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2015 (6) TMI 541 - GUJARAT HIGH COURT

2015 (6) TMI 541 - GUJARAT HIGH COURT - [2015] 85 VST 146 (Guj) - Interest on refund claim - Doctrine of merger - compensatory measure - Whether the Tribunal has erred in holding that dealer is entitled to interest under section 54[1][aa] on refund arising from appellate order - Held that:- principles of compensatory measure may apply if the taxing statute is silent about the said aspect. The Legislature may control quantification of interest or the entitlement of interest on refund subject to m .....

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[2013 (10) TMI 117 - SUPREME COURT] - observation made in case of Gujarat Fluoro Chemicals (supra) is a complete answer to the contention that the interest can be awarded even if not expressly barred by the statute or that the taxing statute is silent about the same.

Question raised could no more be considered as substantial question of law since such aspect is already covered by the principles of doctrine of merger well settled in the system of administration of justice and also in .....

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st of Ms. Vacha Desai, learned AGP for the appellant we have taken up this appeal for admission. The following substantial question of law is raised in this tax appeal. "Whether the Tribunal has erred in holding that dealer is entitled to interst under section 54[1][aa] on refund arising from appellate order?" Learned counsel for the appellant fairly stated that the question raised in this appeal is covered by a Division Bench decision of this Court in Tax Appeal No. 87 of 2015 which w .....

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e Tribunal has erred in holding that the dealer is entitled to interest under Section 54(1)(aa) on the refund arising from the appellate order? 3. We have heard Mr.Dave, learned A.G.P. appearing in all the appeals. 4. The common facts in the appeals are that the Assessee has succeeded in the proceedings of the first appeal before the Appellate Authority and the Appellate Authority has ordered for refund of the tax amount. However, as the interest was not awarded on such refund of the tax amount, .....

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passed in appeal against the assessment orders. We may, for the ready reference, record that the Tribunal relied upon its earlier view in case of M/s.Saurashtra Chemical Ltd. V/s. State of Gujarat in Second Appeal No.603 of 2007 decided on 01.08.2014 wherein, following observations were made by the Tribunal which are also the basis in all the impugned orders passed by the Tribunal. The same read as under:- (18) With regard to true nature and scope of section 54(1)(aa) of the Act, this Tribunal .....

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f assessment u/s 41 or order of assessment u/s 41 of the first assessing officer. If the legislature so intended it would have certainly added the word or words to give such restricted meaning. Therefore, provision must be read reasonably and full meaning must be given to the words of statute as the object is to grant interest on the excess amount paid becomes refundable as a result of an original order of assessment passed by first assessing officer or corrected/modified order of assessment pas .....

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der u/s 41 and the original order of assessment merges in it. The intention of the legislature cannot be presumed that the refund arises at the first stage of assessment is only eligible for interest and orders of assessment passed at subsequent stages resulted into refund are not entitled to interest. Appeal proceedings are continuing single proceedings of assessment. Therefore, order passed in appeal is an order of assessment u/s 41. The intention is of paying interest on refund arises in orde .....

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ning of the word an order of assessment u/s 41 will create discrimination between the situations of the matters of similar facts, one gets refund in original stage of assessment and another gets refund in appeal. The Honble Supreme Court held that the interpretation, which leads discrimination, must be avoided. The restricted interpretation will give discretion to the first assessing authority to make available the interest to the assesses. Similar situation will take place in appeal, if the app .....

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order u/s 41 "is not interpreted reasonably and the narrow and restricted meaning as original assessment order" is given, considerable chaos, confusion, uncertainty and conflict would arise. The legislature never intends to deprive the assesses from entitlement where refund does not arise because of the erroneous original assessment order which modified in appeal and resulted in to refund. The appellant cannot be put to loss for the mistake of the first assessing authority or for the .....

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u/s 54(1)(aa) of the Act is liable to be exercised by every authority who has jurisdiction to deal with assessment in one way or another, and at one time or another. It is not confined strictly to the assessment authority alone as a prescribed authority. The appellant authority has also jurisdiction to allow interest at the appellate stage. The appellate authority is in continuation of the assessing authority and it can exercise such powers conferred u/s 54(1) (aa) of the Act. The term order of .....

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erger as there cannot be more than one operative order governing the same subject matter. The strict interpretation of section 54(1)(aa) as was done earlier by this Tribunal leads to manifest unjust result which could never have been intended by the State Legislature and therefore, it is necessary to put a construction which modifies the meaning of the words used in section 54(1)(aa) of the Act so as to grant interest even if, refund becomes due to a dealer as a result of order passed in appeal .....

