Delkon India Pvt. Ltd. vs Sales Tax Officer and Others

B.N. Mahapatra, J.

1 This writ petition has been filed with a prayer to issue a writ in the nature-of mandamus directing opposite party No. 1, the Sales Tax Officer, Rourkela II Circle, Panposh, Rourkela, to refund a sum of Rs. 98,262 along with interest at 24 per cent per annum from the date of application dated October 1, 2002 (annexure 5) till the date of refund and to quash the order dated September 13, 2007 passed by opposite party No. 1 under annexure 1 rejecting the petitioner''s application dated October 1, 2002 for refund of Rs. 91,512 for the year 1996-97 on the ground that the said order has been passed arbitrarily and in contravention of the provisions contained in Section 14 of the Orissa Sales Tax Act, 1947 (hereinafter referred to as, "the OST Act").

The facts giving rise to the present writ petition are that the petitioner is a private limited company incorporated under the Companies Act, 1956 having its registered office at 240, 2nd Floor, 254-A Park Street, Kolkata 16. It is a works contractor and obtained registration certificate under the OST Act from opposite party No. 1. For the year 1996-97, the petitioner was assessed u/s 12(4) of the OST Act by opposite party No. 1 who completed the assessment order u/s 12(4) of the OST Act granting a refund of Rs. 91,512. Being aggrieved by the said order, the petitioner preferred first appeal for further relief before opposite party No. 2 who by his order dated July 20, 2002 (annexure 4) dismissed the appeal confirming the order of assessment. Pursuant to the said order under annexure 4 passed by opposite party No. 2, the petitioner filed an application for refund of Rs. 91,512.

However, being dissatisfied with the order of the first appellate authority, both the petitioner and the Revenue filed second appeal before the Orissa Sales Tax Tribunal, Cuttack. The learned Tribunal vide its order dated April 20, 2005 (annexure 6) while allowing the appeal of the petitioner in part dismissed the appeal preferred by the Revenue. The learned Tribunal vide its said order dated April 20, 2005 remitted the matter back to the STO-opposite party No. 1 with a direction to re-compute the tax liability of the petitioner. On June 8, 2007, the petitioner made an application (annexure 7) to opposite party No. 1 for re-computation of the tax liability as per the direction of the learned Tribunal. Opposite party No. 1 by its order dated August 30, 2007 (annexure 2) recomputed the tax liability of the petitioner at Rs. 26,999.78 and, the petitioner having already paid Rs. 1,25,262 by way of T.D.S., granted a refund of Rs. 98,262 in favour of the petitioner. Immediately thereafter on September 13, 2007, the opposite party No. 1 rejected the petitioner''s refund application dated October 1, 2002 (annexure 5) on the ground that the same was premature as per the re-computation order No. 927 dated September 12, 2007. Hence, the present writ petition.

Mr. D. Pari, learned Counsel appearing on behalf of the petitioner, submits that the refund of Rs. 91,512 flew from the order of assessment dated December 22, 1997 passed by opposite party No. 1, which was confirmed by opposite party No. 2 vide its order dated July 20, 2002 in the first appeal. Therefore, opposite parry No. 1 is obliged under the law to refund the said amount to the petitioner on its refund application dated October 1, 2002 (which date has been wrongly mentioned by O. P. No. 1 as October 11, 2002). Opposite party No. 1 in its order dated September 13, 2007 (annexure 1) has not assigned any reason as to why the refund application dated October 1, 2002 was kept pending for such a long period and only on September 13, 2007 it was held to be premature. There is no provision under the statute enabling opposite party No. 1 to keep the refund application flowing from the assessment order and after being confirmed by first appellate order. He further submits that pursuant to the re-computation order dated August 30, 2007 (annexure 2), the petitioner made another refund application on November 3, 2007 (annexure 8) for refund of Rs. 98,262 as no amount was refunded to him by that time pursuant to his earlier refund application dated October 1, 2002 (annexure 5). According to Mr. Pari, it was obligatory on the part of opposite party No, 1 to refund the said amount immediately without keeping the application pending, which is due to the petitioner from December 22, 1997 in view of the order of assessment passed by opposite party No. 1. Concluding his argument Mr. Pati submits that opposite party No. 1 is obliged to refund a sum of Rs. 98,262 along with interest at 24 per cent per annum from the date of first application till it is refunded; and by the time the writ petition was filed, the interest accrued on the refund amount was at Rs. 1,20,795.

