Holding

The mandatory timeline under Section 38(3) must be strictly complied with, and a refund cannot be adjusted against dues that arose after the refund became payable.

Summary

The respondent, FEMC Pratibha Joint Venture, claimed refunds of excess VAT credits for the 4th quarter of 2015‑16 and the 1st quarter of 2017‑18, filing revised returns in 2017 and 2019. The Commissioner of Trade and Taxes failed to refund the amounts and, in 2022, issued an adjustment order that set off the pending refunds against four default notices issued in 2020‑2022. The respondent challenged the adjustment order before the Delhi High Court, which quashed the order and directed the Commissioner to pay the refunds with interest under Section 42 of the Delhi Value Added Tax Act. On appeal, the Supreme Court examined whether the mandatory timeline in Section 38(3) of the Act must be observed before a refund can be adjusted against later dues. The Court held that the timeline is mandatory, that adjustment is permissible only against amounts due at the time the refund becomes payable, and that the Commissioner could not retain the refund beyond the prescribed period. Consequently, the Supreme Court affirmed the High Court’s decision, dismissing the appeal and ordering the refund with interest.

Issues considered

Whether the timeline for refund prescribed under s. 38(3) of the Delhi Value Added Tax Act, 2004 must be mandatorily followed while recovering dues under the Act;
Whether the Tax Assessing Officer could pass an adjustment order to adjust the respondent’s claim for refund against default notices issued subsequently.

Legislation cited

Central Sales Tax Act, 1956
Delhi Value Added Tax Act, 2004s. 25, s. 38, s. 42, s. 58, s. 59, s. 74

Subjects

RefundAdjustmentAdjustment orderTimelineDefault notices

Judgment

[2024] 6 S.C.R. 337 : 2024 INSC 364

Commissioner of Trade and Taxes
v.
FEMC Pratibha Joint Venture
(Civil Appeal No. 3940 of 2024)
01 May 2024
[Pamidighantam Sri Narasimha* and
Prasanna Bhalachandra Varale, JJ.]

Issues for Consideration
(1) Whether the timeline for refund prescribed under s. 38(3) of
the Delhi Value Added Tax Act, 2004 must be mandatorily
followed while recovering dues under the Act; and

(2) Whether the Tax Assessing Officer could pass an adjustment
order to adjust Respondent’s claim for refund against default
notices issued subsequently.

Headnotes†

Tax-VAT – Delhi Value Added Tax Act, 2004. – ss. 38(3) and 42
– Respondent claimed refund of excess tax credit along with
interest for 4th quarter of 2015-2016 and 1st quarter of 2017-2018
– Appellant did not refund – Issued adjustment order against
dues under four default notices issued in 2020, 2021 and 2022
– Adjustment order quashed by High Court – Appellant directed
to refund with interest – High Court’s judgment affirmed.

Held: Respondent claimed refund of excess tax credit along with
applicable interest under Delhi Value Added Tax Act, 2004, s. 42, for
the 4th quarter of 2015-2016 and 1st quarter of 2017-2018 through
return filed on 29.03.2019 – Appellant did not refund until 2022
– Adjustment order issued to adjust Respondent’s claims against
four default notices issued in 2020, 2021 and 2022 – Adjustment
order challenged in High Court and is quashed – High Court’s
judgment affirmed.

Language of s. 38(3) of 2004 Act is mandatory – Timeline stipulated
must be adhered to – Object of provision to ensure refunds are
processed and issued in a timely manner – Adjustment under
s. 38(2) permitted only against amounts ‘due under the Act’ –

* Author
338 [2024] 6 S.C.R.

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Appellant not justified in retaining refund amount and adjusting it
towards notices issued subsequent to the refund period – Effect
of timeline under s. 38(3) not only for calculation of interest under
s. 42 – Contention rejected. [Paras 6-10]

Case Law Cited

Flipkart India Private Limited v. Value Added Tax
Officer, Ward 300, 2023 SCC OnLine Del 5201; Swarn
Darsan Impex v. Commissioner, Value Added Tax,
2010 SCC OnLine Del 4697; Nucleus Marketing and
Communication v. Commissioner of Delhi Value Added
Tax, 2016 SCC OnLine Del 3941; Rockwell Industries
v. Commissioner of Trade and Taxes, 2019 SCC
OnLine Del 8432; ITD-ITD CEM JV v. Commissioner
of Trade and Taxes, 2019 SCC OnLine Del 9568;
Ramky Infrastructure Ltd. v. Commissioner of Trade and
Taxes, 2023 SCC OnLine Del 4236; Commissioner of
Trade and Taxes v. Corsan Corviam Construction S.A.
Sadbhav Engineering Ltd. JV, 2023 SCC OnLine Del
1900 - referred to.