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, the said ratio laid down by this Tribunal does not seem to be correct in view of the above discussion and also in view of the fact that the provisions relating to interest on delayed payment of refund have been consistently held as beneficial and nondiscriminatory. It is, therefore, held that the appellant is entitled to the interest on delayed payment of refund, irrespective of the fact whether such interest is payable by virtue of an order of assessment or even by virtue of an order passed i .....

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ition of law and it cannot be considered as binding precedent. 5. It is true that the Tribunal, earlier, in case of M/s Gayatri Tiles V/s. State of Gujarat had taken the view that when the refund has arisen in the appeal, the appellant would not be entitled to interest as seen from the wording of Section 54 of the Act but, it also appears that the very view has been considered by the Tribunal in the present impugned orders and the Tribunal has not concurred with the earlier view and has taken th .....

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e of M/s.Saurashtra Chemical Ltd. (supra). 7. The learned A.G.P. submitted that the view taken by the Tribunal in case of M/s.Saurashtra Chemical Ltd. (supra) which is relied upon by the Tribunal in the impugned orders, is also challenged by the State Government subsequently as per the decision of the State Government but, as there is long delay, the application is yet to be heard for condonation of delay and the matter is yet to be circulated. 8. In our view, when there are two different views .....

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per the provisions of Section 54(1)(aa) of the Act, there is reference upon the assessment order and, therefore, it cannot be interpreted to mean that the refund on account of the appellate order is arising from the assessment order and he submitted that in view of the clear language of the statute, the Tribunal ought not to have departured from the earlier view taken by it in case of M/s.Gayatri Tiles (supra). The learned A.G.P. further contended that unless there is a specific provision provi .....

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y. 10. In our view, once an order is passed by the competent authority for assessment and the appeal is preferred before the Appellate Authority against such order of assessment, and the Appellate Authority modifies the order of assessment, the principles of doctrine of merger would squarely apply. Once the order of assessment merges with the order of the Appellate Authority in appeal, one may say that the assessment is finalized by the Appellate Authority in the appeal. Same would be the situat .....

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sessment is made by the Appellate Authority in appeal. Under these circumstances, it cannot be said that while giving effect to Section 54(1)(aa) of the Act, the effect would be available to the assessment made by the assessing authority only and not the further modification made by the first Appellate Authority or thereafter, the second Appellate Authority or even third Appellate Authority as the case may be. The interpretation canvassed by the Revenue of Section 54(1)(aa) of the Act, if accept .....

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erest. 12. It is true that in taxing statute, principles of equity may have little role to play but at the same time, any statute in taxation matter should also meet with the test of constitutional provision. 13. In addition to the above, the principles of compensatory measure may apply if the taxing statute is silent about the said aspect. The Legislature may control quantification of interest or the entitlement of interest on refund subject to meeting with the test of constitutional provision. .....

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126 wherein, the Apex Court did maintain the aspect of interest by way of compensatory measure but did not approve the interest on such interest while considering the aspect of compensatory measure. At this stage, we may refer to the recent decision of this Court in case of Gujarat Flouro Chemicals Ltd. V/s. Commissioner of Income Tax and others in Special Civil Application No.12855 of 1994 decided on 30.01.2015 wherein, the matter was remanded by the Apex Court in view of its Larger Bench judg .....

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was pertaining to the payment of advance tax and the Apex Court also found that there was harassment and agony to the Assessee, but on the aspect of compensation to the Assessee, the Apex Court, in the said decision under the head as to whether on general principles the Assessee ought to have been compensated for the inordinate delay in receiving monies properly due to it, has observed from paragraphs 75 to 81 thus:- Whether on general principles the assessee ought to have been compensated for .....

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gh Court has held that no compensation is required to be paid since ... there was a serious dispute between the parties, which was ultimately ordered to be paid pursuant to the order passed by this Court on 30.04.1997. Undisputedly, the amount pursuant thereto was paid on 27.03.1998. ... The Court further held that since the amount was paid once the controversy was resolved there was no wrongful retention of monies. No authority can ever accept an obligation to make payment and simply refuse to .....

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ion by an authority until this Court holds that their stand is not in accordance with law. Therefore, that on this issue as well, the impugned judgment cannot be sustained and ought to be reversed. In the present context, it is pertinent to refer to the Circular on Trade Notice issued by the Central Excise Department on the subject of refund of deposits made in terms of Section 35F of the Central Excise Act, 1944 and 129E of the Customs Act, 1962. The Circular is reproduced hereunder: "Refu .....

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to mention that the Revenue had recently filed a Special Leave Petition against Mumbai High Court's order in the matter of NELCO LTD, challenging the grant of interest on delayed refund of predeposit as to whether : (i) the High Court is right in granting interest to the depositor since the law contained in Section 35F of the Act does in no way provide for any type of compensation in the event of an appellant finally succeeding in the appeal, and, (ii) the refunds so claimed are covered und .....

