Three-Month Limitation For Consequential Orders Cannot Justify Delayed Vivad Se Vishwas Refunds Gujarat High Court

The Gujarat High Court has ruled that the tax department cannot rely on the three-month time limit for passing a consequential order under the Income-tax Act to justify delaying refunds under the Vivad se Vishwas scheme.

It held that the department was required to pass the necessary order and issue the refund by July 31, 2021, as prescribed by the Central Board of Direct Taxes (CBDT), and directed it to pay interest at 6% per annum on the delayed refund from August 1, 2021 to March 2, 2024.

“The timeline given in the provision of Section 153 of the IT Act, 1961 cannot be resorted to, for passing the consequential orders under VsV Act, 2020,” a Division Bench of Justice A.S. Supehia and Justice Vaibhavi D. Nanavati ruled.

The judgment came in a group of petitions filed by Oil and Natural Gas Corporation Ltd. (ONGC) and others seeking interest on refunds that were released late under the Direct Tax Vivad Se Vishwas Act, 2020.

In ONGC's case, the department issued Form-5 on May 24, 2021, but passed the order giving effect to it only on June 17, 2022.

The dispute was over how much interest ONGC should receive for the delay. The money had already been deposited with the tax department. Form-5 recorded that Rs. 0 had been paid towards full and final settlement of the tax arrears, and the court noted that the amount already deposited with the Revenue therefore had to be refunded.

Form-5 is essentially the document that confirms completion of the Vivad se Vishwas settlement. Once the required payment is made, the designated authority issues Form-5 to certify that the settlement has been completed. In ONGC's case, the amount determined under the scheme was nil because the relevant amount had already been deposited.

The law gives a person or entity making a declaration under the scheme 15 days to pay the amount determined by the designated authority. But the court noted that the law does not set a separate deadline for the tax department to pass the further order needed to give effect to Form-5.

The CBDT had nevertheless set a timeline in its Central Action Plan for 2021-22. Under Clause 9, tax officers had to pass the necessary orders, reduce outstanding demand or issue refunds by July 31, 2021 where Form-5 had been issued up to June 30, 2021. For Form-5 issued later, the officers could give effect to it within 30 days.

ONGC's Form-5 was issued on May 24, 2021, so the July 31 deadline applied. The consequential order, however, was passed only on June 17, 2022. The court noted that no explanation had been given for this delay.

The Revenue argued that the tax department had to pass the consequential order under the Income-tax Act and that a three-month time limit applied. It also argued that the CBDT's Central Action Plan could not override that statutory time limit.

The court rejected this argument. It pointed out that the tax officer had not actually relied on the three-month limit when passing the consequential order or the later order determining interest. The Revenue had instead relied on earlier Gujarat High Court decisions.

The court also found that neither the CBDT circular nor the Central Action Plan stated that the three-month limit governed consequential orders after Form-5. It therefore held that the Revenue could not use that provision to justify the delay.

The court noted that the Vivad se Vishwas law itself does not provide for a separate consequential order after Form-5. This additional step came from the CBDT's circular and its Central Action Plan.

The court held that the CBDT's own deadline could not be ignored. It noted that the Vivad se Vishwas law was introduced to provide a benefit to taxpayers and that no later CBDT decision had been shown to the court cancelling the deadline in Clause 9.

The court also relied on the Supreme Court's ruling in Union of India v. Tata Chemicals Ltd., which recognised interest as compensation for the government's unauthorised retention and use of money that had to be returned.

It accordingly directed the department to pay interest at 6% per annum from August 1, 2021, to March 2, 2024, when the refund was actually credited.

The petitions were partly allowed, with the respondents given six weeks to comply. If the amount is not paid within that period, it will carry further interest at 9% per annum, which can be recovered from the officer or officers responsible for the delay.

For the Petitioners: Prashant Meharchandani with Arijit Ghosh for Heet B. Jhaveri

For the Respondents: Karan G. Sanghani and Richa Gupta for Maithili D. Mehta