List of Acts

Delhi Value Added Tax Act, 2004.

List of Keywords

Refund; Adjustment; Adjustment order; Timeline; Default notices.

Case Arising From

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 3940 of 2024
From the Judgment and Order dated 21.09.2023 of the High Court
of Delhi at New Delhi in WP (C) No. 2491 of 2023

Appearances for Parties

N Venkataraman, A.S.G., Mukesh Kumar Maroria, V C Bharathi,
Udai Khanna, Siddharth Sinha, Advs. for the Appellant.
Rajesh Jain, Virag Tiwari, Rishabh Jain, Ramashish, K. J. Bhat,
Avadh Bihari Kaushik, Advs. for the Respondent.
[2024] 6 S.C.R. 339

Commissioner of Trade and Taxes v. FEMC Pratibha Joint Venture

Judgment / Order of the Supreme Court
Judgment
Pamidighantam Sri Narasimha, J.
1. The issue for consideration before us is whether the timeline for
refund under Section 38(3) of the Delhi Value Added Tax Act, 20041
must be mandatorily followed while recovering dues under the Act
by adjusting them against the refund amount.
2. The brief facts relevant for our purpose are as follows. The respondent
is a joint venture engaged in the execution of works contracts for
the Delhi Metro Rail Corporation and makes purchases for this
purpose. It claimed refund of excess tax credit amounting to Rs.
17,10,15,285/- for the 4th quarter of 2015-16 through revised return
filed on 31.03.2017 and Rs. 5,44,39,148/- for the 1st quarter of 2017-
18 through return filed on 29.03.2019, along with applicable interest
under Section 42 of the Act. The appellant did not pay the refund
even until 2022, pursuant to which the respondent sent a letter dated
09.11.2022 for the consideration of their refund. The Value Added
Tax Officer passed an adjustment order dated 18.11.2022 to adjust
the respondent’s claims for refund against dues under default notices
dated 30.03.2020, 23.03.2021, 30.03.2021, and 26.03.2022. The
respondent then filed a writ petition before the Delhi High Court for
quashing the adjustment order and the default notices.
3. By judgment dated 21.09.2023, impugned herein, the High
Court quashed the adjustment order and directed refund of Rs.
17,10,15,285/- for the 4th quarter of 2015-16 and Rs. 5,44,39, 148/-
for the 1st quarter of 2017-18, along with interest as per Section 42
till the date of realisation.2 In respect of the default notices, the High
Court gave liberty to the respondent to avail statutory appeal under
Section 74 of the Act.
4. The present appeal is restricted to the issue of quashing the
adjustment order. The High Court placed reliance on the Delhi High
Court’s judgment in Flipkart India Private Limited v. Value Added Tax

1 Hereinafter ‘the Act’.
2 WP (C) 2491/2023, judgment dated 21.09.2023 (‘Impugned judgment’).
340 [2024] 6 S.C.R.

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Officer, Ward 3003 to summarise the law on refund under Section
38. It held that the department must scrupulously adhere to the
time limit for processing and issuing the refunds under Section 38.
Whenever the department seeks to obtain necessary information
under Section 59 of the Act, it must take steps within the time limit
envisaged under the Act. Further, the refund amount can be adjusted
only when an enforceable demand in the nature of tax or duty is
pending against the assessee. The department does not have any
legal right or justification to retain the amount beyond the time limit
prescribed under Section 38.4 In the facts of the present case, it was
held that the mandate of the Act has not been followed and hence
the adjustment order is not maintainable.5
5. We have heard the learned ASG for the department and Mr. Rajesh
Jain, learned counsel for the respondent-assessee. The learned ASG
has submitted that the timelines specified in Section 38(3) are only
to ensure that interest is paid if the refund is delayed beyond the
statutorily prescribed period. However, he has argued, the timeline
cannot be used to denude the power to adjust refund amounts against
outstanding dues under Section 38(2). The refund can be adjusted
as long as outstanding dues exist at the time when the refund is
processed, even if it is beyond the stipulated timeline. The learned
counsel for the assessee has supported the reasoning of the High
Court and has placed reliance on several judgments of the Delhi
High Court that affirm this position of law.6
6. We find no reason to interfere with the impugned judgment, which
follows the view that has been consistently adopted by the High
Court.7 The finding of the High Court is based on the plain language
of Section 38 of the Act, which reads as follows:

