2024 (5) TMI 1325 - HC - VAT and Sales Tax

Denial of refund of excess tax paid by contractors - Haryana Alternative Tax Compliance Scheme for Contractors, 2016 - Constitutional Validity of Clause 4(2) of the scheme - HELD THAT - The scheme has been made applicable to all contractors whether they have opted or not opted for the lump sum scheme under Rule 49 of the VAT Rules. Thus, those who had earlier opted for lump sum scheme under Rule 49 of the VAT Rules and were paying @ 4% of the aggregate amount, would be placed in a disadvantageous position vis- -vis those who did not even deposit the amount earlier and had not opted under Rule 49 of the VAT Rules. It is also noticed that the State has modified the rate of composition @ 1% with retrospective effect for all. In CORPORATION BANK VERSUS SARASWATI ABHARANSALA AND ANOTHER 2008 (11) TMI 387 - SUPREME COURT Hon ble the Supreme Court has held ' If the substantive provision of a statute provides for refund, the State ordinarily by a subordinate legislation could not have laid down that the tax paid even by mistake would not be refunded. If a tax has been paid in excess of the tax specified, save and except the cases involving the principle of 'unjust enrichment', excess tax realized must be refunded. The State, furthermore is bound to act reasonably having regard to the equality clause contained in Article 14 of the Constitution of India.' Thus, from the reading of the aforesaid judgment, it could be concluded that the conditions laid down under Clause (4) of the 2016 Scheme seek to create unjust enrichment in favour of the Revenue and unjustifiable clause having no nexus. It seeks to create a distinction and also benefits those contractors who had not been honestly paying their taxes which is disadvantageous to those contractors who had been regularly paying @ 4% tax in terms of Rule 49 of the VAT Rules. The orders rejecting the claim of refund dated 20.01.2017 and supplementary order dated 27.01.2017 impugned in all the four writ petitions denying the refund of the excess tax amount paid earlier by them is quashed and set aside and it is held that the petitioners are entitled for the refund of the said amount. They would also be entitled to receive interest as per rules on the said refund. The exercise of payment of refund shall be done within a period of four weeks henceforth, failing which further interest @ 9% shall be payable on the refund amount in addition to the interest required to be paid to them. Petition allowed.

Summary

Issues Involved:
1. Applicability of the Haryana Alternative Tax Compliance Scheme for Contractors, 2016.
2. Refund of excess tax paid by contractors.
3. Violation of Article 265 and Article 14 of the Constitution of India.
4. Interpretation and application of Clause 4(2) of the 2016 Scheme.

Detailed Analysis:

Issue 1: Applicability of the Haryana Alternative Tax Compliance Scheme for Contractors, 2016

The Haryana Alternative Tax Compliance Scheme for Contractors, 2016 (the "Scheme") was introduced by the Government of Haryana to expedite the settlement of tax, interest, penalty, or other dues under the Haryana Value Added Tax Act, 2003. As per Clause 3(1) and (2) of the Scheme, it applies to all contractors, irrespective of whether they have opted for the lump sum scheme under Rule 49 of the VAT Rules. The Scheme also applies regardless of the status of assessments, whether pending or finalized.

Issue 2: Refund of Excess Tax Paid by Contractors

The petitioners, who were registered under Rule 49 of the VAT Rules, had been paying tax at 4% of their total turnover. They applied under the Scheme, which allowed for a one-time settlement at 1% of the aggregate amount received or receivable, plus a 5% surcharge. Despite this, the respondents denied the refund of the excess amounts paid by the petitioners, citing Clause 4(2) of the Scheme, which stated that any excess amount left after adjustment shall neither be refunded nor allowed to be adjusted against any other tax liability upon the expiry of the Scheme.

Issue 3: Violation of Article 265 and Article 14 of the Constitution of India

The petitioners argued that the retention of excess tax paid violates Article 265 of the Constitution, which mandates that no tax shall be levied or collected except by authority of law. They also contended that this retention violates Article 14, as it creates an unjust enrichment in favor of the Revenue and discriminates against contractors who had been paying their taxes honestly.

Issue 4: Interpretation and Application of Clause 4(2) of the 2016 Scheme

The court found that Clause 4(2) of the Scheme, which allowed the State to retain excess amounts paid, was in violation of Article 265 of the Constitution. The court relied on the Supreme Court's judgment in Corporation Bank vs. Saraswati Abharansala, which held that excess tax realized must be refunded, except in cases involving unjust enrichment. The court concluded that Clause 4(2) created an unjust enrichment in favor of the Revenue and was discriminatory, as it placed contractors who had been paying taxes regularly at a disadvantage compared to those who had not.

Conclusion:

The court held that Clause 4(2) of the 2016 Scheme, which allowed the State to retain excess tax amounts, was ultra vires to Article 265 of the Constitution and contrary to the law as expressed by the Supreme Court. The orders rejecting the claim of refund were quashed, and the petitioners were entitled to a refund of the excess amounts paid, along with interest as per rules. The exercise of payment of the refund was to be completed within four weeks, failing which additional interest at 9% would be payable. The writ petitions were allowed, and all pending applications were disposed of without costs.