Relief to Castrol India Ltd, Withholding Tax Refunds beyond Prescribed Period without Any Justification Violates S. 55 of JVAT Act: Jharkhand HC [Read Order]

In a ruling in favour of Catrol India Ltd, the Jharkhand High Court ruled that when tax refunds are withheld past the legally mandated time frame without sufficient explanation, Section 55 of the Jharkhand Value Added Tax Act, 2005, is violated and the taxpayer is deprived of their dues.

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After the State authorities postponed the process despite issuing an excess demand notice, Castrol India Limited, the petitioner, requested a refund of ₹1,47,62,037 for the assessment year 2011–12 along with statutory interest. A tax burden that was first determined to be ₹12.53 crore under Section 35(6) of the JVAT Act gave rise to the case.

After an appeal and remand, the department reevaluated the liability to ₹11.06 crore even though the petitioner had previously paid ₹12.56 crore. The overpayment was acknowledged in an excess demand notice dated August 31, 2020. But the petitioner didn't receive that notice until December 15, 2022. The major reimbursement was only granted on March 29, 2024, much past the allotted 90 days, despite a refund application being submitted on February 17, 2023.

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The petitioner argued that it was unlawful to delay processing the return and to arbitrarily insist on paying up unrelated outstanding debts. Additionally, they contended that interest was owed not only from the date of the refund application but also from the date of the excess demand notice.

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The Division Bench comprising the Chief Justice MS Ramachadran Rao and Justice Deepak Roshan observed that the fundamental purpose of Section 55 of the JVAT Act will be rendered obsolete if the non-allocation of money is used as an excuse to postpone the Petitioner's rightful reimbursement.

The bench ruled that the Court's decision that the return must include interest from the day the excess demand was recognized cannot be overruled by the State's failure to provide cash.

The Court further underlined the duty to pay interest and the legal nature of such reimbursements, stating that "payment of interest would be a necessary corollary." The interest granted is a form of compensation for the time that the assessee was denied access to its money, and it settles a debt owed to the assessee for the refund that was due and payable to it.

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The Court directed the State authorities that the petitioner is entitled for 6% Simple Interest on the total amount of refund from 31.08.2020 i.e. the date of issuance of Demand Notice as stated hereinabove till the principal amount has been paid, after reducing the period which the petitioner took in filing the Refund application after receiving the same from the Respondents on 15.12.2022.

While allowing the petition, the Court ordered that the interest be paid within eight weeks of receipt of the order, failing which a cost of ₹1,00,000 would also be imposed.

To Read the full text of the Order CLICK HERE

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