Commissioner of Trade and Taxes Vs. FEMC Pratibha Joint Venture [May 01, 2024]
The Supreme Court’s judgment in Commissioner of Trade and Taxes v. FEMC Pratibha Joint Venture (Civil Appeal No. 3940 of 2024), delivered on May 1, 2024, addressed critical issues concerning the mandatory timelines for tax refunds and the adjustment of refunds against outstanding dues under the Delhi Value Added Tax Act, 2004.
Background and Facts
FEMC Pratibha Joint Venture, a works contractor for the Delhi Metro Rail Corporation, filed returns for the 4th quarter of 2015–16 and the 1st quarter of 2017–18, claiming refunds of excess tax credit totaling approximately Rs. 17.10 crore and Rs. 5.44 crore, respectively, along with applicable interest under Section 42 of the Act. Despite repeated claims, the tax authorities did not process the refunds until 2022. Instead, the Value Added Tax Officer issued an adjustment order in November 2022, seeking to set off the refunds against default notices issued in 2020, 2021, and 2022 for unrelated dues.
Legal Issues
The Supreme Court considered two principal issues:
Whether the timeline for refund prescribed under Section 38(3) of the Delhi Value Added Tax Act, 2004, must be mandatorily followed.
Whether the tax authorities could adjust the refund claimed by the assessee against default notices issued subsequently, and not at the time the refund was due.
Supreme Court’s Reasoning and Decision
The Court emphasized that the language of Section 38(3) is mandatory, requiring refunds to be processed within one or two months of the return or refund claim, depending on the tax period. The provision’s objective is to ensure timely refunds, preventing undue delay and hardship to taxpayers. The Court noted that adjustment under Section 38(2) is permitted only against amounts “due under the Act” at the time of processing the refund, not against subsequent or unrelated demands.
The Court found that the adjustment order was invalid because the default notices were issued long after the refund claim was made and were not “due” at the time the refund was required to be processed. The Court upheld the Delhi High Court’s decision to quash the adjustment order and directed the tax authorities to refund the claimed amounts along with interest under Section 42 until the date of realization.
Conclusion
The Supreme Court dismissed the appeal, affirming the High Court’s judgment. It reiterated that tax authorities must adhere strictly to statutory timelines for processing refunds and that adjustment of refunds is permissible only against dues existing at the time of processing, not against subsequent demands.
Citation
Commissioner of Trade and Taxes v. FEMC Pratibha Joint Venture, (2024) 6 S.C.R. 339, Supreme Court of India, decided on May 01, 2024.
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