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Modi Industries Limited And Another v. Commissioner Of Sales Tax, U.P, Lucknow, And Others
Summary of Legal Opinion — K.N. Seth, J.
Factual and Procedural Background
Petitioner No. 1 is a public limited company engaged in manufacturing various products. For the assessment year 1967-68, an assessment dated 29 March 1972 fixed sales tax at Rs. 37,94,875.76. Because the assessee had deposited Rs. 35,67,256.43, a demand for the balance was issued. The petitioner applied under section 22 of the Sales Tax Act, alleging apparent mistakes in the assessment order; the assessment was rectified on 20 July 1972, reducing the demand to Rs. 24,959.24. Subsequently, a notice under section 21 led to an order on 29 March 1974 creating an additional demand of Rs. 10,000. The petitioner appealed; the Assistant Commissioner (Judicial) allowed the appeals and remanded the case, and a fresh assessment dated 13 December 1977 fixed final tax liability at Rs. 19,726.86.
Separately, the petitioner held refundable excess deposits for earlier years: Rs. 37,959.33 for 1948-49 and Rs. 10,609.42 for 1962-63. After adjustment against the 1967-68 liability, the net refundable amount claimed was Rs. 28,842.30. The Sales Tax Officer, by letter No. M-3/1967-68, indicated adjustment of the 1967 liability against earlier credits and informed the petitioner that no amount was payable for 1967-68.
On 10 January 1978 the petitioner applied to the Assistant Commissioner (Assessment), Sales Tax, for refund of Rs. 28,842.30. Despite reminders, no decisive action was taken for several years; a draft refund order was sent for the Commissioner's approval in 1979 but no order was communicated. The petitioner filed a writ petition seeking a mandamus to direct decision on the refund application and to order payment of Rs. 28,842.30 with interest at 18%. This Court issued an ad interim mandamus requiring respondents to decide the application within two months or show cause.
By order dated 30 April 1982 respondent No. 2 rejected the 10 January 1978 application; the petitioner sought to quash that rejection. The respondents later conveyed that an order for refund was passed on 11 August 1982 (letter dated 13 August 1982). There was no clear averment or assurance that the amount had been paid. The court observed that, since an order for refund had been passed, quashing the 30 April 1982 order was unnecessary. It remained undisputed that the petitioner was entitled to refund of Rs. 28,842.30.
Legal Issues Presented
- Whether the petitioner was entitled to interest on the refundable excess amount (Rs. 28,842.30) where the refund application remained undecided for several years and an order for refund was not passed until 11 August 1982.
- Whether the assessing authority's delay in refunding the amount could be justified by departmental practice or instructions requiring Commissioner approval for refunds exceeding Rs. 20,000.
- Whether a technical defect in the petitioner's application (e.g., invoking the wrong statutory provision) absolved the assessing authority of its duty to make refund or to grant interest for undue delay.
Arguments of the Parties
Petitioner's Arguments
- The petitioner applied on 10 January 1978 for adjustment/refund of Rs. 28,842.30 and repeatedly reminded the authorities; the application was left pending for over four years without refund.
- The petitioner sought interest at 18% per annum on the refundable amount, and for the purposes of interest limited the claim to run from 1 November 1978 (the date when the present sub-section (2) of section 29 providing for 18% interest became effective).
Respondent's Arguments
- The learned standing counsel contended that no entitlement to interest arose because no order for refund had been passed prior to 11 August 1982; reliance was placed on sub-section (2) of section 29 of the U.P. Sales Tax Act, which, it was argued, made liability for interest arise only if the amount is not refunded within three months from the date of an order of refund.
