VAT - Whether refund payable can be denied by treating same as 'input tax credit', on very basis that assessee has opted for composition of tax, merely because such refund was shown as sum against entry of net tax credit in AY - NO: HC
By TIOL News Service
AHEMDABAD, AUG 07, 2016: THE Issue is - Whether refund payable to an assessee under VAT Act can be denied by treating the same as 'input tax credit', on the very basis that the assessee has opted for composition of tax, merely because such refund was shown as a sum against the entry of net tax credit in the assessment order. NO IS THE ANSWER.
Facts of the case:
The assessee is engaged in the business of civil construction work. For the A.Y 2006-07, the assessee had filed its return under Gujarat VAT Act claiming refund of Rs. 7.63 lacs. According to the assessee, such refund was not released on the premise that the same would be carried forward in the next year and would be adjusted towards the assessee's tax liability. However, for the A.Y 2007-08 also the assessee had claimed refund of Rs. 35.15 lacs which was also not granted by the department. Assessments for both the A.Ys became time barred. The right of the assessee to seek refund therefore crystallized. Despite this, since no refund was released, the assessee filed SCA which came to be disposed of by the High Court by an order recording the statement of the Government counsel that refund as payable to the assessee shall be released latest by 10.03.2013. In terms of such statement, the AO granted refund to the assessee as part of the order of assessment for the A.Y 2008-09. Case of the assessee was that, in such computer generated assessment order in pre-set format, there was no column for refund for the earlier years. The AO therefore showed the refund of Rs. 35,13,883/- against the clause pertaining to net tax credit. He also calculated a sum of Rs. 8,11,642/- as interest payable on such refund. The net refund payable thus became to Rs. 42,65,438/-. However, the assessee was not entirely satisfied. According to the assessee, a sum of Rs. 73,236/- remained unpaid and the interest was calculated from the date of the order of the High Court instead of from the date when the respective refunds became payable. The assessee therefore, preferred appeal against such order of the AO. Instead of examining these grievances, the Commissioner issued impugned notice seeking to take the assessment order of the year 2008-09 in suo motu revision denying refund of Rs. 42,65,438/- to the assessee on the ground that in the order of assessment, the assessee was granted tax credit of Rs. 35,13,383/- for the year 2007-08 which was not payable, since the assessee was covered by the composition tax regime and, therefore, was not entitled to any input tax credit.
After hearing the parties, the High Court has held that,
++ it is seen that the assessee had been pressing hard for release of the refunds which arose in A.Ys 2006-07 and 2007-08. Before the High Court, the department made a statement that the refunds, as payable, would be released. These refunds were released by the AO while passing order of assessment for the year 2008-09. Simply because such assessment orders are computer generated and would have specific boxes containing specific details and which did not have any entry for refund for past A.Ys, he was compelled to show the sum of Rs. 35,13,883/- against the entry of net tax credit. This method adopted by the AO would not change the true character of the said sum payable to the assessee. It was and remained a refund due and payable. The sum of Rs. 8,11,642/- shown by way of interest of such refund also, therefore, had a direct co-relation to the assessee's claim of refund of the past excess taxes paid to the department.
++ the Deputy Commissioner of Commercial Tax, therefore, committed a serious error in treating such refund as input tax credit claimed by the assessee. It is true that the assessee has opted for composition of tax and, in such situation, would not be entitled to claim any input tax credit. However, when the assessee had not in fact claimed any such credit and the sum of Rs. 35,13,883/- shown in the order of assessment for the year 2008-09 was in fact the refund of the earlier years, the very basis for the Deputy Commissioner to issue impugned notice would disappear. Such notice is, therefore, required to be quashed.
(See 2016-TIOL-1662-HC-AHM-VAT)