3 2023 SCC OnLine Del 5201
4 Impugned judgment, para 10.
5 ibid, para 11.
6 Swarn Darsan Impex v. Commissioner, Value Added Tax, 2010 SCC OnLine Del 4697; Nucleus
Marketing and Communication v. Commissioner of Delhi Value Added Tax, 2016 SCC OnLine Del
3941; Rockwell Industries v. Commissioner of Trade and Taxes, 2019 SCC OnLine Del 8432; ITD-ITD
CEM JV v. Commissioner of Trade and Taxes, 2019 SCC OnLine Del 9568; Ramky Infrastructure Ltd v.
Commissioner of Trade and Taxes, 2023 SCC OnLine Del 4236; Commissioner of Trade and Taxes v.
Corsan Corviam Construction S.A. Sadbhav Engineering Ltd JV, 2023 SCC OnLine Del 1900; Flipkart
India (supra).
7 ibid.
[2024] 6 S.C.R. 341

Commissioner of Trade and Taxes v. FEMC Pratibha Joint Venture

“38. Refunds
(1) Subject to the other provisions of this section and the
rules, the Commissioner shall refund to a person the
amount of tax, penalty and interest, if any, paid by
such person in excess of the amount due from him.
(2) Before making any refund, the Commissioner shall
first apply such excess towards the recovery of any
other amount due under this Act, or under the CST
Act, 1956 (74 of 1956).
(3) Subject to sub-section (4) and sub-section (5) of this
section, any amount remaining after the application
referred to in sub-section (2) of this section shall be
at the election of the dealer, either –
(a) refunded to the person, –
(i) within one month after the date on which
the return was furnished or claim for the
refund was made, if the tax period for the
person claiming refund is one month;
(ii) within two months after the date on which
the return was furnished or claim for the
refund was made, if the tax period for the
person claiming refund is a quarter; or
(b) carried forward to the next tax period as a tax
credit in that period.
(4) Where the Commissioner has issued a notice to the
person under section 58 of this Act advising him that
an audit, investigation or inquiry into his business
affairs will be undertaken or sought additional
information under section 59 of this Act, the amount
shall be carried forward to the next tax period as a
tax credit in that period.
(5) The Commissioner may, as a condition of the payment
of a refund, demand security from the person pursuant
to the powers conferred in section 25 of this Act within
fifteen days from the date on which the return was
furnished or claim for the refund was made.
342 [2024] 6 S.C.R.

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(6) The Commissioner shall grant refund within fifteen
days from the date the dealer furnishes the security
to his satisfaction under sub-section (5).
(7) For calculating the period prescribed in clause (a) of
sub- section (3), the time taken to –
(a) furnish the security under sub-section (5) to the
satisfaction of the Commissioner; or
(b) furnish the additional information sought under
section 59; or
(c) furnish returns under section 26 and section
27; or
(d) furnish the declaration or certificate forms as
required under Central Sales Tax Act, 1956,
shall be excluded
(8) Notwithstanding anything contained in this section,
where –
(a) a registered dealer has sold goods to an
unregistered person; and
(b) the price charged for the goods includes an
amount of tax payable under this Act;
(c) the dealer is seeking the refund of this amount
or to apply this amount under clause (b) of sub-
section (3) of this section;
no amount shall be refunded to the dealer or may
be applied by the dealer under clause (b) of sub-
section (3) of this section unless the Commissioner
is satisfied that the dealer has refunded the amount
to the purchaser.
(9) Where –
(a) a registered dealer has sold goods to another
registered dealer; and
(b) the price charged for the goods expressly
includes an amount of tax payable under this Act,
[2024] 6 S.C.R. 343