Mr. Dalei, learned Counsel appearing on behalf of the Revenue, submits that opposite party No. 1 is justified in rejecting the petitioner''s first refund application dated October 1, 2002 filed pursuant to the order of opposite party No. 2 in view of the fact that the petitioner being not satisfied with the first appellate order had preferred second appeal. The Revenue was also not satisfied with the first appellate order and filed second appeal. In the process, the assessment order merged with the first appellate order and both the assessment order and the first appellate order merged with the second appellate order. The petitioner therefore is not entitled to get any refund on the basis of the first refund application dated October 1, 2002 filed by him pursuant to the first appellate order and, the writ petition is liable to be dismissed.

From the rival contentions made by the respective parties, the questions that fall for consideration by this Court are as follows:

(i) Whether, on the facts and in the circumstances of the case, the petitioner is entitled to get refund of Rs. 91,512 on the basis of its refund application dated October 1, 2002 filed before opposite party No. 1 pursuant to the first appellate order by which the assessment order was confirmed?

(ii) Whether, on the facts and in the circumstances of the case, the order, dated September 13, 2007 passed by opposite party No. 1 rejecting the petitioner''s refund application dated October 1, 2002 is sustainable in the eyes of law?

(iii) Whether the petitioner is entitled to get refund of Rs. 98,262 along with interest at 24 per cent per annum from the date of original application dated October 1, 2002 till the date of payment?

At this juncture, it is necessary to know what is contemplated in Sections 7 14,14C and 14D of the OST Act and rules 39 and 40 of the Orissa Sales Tax Rules, 1947 (hereinafter called "the OST Rules"). The relevant provisions of these sections and rules are reproduced below:

Section 14. Refunds.--The Commissioner shall, in the prescribed manner, refund to a dealer applying in this behalf any amount of tax, penalty or interest paid by such dealer in excess of the amount due from him under this Act, either by cash payment or by deduction of such excess from the amount of tax, penalty or interest due in respect of any other period:

Provided that no claim to refund of any tax, penalty or interest paid under this Act, shall be allowed unless it is made within twenty-four months from the date on which the order of assessment or order imposing penalty, as the case may be, was passed or from the date of the final order passed on appeal, revision or reference in respect of the order earlier mentioned, whichever period is later:

Provided further that no claim to refund of any tax, penalty or interest paid under this Act shall be allowed in cases where there is an order for reassessment, until the reassessment is finalized....

Section 14C. Payment of interest on refundable amount.�(1) Amounts refundable u/s 14, if not refunded within a period of ninety days from the date of receipt of the application in that behalf from the dealer, shall carry interest at the rate of ten per cent per annum with effect from the date of expiry of the said period:

Provided that--

(a) If the delay or any part thereof in granting the refund within the aforesaid period attributable to the person to whom the refund is payable, the period of such delay shall be excluded for the purpose of calculation of such interest; and

(b) the interest calculable shall be on the balance of the amount after adjusting the amount of tax, penalty or other amount due, if any, under this Act from the dealer for any year out of the refundable amount of the date from which such interest is calculable....

Section 14D. Power to withhold refund in certain cases.--Where an order giving rise to a refund is the subject-matter of an appeal or further proceeding under this Act, the Commissioner may, if he is of the opinion that the grant of refund is likely to adversely affect the revenue, withhold the refund till such time as he deems proper.

Rule 39. Application for refund.--(1) An application from a dealer for a refund of any amount of tax, penalty or interest, if any, paid by him in excess of the amount and interest due or security paid shall be made to the Commissioner in form XII and shall clearly specify the grounds upon which the refund is claimed.

(2) If the refund application is found to be incorrect, incomplete or otherwise not in order, the Assistant Sales Tax Officer or the Sales Tax Officer, as the case may be, after making such enquiry as he considers necessary, and after giving the dealer an opportunity of being heard, pass such orders thereon as he thinks fit.

