The Bombay High Court has ordered the Sales Tax Department to reimburse Rs. 10.70 crore overpaid under the settlement scheme.

July 17, 2024

The Bombay High Court has instructed the sales tax department to reimburse Rs. 10.70 crore.

Justices K. R. Shriram and Jitendra Jain, on examining Section 11 of the Settlement Scheme, observed that a defect notice is issued in cases of payment shortfall, not when an applicant has paid the correct amount.

The bench highlighted that the petitioner paid Rs. 8,46,84,821, whereas the amount due was Rs. 66,17,057, resulting in an excess payment rather than a shortfall. Consequently, issuing a defect notice in this scenario contradicts Section 11 of the Settlement Scheme.

The petitioner operates a vehicle trading business and holds registration with the Respondent-Tax Authority. For the fiscal year 2010–2011, the respondent issued an assessment order demanding Rs. 17,76,93,422. This order was contested in appeal, and the Appellate Authority subsequently reduced the demand to Rs. 14,00,74,890.

In the fiscal year 2011–2012, an assessment order was issued demanding Rs. 9,67,02,366. Following an appeal process, the appeal for the year 2011–2012 was successful, resulting in a refund of Rs. 10,69,89,606.

The Maharashtra Government introduced an ordinance aimed at resolving outstanding arrears of tax, interest, penalty, and late fees as of April 1, 2019, upon payment of specified amounts under the Settlement Scheme. Named the Maharashtra Settlement of Arrears of Tax, Interest, Penalty, or Late Fee Act, 2019, the scheme was implemented.

The petitioner notified the respondents and relevant departments of their intention to utilize the settlement scheme, particularly for the fiscal year 2010–2011, which had a demand amounting to Rs. 14,00,74,890. The petitioner also instructed the respondents not to offset the refund of Rs. 10,69,89,606, resulting from the appellate decision for the year 2011–2012, against the demand for the year 2010–2011.

The petitioner notified the respondents that they had submitted an online application under the Settlement Scheme for the years 2010–2011 and remitted Rs. 8,46,84,821 in accordance with the scheme’s provisions to settle the original outstanding dues. Alongside this communication, the petitioner enclosed the challan confirming the payment and the respondents’ acknowledgment of receipt of the application in Form 1.

Subsequently, the respondents issued a defect notice under Section 11 of the Settlement Scheme, informing the petitioner that the amount due for the year 2010–2011 under the scheme was only Rs. 66,17,057. It appears that this amount was determined after adjusting the refund for the year 2011–2012, totaling Rs. 10,69,89,606, and considering the payment made by the petitioner.

The petitioner contested the defect notice and the adjustment of the refund. The written petition was resolved by remanding the matter to the respondents for reconsideration of the petitioner’s refund application, providing them with an opportunity to present their case.

However, the refund application was subsequently rejected on the grounds that the refund of Rs. 10,69,89,606 had been set off against the demand for the years 2010–2011. The petitioner argued that this adjustment was contrary to Rule 60 of the MVAT Rules, which stipulates that adjustments can only be made against demands from subsequent years, not prior ones. The petitioner asserted their right to receive a refund of Rs. 10,69,89,606 for the year 2011–2012, along with accrued interest.

The department countered that Section 18 of the Settlement Scheme explicitly prohibits any refund of amounts paid under the Act. They argued that the petitioner is not entitled to the refund as claimed, although Ms. Vyas acknowledged that, numerically, the petitioner had overpaid by Rs. 10,69,89,606.

The court observed discrepancies in the defect notice issued under Section 11, which indicated that the outstanding amount was Rs. 3,30,85,284 as of May 14, 2019, after adjusting the refund for the years 2011–2012. This adjustment, however, was formally made by order on May 23, 2019. The court deemed the defect notice flawed and not compliant with legal requirements.

Consequently, the court directed the department to refund the petitioner Rs. 10,69,89,606 along with interest at 6% per annum from June 1, 2019, until the date of payment, in accordance with Section 52 read with Rule 88 of the MVAT Rules.

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