For the successful administration of any tax law refund of tax to the assessee is as much importance as ensuring tax payment from the assessee. Refund in tax laws whether (indirect or direct) arises primarily due to the reason of excess tax paid than actual due, secondary reasons may be like refund arising out of a judgment of a court or an order of an authority.
Here in this article refund provisions under Punjab VAT Act 2005 are concentrated on:-
When Refund may arise under Punjab VAT Act 2005: Refund under Punjab VAT Act 2005 may arise due to many reasons. VAT Refund usually arises to the exporters or the person doing penultimate export i.e. sales against H forms, due to the fact that the export of goods outside India is considered as zero rated sales i.e. not liable for any vat liability and the tax paid on purchase of goods which are to be exported is refunded to the exporters as per provisions of section 18(2) of PVAT act 2005.
VAT refund may also be available due to various exemptions or concessional rate of CST as available under CST Act 1956 for example exemptions available u/s 6(2) for in transit sales against E1 or E2 forms or due to interstate stock transfer against F form when goods are purchased from within the state or due to concessional rate of CST as available against C forms resulting in excess of input tax credit over the output tax payable by a dealer.
VAT refund may also arise to works contractors due to TDS deducted on their payments u/s 27 of Punjab VAT act 2005.
Refund of vat paid on every single purchase of goods exceeding Rs 5000 to the persons or organizations listed in schedule G is allowed under section 18 of PVAT Act.
Refund may also arise due to the judgment of court or by an order of any authority under the act.
The authorities competent to grant refunds: Chapter VII of PVAT Act deals with the provisions relating to refunds under the said act. As per Section 39(1) its the commissioner or the designated officer who grants refund to a person subject to other provisions of the act and rules made thereunder of any amount of tax or penalty or interest if any paid in excess of the amount due and also the excess of input tax credit over output tax payable under the act.
As per rule 52(6) of Punjab VAT Rules if the refund amount does not exceed Rs 1 Lac the refund is issued by the designated officer and if the refund exceed Rs 1 lac then refund is issued after the final order of the AETC incharge of the District.
As per section 39(1) refund under PVAT Act may be granted either by way of refund voucher or at the option of the person claiming refund by refund adjustment order.
Refund to be paid after adjustment of any amount due from the person claiming refund: Proviso to Section 39(1) provides that the commissioner or designated officer shall first apply the amount of refund to be granted towards the recovery of any amount due in respect of which notice u/s 29(Notice for assessment) has been issued or any amount due, but not paid, before granting the final refund. Thus if any amount i.e tax or interest or penalty etc as a result of notice issued u/s 29 or otherwise is found due from the person claiming refund then such amount will be adjusted from the refund amount.
Refund may also be provisionally adjusted against tax due of subsequent periods: Section 39(2) also provides that if any refund is due to a taxable or registered person according to the returns filed for any period, such refund may be adjusted provisionally against the tax due and payable as the returns filed for any subsequent period.
Proviso to section 39(2) also provides that at the time of such adjustment any tax penalty or interest or any amount due from such taxable or registered person on the date of such adjustment shall first be deducted from such refund while making adjustment.
Thus its clear from the plain reading of first proviso to section 39(2) that if a dealer provisionally makes adjustment of refund against the tax due to him of any subsequent return period then he shall first adjust the amount of any tax, interest or penalty or any other amount due from him(it may be relating to any period) due from him as existing on the date of adjustment.
Refund in case of monthly return: There are certain persons under Punjab VAT Act who are required compulsorily to file their VAT returns monthly in addition to the quarterly returns. Second proviso to section 39(2) provides that if a person claims refund on the basis of his monthly return, the designated officer shall provisionally allow 75% of the amount of such refund claim, against submission of indemnity bond for the amount equal to the amount of refund claimed in the refund application.
After the receipt of the forthcoming quarterly returns, the designated officer shall cross check the transactions and after satisfying about the genuineness of the claim, the final amount of refund shall be determined.
Procedure for claiming refunds: Procedure for claiming refund under Punjab VAT Act is contained in rule 52 of Punjab VAT rules. The documents and forms required to be submitted for claiming refund and the form of application of refund and other conditions and procedure are provided as follows.
Format of application: Rule 52(1) of Punjab VAT Rules provides that the application for refund of an amount of tax, interest, penalty admissible under the Act and Rules will be made in form VAT-29. The application is to be made to the designated officer and shall contain the grounds for claiming the refund. Form VAT 29 contains the particulars like Input tax credit, output tax ,excess ITC carried forward, amount of ITC claimed as refund, sales under CST like direct export, indirect export, interstate sales/transfers, details of documents required in case of export or penultimate exports and details of forms under CST Act 1956 on account of which the refund has arisen.
Persons or organizations listed in schedule G may apply for refund to the designated officer in Form VAT 29A. But the refund to such person or organizations shall be granted only on the certification given the person or chief of the organization that the goods are purchased for use in the official functioning of the organization and the purchases of goods have been made from a taxable or registered person against invoice.
Filing of returns and tax payment is compulsory for claiming refund: Sub rule 8 of Rule 52 provides that no refund shall be allowed to any person if he has not filed return or paid tax as per provisions of the PVAT Act or PVAT rules. Thus requisite returns and requisite tax needs to be filed and paid before claiming for refund.
