. Adjustment of tax demand and refund claims for FY 2010-2011 and FY 2017-2018.
3. Entitlement to refund along with interest.

Summary:

Issue 1: Legality of the Hearing Notice dated 24 May 2022

The petitioner challenged the Hearing Notice dated 24 May 2022, arguing that the Objection Hearing Authority (OHA) lacked jurisdiction to commence hearings on objections filed against the Assessment Order dated 29 March 2017 for FY 2010-2011. The petitioner cited Section 74(9) of the Delhi Value Added Tax Act, 2004, which states that objections would be deemed allowed if not disposed of within 15 days from the service of notice under Section 74(8). The court held that the objections were deemed accepted due to the OHA's failure to decide within the statutory period, rendering the Hearing Notice unsustainable.

Issue 2: Adjustment of Tax Demand and Refund Claims

The petitioner contested the Refund Order dated 29 April 2022, which adjusted Rs. 13,60,14,547/- against the refund claim for the first quarter of FY 2016-2017. The court noted that the tax demand for FY 2010-2011 and the first quarter of FY 2017-2018 could not be enforced as the objections were pending before the OHA. The court referred to Section 35(2) and Section 38(2) of the Act, emphasizing that tax demands under objection cannot be considered "due" or "enforceable" and thus cannot be adjusted against refund claims. This position was supported by the court's previous rulings in Combined Traders and Flipkart India Private Limited cases.

Issue 3: Entitlement to Refund Along with Interest

The court concluded that the adjustments made in the Refund Order of 29 April 2022 were contrary to the provisions of the Act. The demand for FY 2010-2011 was deemed nullified due to the statutory fiction under Section 74(9), and the demand for the first quarter of FY 2017-2018 was unenforceable due to pending objections. Consequently, the court quashed the Hearing Notice dated 24 May 2022 and the Refund Order to the extent of the adjustments made. The petitioner was held entitled to the refund along with interest as per Section 42 of the Act.

Conclusion:

The writ petitions were allowed, and the respondents were directed to compute and disburse the refundable amounts along with interest. The court's order emphasized adherence to statutory provisions and previous legal precedents in determining the enforceability of tax demands and the entitlement to refunds.