Interest on Refund cannot be Granted during the Pendency of Re-Assessment Proceedings: Orissa HC [Read Judgment]

Reimbursement - Orissa High Court

In M/s Bawa Trading Co v. sales Tax Officer & Ors, the division bench of the Orissa High Court held that the assessee would be entitled to get interest only when the assessment for the particular year would be concluded finally. The bench was hearing a writ petition filed by the assessee challenging the action of the Officials who denied the interest amount to them while granting refund of excess sales tax paid by them.

As per the order of the Sales Tax Officer, the petitioners were entitled to refund to the tune of Rs.2,53,438/- and Rs.2,41,132/- which was subsequently reduced to Rs. 2,25,038/- and Rs.2,13,592/-. In the meanwhile, re-assessment proceedings were initiated against the assessee alleging sales suppression on the basis of the reports submitted by the Intelligence Wing. During the pendency of the proceedings, the petitioner had again filed an application afresh for refund of the amount along with interest. Though the petitioner was granted with refund amount, they contended that interest has not been given to them.

On behalf of the Revenue, it was submitted that Refund has been made within the stipulated time and interest cannot be paid from the date of first application submitted after the order of assessment, rather interest can only be paid after the assessment would finally be settled.

The division bench comprising of Justice Sanju Panda and Justice Sujit Narayan Prasad noted that as per the Act, the assessment for a particular period would be said to be concluded if there is no order for reassessment in exercise of the powers conferred under Section 12(8) of the Orissa Sales Tax Act. “If that would be the situation and if it is found that the assessee have paid excess amount having been assessed in course of assessment and if not refunded in view of the provisions of Section 14 of the Orissa Sales Tax Act, then the assessee would be entitled to get interest if the amount would not be refunded within a period of ninety days and the interest will be payable after expiry of the period of ninety days inclusive of the period of ninety days.”

“There is no dispute about the settled proposition that the provision for charging interest is introduced in order to compensate for the loss occasioned to the revenue due to delay in payment of tax as also payment of interest on the excess payment of tax liability, the assessee is entitled to get refund of the amount along with interest, the purpose being is to compensate the assessee. It is also not in dispute that it is only after determination of the questions of fact, the Assessing Officer having the order holding that the assessee is liable to pay the tax, which he had not paid and vice versa, the assessee is also entitled to get refund of the amount after the final assessment having been made by the Assessing Officer, and if on final determination, found that the assessee is entitled to get refund, certainly the interest will be paid to compensate the assessee.”

As we have observed herein-above that it is a case of misrepresentation and suppression of fact leading the authorities to resort to the provisions of Section 12(8) of the Orissa Sales Tax Act and for that reason there was an order for reassessment and as such, the second proviso to Section 14 will be applicable, which provides that no claim for 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.”

It was observed that as per the above provision, the amount would not be refunded either the excess amount paid, penalty or interest until the reassessment is finalized. “This clarifies the intent of the legislation that till assessment for a particular year is finalized, the amount would not be refunded since the same is the subject matter of scrutiny and it is only after finalization of the assessment in its entirety for a particular assessment year, the question of payment of interest on the refundable amount as provided under Section 14-C Orissa Sales Tax Act would come.”

Read the full text of the Judgment below.