Delhi High Court Upholds VAT Refund To Taxpayer After Return Accepted Under Self-Assessment

The Delhi High Court has held that a taxpayer is entitled to a refund under the Delhi Value Added Tax Act, 2004 (DVAT Act) where the return has been accepted under the self-assessment mechanism and no proceedings for assessment, reassessment or audit have been initiated.

The Division Bench of Justices Avneesh Jhingan and Shail Jain made the observation while dismissing an appeal filed by the Commissioner of Trade and Taxes against an order of the Delhi Value Added Tax Appellate Tribunal directing refund to M/s Uno International.

Respondent had filed a revised return for the fourth quarter of the assessment year 2013-14, claiming a refund of ₹15,31,661. The demand of ₹1,836 raised under the DVAT Act was subsequently paid. The assessment under the Central Sales Tax Act was thereafter finalised with nil demand.

The taxpayer approached the High Court in 2020 seeking refund of the amount along with interest. After a series of proceedings, the Objection Hearing Authority rejected the refund claim. The Tribunal, however, allowed the taxpayer's appeal and set aside the rejection, prompting the Revenue to approach the High Court.

The Revenue contended that the refund claim arose from paper-trail transactions involving no physical movement of goods and alleged that tax had not been deposited in the chain of transactions, with dealers adjusting Input Tax Credit.

The High Court however noted that the case was one of self-assessment under Section 31 of the DVAT Act and that the amount found due had been deposited. Further, no proceedings had been initiated under Sections 32 or 58 of the DVAT Act.

"In this backdrop, Section 38 of the DVAT Act came into operation and the appellant was duty bound to refund the amount within two months of furnishing of the return for 4th quarter of the assessment year 2013-14," the Court held.

It further noted that while considering the refund claim, the assessing officer had proceeded as if exercising powers under Sections 32 or 58 of the DVAT Act.

It observed that the return had already been accepted under Section 31 and, in the absence of proceedings under Sections 32 and 58, the refund was due, subject only to adjustment of any other outstanding demand.

The Court agreed with the Tribunal that the case was not covered under Section 58 or Section 59 of the DVAT Act.

The Revenue had also relied upon Section 40A of the DVAT Act, contending that the arrangement between the parties had been entered into with an intention to defeat the provisions of the Act.

Rejecting this contention, the Court noted that the Tribunal had recorded a finding that the department had neither declared the arrangement between the parties null and void nor made any effort to collect evidence of collusion between the seller and purchaser or identify any contract between them.

"In absence of inquiry or investigation into the matter," the Tribunal had concluded that Section 40A was not attracted, the High Court noted.

The Court further held that the limitation prescribed under Section 34 of the DVAT Act, which relates to assessment or reassessment proceedings, did not apply to the refund application in the present case.

It noted that the return for the fourth quarter of the assessment year 2013-14 had been accepted, there was no outstanding demand and no proceedings had been initiated under Sections 32, 58 or 59 of the DVAT Act.

As such, the Court dismissed the appeal.

For Appellant: Advocate Urvi Mohan & Ms. Roshani Agarwal

For Respondent: Advocate Ajit Singh Joher