- It was asserted in the counter-affidavit that approval of the Commissioner of Sales Tax had to be obtained because the refund amount exceeded Rs. 20,000; this was advanced as an explanation for delay.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Agrawal Engineering Stores v. State of U.P., [1972] 29 STC 446; 1971 Tax LR 1441 | That departmental instructions requiring certain approvals (in that context) were illegal and could not justify administrative action contrary to statutory provisions. | The court relied on this authority to reject the departmental practice or instructions (requiring Commissioner approval for refunds exceeding Rs. 20,000) as a lawful justification for delay; the assessing authority should not be guided by such instructions. |
Court's Reasoning and Analysis
The court accepted that the petitioner was entitled to refund of the excess amounts for the years 1948-49 and 1962-63 and that, after adjusting the 1967-68 liability, Rs. 28,842.30 remained payable to the petitioner. The principal legal dispute was over entitlement to interest for the delay in refund.
The court analyzed section 29 of the U.P. Sales Tax Act. It observed that sub-section (1) mandates that the assessing authority shall refund any amount paid in excess of the amount due under the Act, and the proviso requires that the amount found refundable be first adjusted against any outstanding dues under the State Act or the Central Sales Tax Act, with only the balance refunded. The court emphasized that what is to be adjusted are the outstanding dues as of the date the assessment order is passed: if nothing is outstanding then the whole excess payment must be refunded.
The court rejected the departmental contention that liability to pay interest arises only when a formal refund order predating the three-month interest period exists. It reasoned that sub-section (1) contemplates that an order for refund follows from the assessment process when an excess payment is established, and sub-section (2) (which provides for interest if an excess is not refunded within three months from the date of the order of refund) must be read in that context. It would be absurd to hold that a dealer is entitled to interest only if the assessing authority passes a separate and express order of refund and fails to pay within three months; rather, once the excess is found either by the assessing authority or by any competent authority or court, the dealer is entitled to interest if the amount is not refunded within three months.
The court further observed that the petitioner's application of 10 January 1978 for adjustment/refund remained pending for over four years and that rejection of the application on a technical ground (that it did not fall under section 22) was improper. The duty to refund was not made conditional on the precise statutory form of the application, and a wrong reference to a provision should not have been permitted to delay or defeat the substantive refund.
The respondents' assertion that Commissioner approval was required for refunds exceeding Rs. 20,000 was considered unsupported by any provision of the Act or Rules; only departmental instructions were mentioned, and those could not justify the delay. The court, relying on Agrawal Engineering Stores v. State of U.P., treated such departmental instructions as impermissible grounds for withholding the refund.
Holding and Implications
Holding: Petition allowed.
Direct effect on the parties: - The respondents were directed to refund Rs. 28,842.30 to the petitioner. - The respondents were ordered to pay interest at 18% per annum on that amount from 1 November 1978 up to the date of payment. - The petitioners were awarded costs in the sum of Rs. 500.
Broader implications: - The opinion emphasizes that assessing authorities cannot evade the statutory duty to refund excess tax payments or rely on internal departmental instructions (such as purported requirements for higher-level approvals) to justify undue delay. The court applied the precedent cited to discredit such administrative practices. The opinion itself does not present an extended discussion purporting to lay down a new principle beyond its application to the facts; its immediate effect is the refund, interest and costs awarded to the petitioner.
K.N Seth, J.:— Petitioner No. 1 is a public limited company carrying on the business of manufacturing vegetable oil, iron and steel, torch, soap, sugar and paints, etc., in its various units.
2. For the assessment year 1967-68 by an order dated 29th March, 1972, sales tax was assessed at Rs. 37,94,875.76. Since a sum of Rs. 35,67,256.43 had been deposited by the assessee, a demand for the balance amount was issued by the Sales Tax Officer. The petitioner made an application under section 22 of the Sales Tax Act pointing out certain apparent mistakes in the assessment order inasmuch as credit for the entire amount deposited by the petitioner was not given in the assessment order. By an order dated 20th July, 1972, the original assessment order was rectified and the demand was reduced to Rs. 24,959.24. Thereafter, a notice under section 21 of the Act was issued by the Sales Tax Officer and by an order dated 29th March, 1974, an additional demand of Rs. 10,000 was created. Against the original assessment order as well as against the order passed under section 21 of the Act the petitioner filed appeals which were allowed by the Assistant Commissioner (Judicial), Sales Tax, and the case was remanded for fresh assessment. A fresh order of assessment was passed on 13th December, 1977, determining the final tax liability at Rs. 19,726.86.
