Assam HC Slams Tax Department for Denying Lawful Refunds under CST Act: Petitioner Wins Battle over VAT Reimbursement [Read Order]

The Gauhati High Court slams the Assam Taxation Department for wrongfully rejecting the refund claims of Carbon Resources Pvt. Ltd. under Section 15(b) of the Central Sales Tax (CST) Act, 1956. The Court has quashed six identical orders dated 07.11.2022 passed by the Commissioner of Taxes, Assam, terming them legally unsustainable and based on erroneous interpretations of settled tax law.

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Carbon Resources Pvt. Ltd., a private company with its factory located in Chirang, Assam, is engaged in manufacturing Calcined Petroleum Coke (CPC) from Raw Petroleum Coke (RPC). During the assessment years from 2012-2013 to 2017-2018, the company purchased RPC within Assam by paying Value Added Tax (VAT), and later sold CPC in inter-State transactions while paying CST.

Under Section 15(b) of the CST Act, if declared goods (like petroleum coke) are purchased within a state on which VAT is paid and are then sold in the course of inter-State trade with CST being paid, the VAT paid becomes refundable to the dealer. However, the Commissioner of Taxes rejected Carbon Resources’ refund claims despite the company fulfilling these statutory conditions.

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Carbon Resources had initially been assessed without any decision on their refund application. Later, after obtaining Eligibility and Entitlement Certificates under the Assam Industries (Tax Exemption) Scheme, 2009, the company applied for reimbursement. The assessing officer, after due clarification from higher officials, rectified the assessments and held the refund admissible.

Despite these rectification orders and a High Court directive in an earlier writ petition asking the department to process the refund, the Commissioner rejected the claims stating that the assessments had already attained finality and that the refund applications were filed with delay. It was also held that the petitioner had not deposited “full CST” and hence failed a condition of Section 15(b) and that the petitioner was not a party to the earlier Guwahati Carbon case before the Supreme Court and could not claim parity.

Justice Manish Choudhury, dismissed every ground cited by the tax department and provided a detailed walkthrough of statutory provisions and case law. The Court held that the mere silence in the original assessments regarding reimbursement cannot be interpreted as rejection. No specific decision or reasons were recorded, hence no finality could be claimed.

The court also held that the rectification orders under Section 83 of the AVAT(Amendment) Act 2009, were passed within the statutory three-year window and based on a binding legal position clarified by the Supreme Court in State of Assam v. Guwahati Carbon Ltd. The Court stated that Section 15(b) does not stipulate the payment of “full CST”. The 99% remission under the Assam Industries Scheme was valid and lawful. The company’s 1% CST deposit was sufficient to meet the statutory requirement. The High Court also reaffirmed that legal principles laid down by the Supreme Court apply even to non-parties. The state’s argument that Carbon Resources was a “fence-sitter” was rejected.

The High Court concluded that the Commissioner’s orders suffered from clear legal errors, misapplication of tax law, and unjustified denial of legitimate refunds. Accordingly, it set aside all six impugned orders and directed the tax department to process the refund claims for the relevant years, including interest, within six weeks.

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