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Commissioner of Trade and Taxes vs. FEMC Pratibha Joint Venture

Not available · 2024 INSC 364Decided 1 May 2024
Not available
Justice Pamidighantam Sri Narasimha · Justice Prasanna Bhalachandra Varale

Background

The respondent, a joint venture executing works contracts for the Delhi Metro Rail Corporation, claimed refunds of excess tax credit: about Rs. 17.1 crore for one quarter and Rs. 5.44 crore for another: through returns filed in 2017 and 2019. The tax department did not process these refunds for years, and only in 2022 passed an order adjusting the refund amount against dues raised in default notices issued between 2020 and 2022. The respondent challenged this adjustment before the Delhi High Court, which quashed the adjustment order and directed the refund with interest, holding that the department must follow the statutory refund timeline.

Decision Breakdown

The Supreme Court examined Section 38 of the Delhi VAT Act, which requires refunds to be processed within one or two months of the claim (depending on the tax period), and held that this timeline is mandatory, not merely a trigger for interest calculation. Since the refunds should have been processed by mid-2017 and mid-2019 respectively, but the default notices used to justify withholding the refund were issued only in 2020-2022, after the refund was already overdue, those later dues had not "crystallised" at the time the refund should have been paid and could not be adjusted against it. The Court rejected the department's argument that the timeline exists only to calculate interest, holding that this would let the department indefinitely sit on refunds waiting for a future adjustment opportunity, defeating the purpose of the provision. The appeal was dismissed and the High Court's order upheld.

Lesson Learnt

A statutory refund deadline is not just a technicality for interest calculations: a tax department cannot use dues that arise only after the refund became overdue to justify withholding or adjusting that refund.

Official source (sci.gov.in)View Judgment (PDF)

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