3. According to the petitioner, for the assessment year 1948-49 a sum of Rs. 37,959.33 and for the assessment year 1962-63 a sum Rs. 10,609.42 were refundable to the petitioner as excess amount deposited by it during the aforesaid assessment years. The petitioner made an application for refund of the aforesaid amounts after adjusting the tax liability for the assessment year 1967-68. The net amount claimed refundable came to Rs. 28,842.30. The Sales Tax Officer by his letter No. M-3/1967-68 adjusted the tax liability of the petitioner for the assessment year 1967 against the amount due to the petitioner for the assessment years 1948-49 and 1962-63 and informed the petitioner that no amount was payable by it for the assessment year 1967-68.
4. On 10th January, 1978, the petitioner made an application to the Assistant Commissioner (Assessment), Sales Tax, for refund of the amount of Rs. 28,842.30. Several reminders were also made but neither any order was passed on the application nor the amount was refunded. It has been averred that on inspection of the file the petitioner learnt that a draft order for refund of the aforesaid amount was sent for approval of the Commissioner of Sales Tax in 1979 but no order for refund was passed. In December, 1981, Deputy Commissioner (Administration), Sales Tax, was also informed of the claim. Ultimately the petitioner filed the present petition in this Court praying for a writ of mandamus directing the Assistant Commissioner (Assessment), Sales Tax, Ghaziabad, to decide the application of the petitioner for refund and for a further direction to refund the amount of Rs. 28,842.30 together with interest at the rate of 18 per cent. This Court issued an ad interim mandamus directing the respondents to decide the application of the petitioner dated 10th January, 1978, within a period of two months or to show cause.
5. It appears that by an order dated 30th April, 1982, respondent No. 2 rejected the application dated 10th January, 1978. By an amendment application the petitioner has prayed for quashing this order also. From the counteraffidavit it appears that on 11th August, 1982, an order has been passed for refund of the aforesaid amount and this information was conveyed to the petitioner by a letter dated 13th August, 1982. There is neither any averment nor the learned standing counsel was in a position to state that the amount was actually been paid to the petitioner. In view of the fact that an order for refund has already been passed it is not necessary to quash the order of the Assistant Commissioner (Assessment), Sales Tax, dated 30th April, 1982.
6. It is not disputed that for the assessment years 1948-49 and 1962-63 the petitioner was entitled to refund of the excess amount deposited as sales tax and after adjusting the sales tax liability for the year 1967-68 it was entitled to refund of Rs. 28,842.30.
