2005 (5) TMI 609 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Arbitrary withholding of tax refunds by Trade Tax authorities.
2. Liability for payment of interest on delayed refunds.
3. Equitable jurisdiction of the court to grant interest on interest.
4. Exemplary costs for arbitrary withholding of refunds.

Detailed Analysis:

1. Arbitrary Withholding of Tax Refunds by Trade Tax Authorities:
The court observed that the Trade Tax authorities often delay refunds despite clear statutory obligations. The authorities are quick to collect taxes but slow to process refunds, often raising irrelevant and extraneous objections. The petitioners, registered dealers engaged in the manufacture and trade of coal briquettes, faced undue delays in receiving refunds despite favorable assessment and appellate orders. The court criticized the authorities for their highhandedness and arbitrary attitude, emphasizing that such behavior is not acceptable.

2. Liability for Payment of Interest on Delayed Refunds:
Under Section 29(2) of the U.P. Trade Tax Act, if a refund is not processed within three months from the date of the order, the dealer is entitled to simple interest at 18% per annum from the date of the order until the date of the refund. The court noted that the authorities failed to refund the amounts within the stipulated period, making them liable to pay interest. The court referred to previous judgments, including M/s Trade Link India, which emphasized that the statutory period for refund is intended to allow sufficient time for verification, and any delay beyond this period attracts interest liability.

3. Equitable Jurisdiction of the Court to Grant Interest on Interest:
The court recognized that while the Act and Rules do not explicitly provide for interest on the interest amount withheld, it exercised its equitable jurisdiction under Article 226 of the Constitution of India to grant such interest. This decision was based on the principle that the petitioners were unjustifiably deprived of their lawful refunds and the interest due on those refunds. The court cited the Supreme Court's judgment in Commissioner of Income Tax v. Narendra Doshi, which upheld the liability of the Revenue to pay interest on delayed interest payments.

4. Exemplary Costs for Arbitrary Withholding of Refunds:
The court imposed exemplary costs of Rs.10,000/- on the respondents, payable to each petitioner, for the arbitrary and unjustifiable delay in processing refunds. This decision was aimed at discouraging such conduct by the authorities and ensuring that they fulfill their statutory obligations promptly.

Conclusion:
The court allowed the writ petition in part, directing the respondents to pay the interest on the delayed refunds and the interest on the withheld interest amounts within 30 days. Additionally, the respondents were ordered to pay exemplary costs to the petitioners for the undue delay and arbitrary withholding of refunds. The judgment underscores the importance of adhering to statutory obligations and the court's role in ensuring fairness and accountability in tax administration.