Delhi High Court judgment reaffirms taxpayer's right to interest on delayed tax refunds, even in cases involving legal proceedings, offering a key takeaway for businesses navigating the Delhi Value Added Tax Act, 2004.

In case of case of Mangalam Traders v. Commissioner of Delhi Value Added Tax Department of Trade and Taxes and Anr., Delhi High Court ruled that the petitioner, Mangalam Traders, is entitled to interest on the tax refund issued to them, rejecting the respondents' argument that the delay caused by legal proceedings negates the petitioner's claim to interest.

The case revolved around the petitioner's claim for a tax refund for the 4th quarter of 2016-17 and the 1st quarter of 2017-18 under the Delhi Value Added Tax Act, 2004 (DVAT Act). The respondents, the tax authorities, delayed the refund, leading to a series of legal actions by the petitioner. Although the respondents eventually issued the refund, they denied the petitioner's claim for interest on the delayed amount.
The court, citing various sections of the DVAT Act and relevant case law, ruled that the petitioner was entitled to interest on the refund. The court underscored that the DVAT Act lays down a clear framework for refunds, emphasizing the mandatory nature of timely processing and interest payments. The court noted: “The DVAT Act, 2004 provides strict guidelines for the grant of refund which are mandatory and not discretionary.” The court rejected the respondents' argument, stating that the investigation and legal proceedings should not preclude the petitioner's right to interest, especially since the court's decisions ultimately favored the petitioner. The Court has stated that Section 38 of the DVAT Act mandates the Commissioner to refund any excess tax, penalty, and interest paid by an assessee, after first applying it to any other due amounts. Interest on refunds accrues one month after the return is filed for monthly tax periods, and two months for quarterly periods, unless a notice under Section 58 or 59 delays it, carrying the refund forward as a tax credit.

The Court while relying on Prime Papers & Packers v. Commissioner of VAT & Anr. 2016 SCC OnLine Del 421 observed that “DVAT Act, 2004 provides strict guidelines for the grant of refund which are mandatory and not discretionary”.

While Rules 34 & 57 of the DVAT Rules, 2005 also deal with the grant of refund placing reliance on Flipkart India Private Limited vs. Value Added Tax Officer, W.P.(C) 6430/2022 wherein, the court had ruled that when a refund claim is included in the return, the assessee is not required to file Form DVAT-21. Therefore, the return filed by the assessee should be treated as a refund application, and the respondent must process it. Regarding the grant of interest, the Apex Court has emphasized on the Coordinate Bench of this Court in IJM Corporation Berhad vs. Commissioner of Trade & Taxes 2017 SCC Online Del 11864 wherein, it has been held that under Section 42 of the DVAT Act, interest is payable if the refund is not issued within two months of filing the return.

A combined reading of Sections 38 and 42 indicates that interest is payable to the petitioner from accrual dates. Thereby, holding that there is no evidence that the petitioner caused the delay in processing the refund, and no such claim is made in the orders dated 11.04.2023 and 10.05.2023. Under Section 38 (3) (a) (ii) of the DVAT Act, the refund amounts became due on 01.08.2017 and 29.09.2017. Subsequent proceedings, including the Default Assessment Order of 29.08.2020, were invalidated by the court's order on 13.12.2022, which reinstated the refund claim. Therefore, the petitioner is entitled to interest on the delayed refund under Section 42 (1) of the DVAT Act.

Thus, holding that the petitioner is entitled to interest on the refund, which cannot be denied due to investigations or legal issues resolved in their favor by the High Court. The statutory interest rate is 6% per notification dated 30.11.2005. Thus, the impugned orders are set aside, and the petitioner shall receive simple interest at 6% per annum from the due date, with the refund to be processed within four weeks from this judgment.

Between: Mangalam Traders V. Commissioner Of Delhi Value Added Tax Department Of Trade And Taxes And Anr.
Coram: Hon'ble Mr. Justice Yashwant Varma Hon'ble Mr. Justice Ravinder Dudeja.
DOJ: 31.07.2024