Rule 40. Order sanctioning refund.--When the Commissioner is satisfied that a refund is due, he shall record an order sanctioning the refund and payment of interest, if any, as provided u/s 14C and communicate the order to the applicant.

Section 14 provides that the Commissioner shall, in the prescribed manner, refund to a dealer applying in this behalf any amount of tax, penalty or interest paid by such dealer in excess of the amount due from him under the OST Act, either by cash payment or by deduction of such excess from the amount of tax, penalty or interest due in respect of any other period. Proviso to the said section prescribes a time-limit for claiming such refund. According to the said proviso, a dealer can claim refund within two years of passing of the assessment order or final order passed on appeal, revision or reference, whichever period is later. Where there is an order for reassessment, until the said reassessment is finalized no claim to refund of any tax, penalty or interest shall be allowed. Thus, if appellate or revisional authority set aside the assessment or directed re-computation of the tax liability, in that event the dealer is entitled to make an application for refund from the date of receipt of the order passed by the Sales Tax Officer pursuant to the direction of the appellate or revisional authority [See Sinclair Murray & Company (Pvt.) Ltd. v. State of Orissa [1970] 26 STC 451 (Ori)]. Rules 39 and 40 of the OST Rules prescribe the form for application of such refund and order sanctioning refund with interest, if any.

Thus, for the purpose of claiming refund u/s 14, there must be 9 an order of assessment or an order imposing penalty or a final order passed in appeal or revision/reference granting refund.

So far as the first question is concerned, the petitioner''s right to get 10 refund of Rs. 91,512 flowed from the order of assessment dated December 22, 1997, (annexure 3) which was confirmed by the first appellate order dated July 20, 2002 (annexure 4). The petitioner made an application for refund on October 1, 2002 in form No. XII as prescribed under rule 39 of the OST Rules. This refund application was filed within the period of limitation as prescribed u/s 14 of the OST Act. Opposite party No. 1 instead of granting refund pursuant to his own order that was confirmed by the first appellate authority kept the matter pending for about five years and finally rejected the same on September 13, 2007 (annexure 1). The said order does not reveal any reason whatsoever why the said application for refund was not acted upon within a reasonable time and why the same was kept pending for about five years till it was rejected on September 13, 2007. Opposite party No. 1 was obliged u/s 14 of the OST Act to consider the petitioner''s refund application promptly and should have refunded the said amount within a period of ninety days from the date of application, otherwise, the dealer claiming refund shall be entitled to get interest on the refund amount. It shall be an unnecessary financial burden on the State exchequer, which should always be avoided.

This Court in Orient Paper Mills v. State of Orissa [1988] 70 STC 333, 11 held that refund applications should not be kept pending without being attended to by the Sales Tax Officer for years together. Resorting to quick action after long delay just to disallow interest to an assessee is a fraud on the statute and cannot be condoned. The court awarded interest under such circumstances.

This Court in Mahabir Rice Mill v. Sales Tax Officer [2000] 120 STC 236, 12 held that failure to intimate dealer about the defect, if any, in the application for refund within ninety days because of his own fault, the Sales Tax Officer cannot deny interest. Enquiry, if any, required under rule 39(2) of the Orissa Sales Tax Rules has to be conducted within the period of ninety days which is the time-limit provided for grant of refund.

If the assessing officer finds that the refund application is not otherwise maintainable being incorrect, incomplete or not in order, he should within a period of ninety days pass appropriate order after making such inquiry as he considers necessary by giving the dealer an opportunity of being heard.

In the case at hand, as it appears, opposite party No. 1 slept over the refund application for about five years, which was not warranted from a responsible officer of the Government. The contention of the Revenue that since both the petitioner and State filed second appeal, there was no occasion for opposite party No. 1 to release the refundable amount on the basis of the petitioner''s application for refund filed pursuant to first appellate order is not tenable at all. u/s 14, the opposite party No. 1 is bound to release the refundable amount that flowed from the assessment order itself as well as first appellate order. Section 14D authorizes the Commissioner to withhold the refund for some time where an order giving rise to a refund is the subject-matter of an appeal or further proceeding under the OST Act. This is the only enabling provision available to the Commissioner to withhold the refund till such time as he thinks fit. No order has ever been passed by the opposite parties exercising power u/s 14D for withholding the refund till it was rejected on September 13, 2007. Thus the refund application dated October 1, 2002 filed by the petitioner, which was kept pending by opposite party No. 1 for about five years, was without any authority of law. Such action is always to be deprecated. The petitioner is entitled to get refund of Rs. 91,512 from October 1, 2002 along with interest as provided u/s 14C of the OST Act during relevant time till the date of payment.