7. The learned standing counsel confined his submissions to the claim of the petitioner for interest. It was urged that since there was no order for refund of Rs. 28,842.30 prior to the order passed on 11th August, 1982, the petitioner was not entitled to claim any interest. In support of this submission reference was made to sub-section (2) of section 29 of the U.P Sales Tax Act and it was urged that liability to pay interest would arise only if the amount is not refunded within three months from the date of the order of refund and since the order for refund was passed on 11th August, 1982, no liability for interest has accrued. We find no merit in the contention. Sub-section (1) of section 29 provides that the assessing authority shall, in the manner prescribed, refund to a dealer any amount of tax, fees or other dues paid in excess of the amount due from him under this Act. The proviso appended to this sub-section lays down that the amount found to be refundable shall first be adjusted towards the tax or any other amount outstanding against the dealer under this Act or under the Central Sales Tax Act and only the balance, if any, shall be refunded. As noted earlier for the assessment years 1948-49 and 1962-63 certain amounts had become refundable to the petitioner. However, for the assessment year 1967-68 a sum of Rs. 19,726.65 was ultimately found due against the petitioner. In January, 1977, the petitioner made an application for adjustment of this amount against the amount refundable in respect of the assessment years 1948-49 and 1962-63. This application was not disposed of in spite of repeated reminders of the petitioner. In our opinion, section 29 does not require that unless a specific order for refund after adjusting the tax or any other amount outstanding against (a dealer) is passed and the net amount is not refunded within three months of that order then alone the liability for interest accrues. Sub-section (1) of section 29 indicates that the order for refund follows from the orders of the assessing authority if the dealer has paid any amount of tax, fees or other dues in excess of the amount due from him under the Act. By virtue of the proviso appended to subsection (1) the amount found refundable to the dealer shall be adjusted towards the tax or any other amount outstanding against him under the State or the Central Sales Tax Act and only the balance is to be refunded. It is also clear that what is to be adjusted is the outstanding dues against the dealer. If on the date when the assessment order is passed nothing is outstanding against the dealer the whole amount paid in excess of the dues under the Act is to be refunded. It is not open to the assessing authority to withhold that amount for more than three months without incurring the liability for interest. It would lead to absurd results if it is accepted that unless the assessing authority passes a separate and express order of refund the dealer will not be entitled to any interest on the amount refundable to him. If the dealer has paid any amount in excess of his sales tax liability as determined under the assessment order he will be entitled to refund of the excess amount paid. If for some reason the assessing authority refuses or fails to pass an order directing refund of the excess amount paid, can it be legitimately urged that the dealer would not be entitled to any interest on the amount because no express order for refund has been passed. That could not possibly have been the legislative intent in enacting sub-section (2) of section 29 which entitles the dealer to claim interest if the excess amount is not refunded within three months from the date of order of refund passed by the assessing authority or from the receipt by him of the order of refund passed by any other competent authority or court. Once it is found either by the assessing authority or by any other competent authority or court that the amount paid by the dealer was in excess of his tax liability determined under the Act the dealer would be entitled to interest if the amount is not refunded within three months.
8. As noted earlier the dealer by his application dated 10th January, 1978, made an application to the assessing authority for adjusting the amount of tax for the year 1967-68 against the sum which was due to it for the years 1948-49 and 1962-63. Even if a separate order for refund was required to be passed, it ought to have been passed on that application within a reasonable time. However, the matter was allowed to remain pending for over four years and the application was rejected on a technical ground that the' application did not fall under section 22 of the Act. It was the duty of the assessing authority to refund the amount which was due to the dealer even if no application for refund had been made or a wrong provision of law was mentioned in the application. The learned counsel for the petitioner during the course of hearing confined the claim for interest with effect from 1st November 1978, when the present sub-section (2) of section 29 providing for eighteen per cent interest came into force. We see no reason to deny the petitioner this rightful claim. The plea put forward in the counter-affidavit that since the amount was more than Rs. 20,000 approval of Commissioner of Sales Tax had to be obtained and in that process the matter was delayed. No provision of the Act or the Rules framed thereunder have been brought to our notice which requires that if the amount of refund is more than rupees twenty thousand, approval of Commissioner of Sales Tax has to be obtained. The learned counsel for the department stated that certain departmental instructions have been issued to this effect, but no such instructions have been brought to our notice. Even if we assume that there are such departmental instructions they cannot be pressed in justification of the delay in refunding the amount due to the petitioner. The assessing authority should not have been guided by these instructions which, as ruled in Agrawal Engineering Stores v. State of U.P, [1972] 29 STC 446; 1971 Tax LR 1441, are illegal.
9. In the result, the petition is allowed. The respondents are directed to refund a sum of Rs. 28,842.30 together with interest at eighteen per cent per annum on that amount from 1st November, 1978, up to the date of payment. The petitioners are also entitled to cost which is assessed at Rs. 500.
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