By TIOL News Service

NEW DELHI, AUG 09, 2016: THE Petitioner filed its return for the period of month of January 2008 on 28th February 2008, claiming refund of Rs.1,02,08,179/-.

In terms of Section 38(3)(a)(i) of the DVAT Act, the date on which the refund was due to the Petitioner was 27th March 2008.

In terms of Section 38 (4) of the DVAT Act, it was open to the Commissioner, if he sought to make inquiries while processing the refund, to go in for an audit of the business affairs of the Petitioner under Section 58 of the DVAT Act or seek additional information under Section 59 of the DVAT Act. In the present case, none of these steps were taken by the Respondent/Department of Trade & Taxes (DT&T).

While no action was taken on the refund claim, on 30th December 2010, an 'Adjustment Order' was passed by the Value Added Tax Officer (VATO) adjusting the amount claimed as refund against outstanding demands on the ground that the same were neither paid nor stayed by any higher authority/court and, therefore, recoverable.

The High Court after considering the submissions observed -

++ What is noticeable from the above order is that it refers to the refusal to grant refund because of the "following reasons" but there are no reasons stated below the said line. It again states that the refund claim "has been adjusted completely against the following outstanding demand" and again there is blank below this line.

++ In short, the above order makes no sense. The most crucial parts of the so called adjustment order are completely missing. As it transpired, on that date i.e. 30th December 2010 there was no outstanding demand that had been determined for the aforementioned period for which the refund was claimed. Yet the VATO signed the order mechanically without application of mind.

Incidentally, after the adjustment order was passed, the VATO passed notices of default assessment of tax and interest as well as penalty under Section 32 and section 33 of the DVAT Act and under Section 9 (2) of the Central Sales Tax Act, 1956 totalling an amount of Rs. 1,02,08,179/-.

Aggrieved by the adjustment order and rejection of refund claim, the Petitioner filed objections u/s 74 of the DVAT Act before the Special Commissioner i.e. the Objection Hearing Authority (OHA) and an order came to be passed on 25.06.2013 inter alia directing the petitioner to appear before the AA/NA on 15/07/2013 and the matter be decided within thirty days.

No order was passed by the AO. The petitioner claimed that they appeared before the AO but according to the Respondent DT & T, petitioner never appeared.

On this development, the High Court observed -

+ There could be, therefore, no manner of doubt that the orders which were the subject matters of the proceedings before the OHA did not survive after the order of the OHA. The AO was required to pass an order afresh. It is for this reason that the Assessee was directed to appear before the AA on 15th July 2013.

+ The word 'may' (in the last line of the order of OHA) was not to give an option to the AO whether or not to pass an order but the option if at all about the time period within which the order was to be passed. However, here the AO appears to have forgotten about the proceedings altogether and not take any action whatsoever. If as contended by the Respondent, the Petitioner failed to appear before the AO on 15th July 2013, the AO was not absolved from passing a fresh order in respect of the refund claimed of the Petitioner. This was his bounden statutory duty.

+ With the notices of default assessment creating the demand by notices dated 5th, 6th and 7th January 2011 for the period 2007-2008 ceasing to exist by virtue of the order dated 25th June 2013 and with no fresh assessment order being passed, there was no legal impediment any longer in granting refund to the Petitioner in respect of the claim made along with its return filed for the month of January 2008. The AO, obviously did not realise the implications of his failure to pass fresh assessment order in terms of the order dated 25th June 2013 of the OHA.

+ In the present case, in respect of the assessment for the period 2007-2008, even if the DT&T wished to revisit them, the limitation under Section 34 of the DVAT Act would apply. There are two periods of limitation. One is the period of four years from the end of year comprising one or more time period for which a person furnishes his return and the other is in terms of proviso of Section 34(1) of the Act where there is an extended period of six years and where the Commissioner has reason to believe that the tax was not paid "by reason of concealment, omission or failure to disclose fully material particulars". In the present case, in respect of the month of January 2008 the time within which it could have been reopened has long been crossed. The DT&T cannot, therefore, possibly seek to reopen the assessment for 2007-08.

+ The net result is that the refund for the month of January 2008, which the Petitioner has claimed refund along with the return became due to the Petitioner from the expiry of one month thereafter in terms of Section 38(3)(a) (i) of the DVAT Act. The interest thereon till the date of payment also falls due in terms of Section 42 of the DVAT Act.

The High Court, therefore, directed the Respondent Department of Trade &Taxes to pay to the Petitioner the aforementioned refund amount with the interest thereon up to the date of payment on or before 5th September 2016.

Strictures by High Court:

++ This is yet another instance of orders being passed by the officers of the DT&T with total non-application of mind and in ignorance of the legal position. The Court would only like to reiterate that there is an urgent need for an orientation being imparted to the officers of the DT&T in the law and the decisions of the Court explaining the law.

++ Due to the careless action of the VATO in the present matter, who issued the issued the 'adjustment order' dated 30th December 2010 unmindful of the law, an interest burden of nearly Rs. 56 lakhs is now placed on the exchequer.

++ A question then arises as to who should be made responsible for this and whether any action on the disciplinary side is not called for? Consequently, the Commissioner, VAT is directed to seek an explanation from the VATO who issued the above 'adjustment order' and to pass appropriate orders on the disciplinary side as he deems fit not later than four weeks from today.

In fine, the writ petition was allowed and the application was disposed of with costs of Rs.10,000/- which was to be paid by the Respondent to the Sales Tax Bar Association.

(See 2016-TIOL-1676-HC-DEL-VAT)