2017 (9) TMI 1539 - HC - VAT and Sales Tax

Recovery of amount refunded and interest paid on the refund amount - section 40(1) of the VAT Act - the petitioner had purchased goods from dealers who themselves were eligible under the said scheme - breach of condition no.19 of the notification dated 11.10.2013 - the case of the petitioner was that the condition no.19 would not disentitle the petitioner from seeking refund on such purchases - Section 37 of the VAT Act. Held that - Under subsection (1) of section 37 thus, it is open for a registered dealer to apply for a provisional refund pending assessment. Under subsection (2), it is open for the Commissioner by imposing necessary condition to grant such provisional refund. Such provisional refund can be disturbed only in terms of subsection (4) of section 37 if on assessment, the provisional refund granted is found to be in excess. In order to disturb the provisional refund already granted what is therefore necessary is to assess the return of the petitioner - A provisional refund once granted under subsection (4) of section 37 can be disturbed and recovery can be demanded only on final assessment and not otherwise. In can be appreciated that during the assessment, many issues may come up and ultimate tax liability of an assessee can be judged only on final assessment. There cannot be a stand alone assessment of a refund claim in isolation, keeping the rest of the return unassessed. In the present case, no such assessment is framed. In that view of the matter, impugned orders dated 20.07.2017 and 25.07.2017 in both the petitions are set aside - petition allowed - decided in favor of petitioner.

Summary

Issues Involved:
1. Interpretation of Condition No.19 of the Notification dated 11.10.2013.
2. Opportunity of hearing before ordering the return of the refund.
3. Validity of disturbing a provisional refund under Section 37 of the VAT Act.

Issue-wise Detailed Analysis:

1. Interpretation of Condition No.19 of the Notification dated 11.10.2013:
The petitioner challenged the order requiring the return of the refund, arguing that Condition No.19 of the notification did not preclude an eligible unit from receiving a refund on purchases made from another eligible unit. The court examined the notification, which authorized the Commissioner to grant refunds to eligible units for tax separately charged by registered dealers. The notification's preamble, along with paragraphs 12 and 13, emphasized that refunds were limited to the amount of tax actually paid to the government treasury. Paragraph 19, specifically, stated that the refund amount should not exceed the tax paid into the government treasury for purchases from dealers not availing tax incentives. The court interpreted that the entire scheme aimed to ensure refunds were only for taxes actually paid to the government, thus rejecting the petitioner's interpretation.

2. Opportunity of Hearing Before Ordering the Return of the Refund:
The petitioner contended that no hearing was provided before the order to return the refund was issued. The court noted that a notice dated 20.03.2017 was issued to the petitioner, seeking verification of compliance with Condition No.19. Although not titled as a show cause notice, it served the purpose of informing the petitioner about the verification process. The petitioner responded with a detailed representation, indicating an understanding of the notice's intent. Therefore, the court found no breach of the principles of natural justice as the petitioner was given an opportunity to present its case.

3. Validity of Disturbing a Provisional Refund Under Section 37 of the VAT Act:
The petitioner argued that once a provisional refund was granted, it could only be disturbed upon final assessment under subsection (4) of Section 37 of the VAT Act. The court examined Section 37, which allows for provisional refunds pending assessment, subject to conditions imposed by the Commissioner. Subsection (4) specifies that any excess refund identified during the final assessment can be recovered. The court emphasized that disturbing a provisional refund requires a final assessment of the petitioner's return, not just an isolated assessment of the refund claim. Since no final assessment was conducted in this case, the court set aside the impugned orders, allowing the authorities to proceed with the final assessment and recover any excess refund if found.

Conclusion:
The court concluded that the interpretation of Condition No.19 by the authorities was correct, as it aimed to limit refunds to taxes actually paid to the government. The petitioner was provided with an opportunity to be heard, satisfying the principles of natural justice. However, the provisional refund could only be disturbed through a final assessment, which had not been conducted. Thus, the impugned orders were set aside, and the authorities were directed to proceed with the final assessment in accordance with the law. The petitions were disposed of accordingly.