2016 (7) TMI 941 - HC - VAT and Sales Tax

Failure of the Department to make refunds in terms of Section 38 of the DVAT Act - Held that - Not only is the dealer getting the refund far beyond the time period specified under Section 38 of the DVAT Act but the Department is ending up paying far more interest on the refund amount than what is permissible or contemplated in terms of Section 38 of the DVAT Act. There has to be some accountability fixed within the Department for the lapses on part of those processing refund application resulting in such unnecessary payment of interest beyond what is permissible. This is an additional reason why the Court refuses to countenance the so-called fail-safe system devised by the Department for staggering the release of refund of payment once a refund application has been processed, verified and found to be in order. As far as the present petition is concerned, Mr. Narayan, on instructions states that the refund amount due together with interest will be released to the Petitioner through ECS on or before 26th July 2016. On the basis of the said assurance, the petition is disposed of with liberty to the Petitioner to revive it if the refund is not received within the time assured. A copy of this order be delivered through a Special Messenger to the Commissioner, VAT, so that appropriate instructions can be issued to ensure that the processing of refund applications is not delayed and that the time limits specified under Section 38 of the DVAT Act are strictly adhered to

Summary

Issues: Delay in releasing VAT refund amounts, adherence to time limits under DVAT Act, accountability for delays in refund processing

In this judgment by the Delhi High Court, the primary issue addressed is the delay in releasing VAT refund amounts to taxpayers. The Court noted that although orders for refund with interest were issued, the actual disbursement of the refund amount was being delayed by the tax department. The Court highlighted the provisions of Section 38 of the Delhi Value Added Tax Act, 2004 (DVAT Act) which set clear time limits for making refunds. The Court emphasized that there was no provision in the DVAT Act or Rules allowing for the staggering of refund payments. The judgment stressed that once an application is verified and found to be in order, the refund amount should be released promptly within the specified time frame under Section 38 of the DVAT Act. The Court expressed dissatisfaction with the tax department's practice of delaying refund payments beyond the statutory period, leading to unnecessary payment of interest beyond what is permissible under the law.

Another significant issue raised in the judgment was the lack of accountability within the tax department for delays in processing refund applications. The Court highlighted that it had been receiving numerous writ petitions due to the department's failure to make refunds in accordance with the DVAT Act. The judgment pointed out that even after court orders were issued for refund with interest, the actual release of the principal refund amount was further delayed, resulting in additional delays in paying interest. The Court emphasized the importance of fixing accountability within the department to address lapses in processing refund applications, which led to excessive payment of interest. The judgment rejected the department's 'fail-safe' system of staggering refund payments and directed the tax authorities to strictly adhere to the time limits specified under the DVAT Act.

In the specific case before the Court, the respondent assured that the refund amount due with interest would be released to the petitioner through ECS by a specified date. Based on this assurance, the petition was disposed of with the petitioner retaining the liberty to revive it if the refund was not received within the agreed timeframe. Furthermore, the Court directed the Commissioner of VAT to issue revised administrative instructions within ten days to ensure that refund applications are processed without delay and in compliance with the time limits prescribed under Section 38 of the DVAT Act. The judgment aimed to streamline the refund process and ensure timely disbursement of refund amounts to taxpayers while holding the tax department accountable for any delays in the process.