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predeposit has become final. 3. In order to attain uniformity and to regulate such refunds it is clarified that refund applications under Section 11B(1) of the Central Excise Act, 1944 or under Section 27(1) of the Customs Act, 1962 need not be insisted upon. A simple letter from the person who has made such deposit, requesting the return of the amount, along with an attested Xerox copy of the order in appeal or CEGAT order consequent to which the deposit made becomes returnable and an attested .....

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d as such. Similarly, bank guarantees executed in lieu of cash deposits shall also be returned. 4. The above instructions may be brought to the notice of the field formations with a request to comply with the directions and settle all the claims without any further delay. Any deviation and resultant liability to interest on delayed refunds shall be viewed strictly. 5. All the trade associations may be requested to bring the contents of this circular to the knowledge of their members and the trad .....

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court by a superior court. The Department has very clearly stated in the above circular that the delay beyond the period of 3 months in such cases will be viewed adversely and appropriate disciplinary action will be initiated against the concerned defaulting officers, a direction was also issued to all concerned to note that defaulter will entail a interest liability if such liability accrue by reason of any orders of the Tribunal/Court such orders will have to be complied with and it may be rec .....

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and the interest payable shall be paid forthwith. The facts and the law referred to in paragraph (supra) would clearly go to show that the appellant was undisputably entitled to interest under Sections 214 and 244 of the Act as held by the various High Courts and also of this Court. In the instant case, the appellant's money had been unjustifiably withheld by the Department for 17 years without any rhyme or reason. The interest was paid only at the instance and the intervention of this Court .....

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usts the amount paid towards interest so that the principle amount of tax payable remain outstanding and they are entitled to charge interest till the entire outstanding is paid. But when it comes to granting of interest on refund of taxes, the refunds are first adjusted towards the taxes and then the balance towards interest. Hence as per the stand that the Department takes they are liable to pay interest only upto the date of refund of tax while they take the benefit of assesses funds by delay .....

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above in the instant case for the assessment year 197879, it has been deprived of an amount of ₹ 40 lakhs for no fault of its own and exclusively because of the admittedly unlawful actions of the Income Tax Department for periods ranging up to 17 years without any compensation whatsoever from the Department. Such actions and consequences, in our opinion, seriously affected the administration of justice and the rule of law. COMPENSATION: The word 'Compensation' has been defined in .....

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in value or amount; an equivalent given for property taken or for an injury done to another; the giving back an equivalent in either money which is but the measure of value, or in actual value otherwise conferred; a recompense in value; a recompense given for a thing received recompense for the whole injury suffered; remuneration or satisfaction for injury or damage of every description; remuneration for loss of time, necessary expenditures, and for permanent disability if such be the result; r .....

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o consideration while awarding the rate of interest on the compensation. (Emphasis supplied) 12. The aforesaid shows that in the above referred decision, the Apex Court did maintain that the interest on the amount of refund, if provided by the statute, such would govern the field, but the Court has to take all relevant factors into consideration while awarding rate of interest on compensation. 13.In the latter decision of the Larger Bench of the Apex Court in the case of Commissioner of Income T .....

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or the assessment years 197778, 197879, 198182, 198283 in a sum of ₹ 40,84,906 and interest at 9 per cent from March 31, 1986, to March 27, 1998, and in default, to pay the penal interest at 15 per cent, per annum for the aforesaid period. 6. In our considered view, the aforesaid judgment has been misquoted and misinterpreted by the assessees and also by the Revenue. They are of the view that in Sandvik case (supra) this Court had directed the Revenue to pay interest on the statutory inter .....

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tatutory period. In the facts of that case, this Court had come to the conclusion that there was an inordinate delay on the part of the Revenue in refunding certain amount which included the statutory interest and therefore, directed the Revenue to pay compensation for the same not an interest on interest. 14. The aforesaid shows that in the latter decision of the Larger Bench, it was held that the decision in the case of Sandvik Asia Limited Vs. Commissioner of Income Tax & Others (supra) c .....

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rected the Revenue to pay compensation for the same, but not interest on interest. 15. In our view, as per the above referred observations of the Apex Court in the case of Commissioner of Income Tax, Gujarat Vs. Gujarat Fluoro Chemicals (supra), obligation on the part of the Government to pay compensation for nonpayment of the statutory interest by way of interest on interest was not approved. Further, in the above referred decision of the Larger Bench of the Apex Court at paragraph 7, it was ob .....

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ity to pay interest on interest by the Revenue is not approved and to that extent the contention of the Revenue can be maintained. But the further contention of the Revenue that no interest whatsoever would be payable if the refund of the amount of tax or refund of the amount deposited towards tax is to be made, no interest whatsoever would be available by way of compensatory measure. 17. In our view, the general principles for awarding compensation to the Assessee for the delay in receiving mon .....

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