2016 (10) TMI 941 - HC - VAT and Sales Tax

Withholding of Refund claim, which is already crystallised - whether the refund amount can be adjusted against the recoverable amount from the petitioner? - section 39 of the Gujarat Value Added Tax Act, 2003 - Power to withhold refund in certain cases - Held that - A perusal of section 39(1) would show that refund payable to a dealer can be withheld if the order giving rise to such refund is subject matter of appeal or further proceeding or an other proceeding under the Act is pending and the Commissioner is of the opinion that grant of refund is likely to adversely affect the Revenue. It is true, that in the present case, for other period, the assessing authority has passed orders against the petitioners raising tax demands. However, such orders are challenged by the petitioner in appeal in which upon depositing ₹ 10 lacs, rest of the tax demand is stayed. When these tax demands are thus stayed, allowing the Commissioner to withhold the refund for such tax demand would frustrate the stay order. In effect the department would be recovering the amount in respect of which stay has been granted by the appellate authority against the recovery. Such indirect recovery in the guise of withholding of refund cannot be permitted. Power under section 39(1) of the Act would not empower the authority to frustrate stay order granted by the competent authority or Court. There appears to be a clear non application of mind on part of the authority just to withheld the amount which is lawfully payable to the petitioner. One may notice that this amount which has been determined by the authority is by way of provisional refund amount and the same is determined to the extent of 90% of the original amount which was to be payable and therefore, while passing the order and sanctioning the amount of refund, sufficiently the interest of revenue has been protected and, therefore, we are of the opinion that since prima facie requirements to invoke the power to withhold the amount of refund are not available on record, such action is not possible to be confirmed and, therefore, the stand taken by the counsel for the Revenue is not possible to be accepted. The respondent authority directed to release the amount of refund which has already been sanctioned in favour of the petitioners within a period of eight weeks - petition disposed off - decided in favor of petitioner.

Summary

Issues Involved:
1. Legality of withholding a sanctioned refund.
2. Compliance with statutory provisions under the Gujarat Value Added Tax Act, 2003.
3. Impact of pending appeals on refund withholding.
4. Application of Section 39 of the Gujarat Value Added Tax Act.
5. Justification for withholding refund under Rule 39 of the Gujarat Value Added Tax Rules, 2006.

Detailed Analysis:

1. Legality of Withholding a Sanctioned Refund:
The petitioner challenged an order dated 5.7.2016, where despite the crystallization of a refund amount, the refund was withheld by the respondent authority to adjust against possible dues. The court examined whether the respondent authority had the legal right to withhold the refund once it had been sanctioned. The petitioner argued that there were no outstanding dues and that withholding the refund was unjust and arbitrary, lacking any legal provision under the Central Sales Tax Act or the Gujarat Value Added Tax Act.

2. Compliance with Statutory Provisions under the Gujarat Value Added Tax Act, 2003:
The court scrutinized Section 39 of the Gujarat Value Added Tax Act, 2003, which allows withholding refunds under certain conditions. The petitioner contended that these conditions were not met, as there were no pending proceedings or appeals that would justify withholding the refund. The court noted that the interim orders from the appellate authority, which stayed the remaining tax demand upon the petitioner's deposit of ?10 lacs, indicated that the liability was not finalized.

3. Impact of Pending Appeals on Refund Withholding:
The court observed that substantive appeals against the assessment order were pending, and interim orders granted by the appellate authority had stayed the tax demand. Therefore, the court concluded that the liability was not crystallized, and withholding the refund would frustrate the stay order and indirectly recover the stayed amount, which is impermissible.

4. Application of Section 39 of the Gujarat Value Added Tax Act:
The court referred to the decision in Ganesh Sales Corporation and ors. v. State of Gujarat and ors., which clarified that Section 39 could only be invoked if specific conditions were met. These include the refund order being subject to appeal or further proceedings, and the Commissioner forming an opinion that granting the refund would adversely affect the revenue. The court found that these conditions were not satisfied in the present case, as there was no pending appeal or proceeding related to the refund order, and no opinion was formed by the Commissioner.

5. Justification for Withholding Refund under Rule 39 of the Gujarat Value Added Tax Rules, 2006:
The respondent argued that Rule 39 allowed for the adjustment of the refund amount before payment. However, the court held that Rule 39 is subject to the substantive provisions of Section 39, which were not applicable in this case due to the absence of the necessary conditions. Consequently, the court found the respondent's action to be unjustified.

Conclusion:
The court quashed the impugned order dated 5.7.2016, directing the respondent authority to release the sanctioned refund amount within eight weeks. The court emphasized that the statutory conditions for withholding the refund were not met, and the action was not sustainable in law. Both petitions were allowed and disposed of with these directions.