Directorate General of GST Intelligence (DGGI) & Anr. Vs SEW Infrastructure Limited & Anr. (Supreme Court of India)
The case involves a dispute regarding the legality of adjusting income tax refunds against service tax dues and the obligations of authorities under the Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019 (SVLDRS).
Before the Supreme Court of India, the Special Leave Petition filed by the revenue was dismissed on two grounds: (i) delay of 544 days in filing the petition, and (ii) the matter having become infructuous as the impugned High Court order had already been complied with. The Court declined to condone the delay and dismissed the petition accordingly.
The underlying dispute was adjudicated by the Telangana High Court. The petitioner, engaged in infrastructure development, had filed its income tax return for Assessment Year 2018–19 and was found entitled to a refund of ₹34.65 crore (after adjustment). Simultaneously, the petitioner had service tax liabilities amounting to approximately ₹59.20 crore for the period October 2013 to June 2017.
A garnishee notice dated 22.03.2019 was issued by the GST authorities to the Income Tax Department directing it to remit the petitioner’s refund towards service tax dues. Meanwhile, the SVLDRS was introduced in 2019 as a one-time scheme for settlement of legacy disputes. The petitioner applied under the scheme, and its liability was reduced to ₹18.91 crore as per Form SVLDRS-3 dated 28.01.2020, payable by 30.06.2020.
The petitioner contended that it intended to discharge this reduced liability using the income tax refund. However, due to the subsisting garnishee notice, the Income Tax Department did not release the refund. Despite repeated representations seeking modification of the garnishee notice to reflect the reduced liability under SVLDRS, the authorities failed to act. Consequently, the petitioner was unable to make payment within the prescribed time.
Subsequently, in November 2020, a second garnishee notice was issued increasing the demand to ₹76.97 crore. The Income Tax Department then transferred ₹30.92 crore from the refund due to the petitioner to the GST authorities.
The High Court examined whether such actions were lawful. It held that SVLDRS is a beneficial scheme intended to resolve disputes and must be interpreted liberally. Authorities were required to consider the reduced liability under the scheme and modify or withdraw the earlier garnishee notice accordingly. Their failure to do so was found arbitrary, unreasonable, and violative of Articles 14 and 300A of the Constitution.
On the issue of set-off, the Court analyzed Section 245 of the Income Tax Act, 1961, which permits adjustment of refunds only against dues under that Act. It held that income tax refunds cannot be set off against service tax liabilities under the Finance Act, 1994. Therefore, the action of the Income Tax Department in transferring ₹30.92 crore to the GST authorities was contrary to law.
The Court rejected the argument that the Income Tax Department could be treated as an “assessee in default” under the Finance Act, 1994, noting that it is not an assessee liable to pay service tax. It also held that a prior letter by the petitioner consenting to adjustment cannot override statutory provisions, as there is no estoppel against a statute.
The High Court further observed that the authorities’ conduct prevented the petitioner from availing the benefits of the SVLDRS scheme. It emphasized that a party cannot take advantage of its own wrong. The failure to release the refund in time and the subsequent appropriation of funds were held to be non-bona fide.
Additionally, the Court noted that the Income Tax Department failed to pay statutory interest on delayed refunds as required under Sections 243 and 244A, which was held to be illegal and arbitrary.
In conclusion, the High Court allowed the writ petition and granted relief by:
- Deeming the petitioner to have complied with SVLDRS payment requirements,
- Restraining authorities from declaring the petitioner a defaulter,
- Directing refund of ₹12.01 crore to the petitioner,
- Awarding interest on delayed refund amounts, and
- Imposing costs.
With the Supreme Court dismissing the revenue’s appeal, the High Court’s findings attained finality. The outcome affirms that income tax refunds cannot be adjusted against service tax dues and that authorities must act consistently with statutory provisions and the purpose of beneficial schemes like SVLDRS.
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FULL TEXT OF THE SUPREME COURT JUDGMENT/ORDER
Learned senior counsel appearing for the respondents submitted that there is a gross delay of 544 days in filing this Special Leave Petition and therefore, the petition may be dismissed on the ground of delay and laches. Secondly, the impugned order has been complied with by the Department and therefore this Court may consider the matter on merits as it has been rendered infructuous.
Taking note of this submission, we dismiss this Special Leave Petition both on the ground of delay and as having been rendered infructuous.
Pending application(s), if any, shall stand disposed of.
