Delhi HC allows interest on DVAT refund from the date refund become due

Tarapore & Co Vs Commissioner of Trade & Taxes & Anr (Delhi High Court)

Tarapore & Co, the petitioner, sought a direction from the Delhi High Court to the respondents for the refund of Rs. 37,99,453 along with 6% annual interest from the date the refund was due, according to Section 42(1) of the Delhi Value Added Tax (DVAT) Act, 2004. A refund order had been issued on 13th July 2022 for the period of March 2006, entitling the petitioner to the refund but without any interest.

Legal Framework

Section 38 (Refunds):

• Sub-section (3)(a)(i): Stipulates that the refund must be paid within one month from the date of filing the return or claim if the tax period is one month.
• Sub-section (3)(a)(ii): If the tax period is a quarter, the refund must be made within two months of filing the return or claim.

Section 42 (Interest):

• Sub-section (1): A person entitled to a refund is also entitled to simple interest at a rate notified by the government, calculated from the date the refund was due or the date the overpayment was made, whichever is later, until the refund is given.
• Explanation: If the delay is attributable to the person claiming the refund, this period is excluded from the interest calculation.

Petitioner’s Arguments

1. Entitlement to Interest: The petitioner argued that under Section 42(1) of the DVAT Act, they were entitled to interest on the delayed refund. The period for processing the refund, as per Section 38(3)(a)(i), should have ended on 25th January 2007, and interest should accrue from 26th January 2007.
2. Unexplained Delay: The respondents did not take necessary steps to audit or inquire into the business affairs of the petitioner during the refund processing, leading to an unexplainable delay.
3. Interest Rate: The applicable interest rate was 6% per annum, as notified by the government.

Respondents’ Arguments

1. Substantial Delay: The respondents contended that the petitioner approached the court after a substantial delay of nearly 13 years, thus forfeiting the right to claim interest for this period.
2. Refund Claims: According to the DVAT portal, the petitioner did not initially claim any refund. Moreover, the petitioner needed to provide certified copies of returns and other necessary documents for verification of the refund claim.
3. Verification Requirements: The claim was subject to verification of all Tax Deducted at Source (TDS) and Input Tax Credit (ITC) that the petitioner was relying on.

Court’s Analysis

Limitation Act Reference:

• Article 25 of the Limitation Act states that the period of limitation for money payable for interest upon money due is three years from when the interest becomes due.

Entitlement to Interest:

• The court decided that the petitioner was entitled to interest for three years immediately preceding the filing of the petition until the date the refund was disbursed.
• The interest rate applicable would be 6% per annum, as per the relevant government notification dated 30th November 2005.

Conclusion

The Delhi High Court disposed of the petition by directing the respondents to:

• Pay interest at the rate of 6% per annum on Rs. 37,99,453 for the period of three years preceding the filing of the petition until the date of the refund.
• Complete this payment within four weeks from the date of the court’s order.

This judgment reaffirms the right of taxpayers to receive interest on delayed refunds and emphasizes the accountability of tax authorities to process refunds within stipulated timeframes.