The second question is whether the order dated September 13, 2007 (annexure 1) passed by opposite party No. 1 rejecting the refund application of the petitioner dated October 1, 2002 (annexure 5) is sustainable in the eyes of law. As stated above, opposite party No. 1 for no reason kept the petitioner''s refund application dated October 1, 2002 pending for about five years whimsically. Rule 39 empowers the assessing officer to pass appropriate order as he thinks fit on a refund application. If the refund application is found to be incorrect, incomplete or otherwise not in order, the assessing officer can pass any appropriate order only after making such enquiry, as he considers necessary, and after giving the dealer an opportunity of being heard. But in the present case, neither any enquiry was made nor was any opportunity of hearing afforded to the petitioner before rejection of the refund application. This clearly violates the mandate of rule 39 of the OST Rules. The only reason given by opposite party No. 1 in rejecting the petitioner''s refund application dated October 1, 2002 is that the said application was premature as per the re-computation order No. 927 dated September 12, 2007. Re-computation order dated August 30, 2007 (which was issued vide order No. 927 dated September 12, 2007) does not speak anything about petitioner''s refund application dated October 1, 2002. It simply contains re-computation of the petitioner''s tax liability as per the direction of the Sales Tax Tribunal vide order dated April 20, 2005 passed under annexure 6. In view of the above, the impugned order passed by opposite party No. 1 is not sustainable in the eyes of law.

The third question relates to payment of interest on the refund amount. The petitioner claims 24 per cent interest per annum on the refund amount of Rs. 98,262 from the date of filing of the first refund application, i.e., October 1, 2002. The petitioner in his refund application dated October 1, 2002 (annexure 5) has claimed refund of Rs. 91,512. The said amount of refund flows from the order of the assessing officer, which was confirmed by the Assistant Commissioner. The refund of Rs. 98,262 flows only from the re-computation order dated August 30, 2007 passed vide annexure 2 by opposite party No. 1 in pursuance of the orders of the Sales Tax Tribunal passed in S.A. No. 1155 of 2002-03 and S.A. No. 1379 of 2002-03. Thus, this enhanced amount of refund neither flows from the order of assessment nor from first appeal order. That apart, the petitioner''s right to get refund depends upon filing of a valid refund application as provided in Section 14 of the OST Act read with rule 39 of the OST Rules. The application dated October 1, 2002 was filed by the petitioner for refund of Rs. 91,512 only. Therefore, the claim of the petitioner for payment of interest on the enhanced amount of Rs. 98,262 on its first refund application dated October 1, 2002 is not sustainable. The petitioner is only entitled to get interest as provided in Section 14C of the OST Act on the refund amount of Rs. 91,512 on the basis of his refund application dated October 1, 2002. He is entitled to get additional amount of Rs. 6,750 (Rs. 98,262 - Rs. 91,512 = Rs. 6,750) on the basis of its second refund application dated November 3, 2007 along with interest in accordance with law.

However, the petitioner shall be allowed by opposite party No. 1 to make, correction of the refund amount to be Rs. 6,750 in place of Rs. 98,262 in the second refund application dated November 3, 2007 within a period of four weeks from today. It is so required because the petitioner claimed refund amount of Rs. 98,262 in its second application as no refund had been made to the petitioner on its first refund application dated October 1, 2002.

In view of the above, annexure 1 is hereby quashed. The writ application, is disposed of with direction to opposite party No. 1 to release the refundable amount in favour of the petitioner along with interest, as indicated above, within eight weeks from the date of receipt of the certified copy of this order from the petitioner.

B.S. Chauhan, C.J.

I agree.