Documents required for claiming refund: Where refund is claimed u/s 18(2) i.e. on account of direct export out of the territory of India then the application for a claim of refund shall be supported by the following documents:
(a) copy of invoice issued to the foreign buyer
(b) Bill of lading, Airway Bill, Shipping Bill, or similar documents, containing Let Export Order endorsed by the Customs Authorities.
(c) Custom clearance certificate in case of export to Nepal and Bhutan; or
(d) Any other document, which may be specified by the Government.
Documents required in case of Penultimate export: Penultimate export is indirect export and is also considered as zero rated sales. It means sale by one dealer to another who exports the goods. In other words the local buyer is last in the chain and thereafter the goods are exported. The following documents are required to be furnished for claiming refund in case of Penultimate export:
(a) copy of Bill of lading, Airway Bill, Shipping Bill or similar documents, containing “Let Export Order” as endorsed by Customs Authorities; and
(b) copy of the invoice issued to the purchaser.
Forms under CST required for claiming refund: Sub rule 4 of rule 52 of PVAT rules provides that where refund arises due to excess ITC, which may be due to interstate sales, consignment or branch transfer, exports out of India or any other reason under the PVAT Act, the person claiming refund, shall attach documentary evidence in original in the form of statutory declaration that is C, D, E-I, E-II, F, H and I forms as the case may be, prescribed under the CST act 1956 and the rules made thereunder.
Thus declaratory forms if applicable have to be submitted for claiming refunds. Earlier before amendment of sub rule 52(4) the declaratory statutory forms under CST Act as applicable were required to be submitted along with the annual return. But after the amendment these forms are required to be attached while claiming refund.
Rule 52(5) further provides that if any claim is not supported by the aforesaid documents, then such refund claim shall not be admissible to the extent of such document being not furnished and the person shall file annual statement accordingly along with the additional tax, interest, penalty, if any.
If the refund is arising out of a judgment of a court or an order of an authority under the Act, the person claiming the refund, shall also append a certified copy of such judgment or order
Show Cause notice is to be issued if refund is found inadmissible: If the refund claim of a person is found inadmissible then designated officer has to issue a show cause notice to the person claiming refund as to why his application should not be rejected and if the reasons adduced by such person are found to be not satisfactory then such application for refund may be rejected.
Excess refund if granted to be adjusted in future: Rule 52(13) provides that if it is found that excess refund has been made in any period, the same shall be adjusted against the refund to be given in future or against future ITC available to such person u/s 13 of PVAT Act.
Penalty for wrong claim of refund: Section 56(f) also stipulates that if the commissioner or designated officer is satisfied that the person, in order to evade or avoid payment of tax, has claimed refund which was not due to him, he shall direct that the person shall pay, by way of penalty, in addition to the tax and interest payable by him, a sum equal to twice the amount of tax, assessed on account of the aforesaid reasons.
Refund must be issued within 60 days otherwise the interest on refund is payable: Section 40 of PVAT Act provides that if refund is not issued within 60 days from the date of application, simple interest at the rate of half percent per month on the said amount shall be paid to the applicant person from the date, immediately following the expiry of the period of sixty days to the date of refund. For interest calculation part of the month is considered as one month.
There may be cases where refund gets delayed beyond 60 days due to reasons attributable to the taxable or registered person applying for the refund as the case may be, in which case the period of such delay as attributable to such person shall be excluded from the period for which interest is payable. Where there is dispute as to such period to be excluded, such question is determined by the commissioner whose decision is final as per explanation 2 to section 40 of PVAT Act.
When refund may be withheld: Section 41 of PVAT Act provides that where an order giving rise to a refund is the subject matter of appeal or further proceeding or where any other proceeding under the act is pending and the officer competent to grant refund is of the opinion that the grant of refund is likely to adversely effect the revenue then such officer with prior approval of the commissioner withhold the refund till such time, as may be determined.
Thus refund may be withheld if granting of refund is likely to adversely effect the interest of the revenue, where an appeal or other proceeding under the act involving the order of refund is pending. As per section 41(2)Where refund is withheld u/s 41(1) then interest as per section 40 is payable on the amount of refund finally determined after such appeal or proceedings under the act, from the date, immediately following the expiry of period of 90 days from the date of the order referred to in section 41(1).
Under section 41(1) of PVAT Act, the refund cannot be withheld even if some appeal is pending in Supreme Court on the same point on the basis of which refund is due. Similarly refund u/s 41(1) of PVAT Act cannot be withheld on the argument that revenue involved in the case is substantial- Shiwalya Spinning & Weaving Mills(P) Ltd.,Ludhiana Vs. State of Punjab [(2007) 10 STM 682(HC-P&H)]
Rationale to be kept in mind while making order for withholding refund: The rationale to be kept in mind while withholding refund u/s 41(1) has been very well explained by Hon’ble Punjab & Haryana High Court in National Agricultural Co-op. Mrkt. Federation of India Ltd. Vs. State of Haryana- [(2009) 13 STM 115 (HC-P&H)] wherein it was held as follows:
“It may be pertinent to point out that the order withholding refund of huge amount running into crores should not be mechanically passed and the authorities working under the Act are required to be sensitized that the entrepreneurs who have limited liquidity are likely to suffer in their business enterprise. If the business enterprise comes to a stand still it does not advance the interest of the revenue because the state would stop earning revenue when the business of an entrepreneur comes to a grinding halt. The State authorities would be better advised if the aforesaid rationale is kept in view. While passing order withholding refund a balanced approach has to be adopted.”