Commissioner of Trade and Taxes v. FEMC Pratibha Joint Venture

the amount may be refunded to the seller or may
be applied by the seller under clause (b) of sub-
section (3) of this section and the Commissioner
may reassess the buyer to deny the amount of the
corresponding tax credit claimed by such buyer,
whether or not the seller refunds the amount to the
buyer.
(10) Where a registered dealer sells goods and the price
charged for the goods is expressed not to include
an amount of tax payable under this Act the amount
may be refunded to the seller or may be applied by
the seller under clause (b) of sub-section (3) of this
section without the seller being required to refund
an amount to the purchaser.
(11) Notwithstanding anything contained to the contrary
in sub-section (3) of this section, no refund shall be
allowed to a dealer who has not filed any return due
under this Act.”
7. Sub-section (1) provides that any amount of tax, penalty and interest
that is in excess of the amount due from a person shall be refunded to
him by the Commissioner. Sub-section (2) permits the Commissioner
to first apply such excess to recover any other amount that is due
under the Act or the Central Sales Tax Act, 1956. Sub-section (3),
which is relevant for our purpose, provides the assessee with the
option of getting the refund or carrying it forward to the next tax
period as a tax credit. In case of refund, Section 38(3)(a) provides
the timeline for refund from the date on which the return is furnished
or claim for refund is made as: (i) within one month, if the period for
refund is one month; (ii) within two months, if the period for refund
is a quarter. Sub-section (4) provides that if notice has been issued
under Section 58 or additional information has been sought under
Section 59, then the amount shall be carried forward to the next
tax period as tax credit. Sub-sections (5) and (6) pertain to security.
Sub-section (7) provides certain exclusions while calculating the
period under sub-section (3). Sub-sections (8)-(10) pertain to refund
in cases of sale to registered and unregistered dealers. Lastly, sub-
section (11) provides that the refund shall not be allowed to a dealer
who has not filed any return that is due under the Act.
344 [2024] 6 S.C.R.

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8. The language of Section 38(3) is mandatory and the department
must adhere to the timeline stipulated therein to fulfil the object of
the provision, which is to ensure that refunds are processed and
issued in a timely manner.
9. In the present case, Section 38(3)(a)(ii) is relevant as both the
refunds in the present case pertain to quarter tax periods. Therefore,
as per Section 38(3)(a)(ii), the refund should have been processed
within two months from when the returns were filed (31.03.2017
and 29.03.2019), which comes up to 31.05.2017 and 29.05.2019.
The default notices are dated 30.03.2020, 23.03.2021, 30.03.2021,
and 26.03.2022. It is therefore evident that the default notices
were issued after the period within which the refund should have
been processed. Sub-section (2) only permits adjusting amounts
towards recovery that are “due under the Act”. By the time when
the refund should have been processed as per the provisions of
the Act, the dues under the default notices had not crystallised
and the respondent was not liable to pay the same at the time.
The appellant-department is therefore not justified in retaining the
refund amount beyond the stipulated period and then adjusting the
refund amount against the amounts due under default notices that
were issued subsequent to the refund period.
10. Further, the learned ASG’s contention that the purpose of the timeline
provided under sub-section (3) is only for calculation of interest
under Section 428 would defeat the object of the provision. Such
an interpretation would effectively enable the department to retain
refundable amounts for long durations for the purpose of adjusting

8 The relevant portion of Section 42 reads:
“42. Interest
(1) A person entitled to a refund under this Act, shall be entitled to receive, in addition to the refund,
simple interest at the annual rate notified by the Government from time to time, computed on a daily
basis from the later of –
(a) the date that the refund was due to be paid to the person; or
(b) the date that the overpaid amount was paid by the person, until the date on which the refund is
given.
PROVIDED that the interest shall be calculated on the amount of refund due after deducting therefrom
any tax, interest, penalty or any other dues under this Act, or under the Central Sales Tax Act, 1956 (74
of 1956):
PROVIDED FURTHER that if the amount of such refund is enhanced or reduced, as the case may be,
such interest shall be enhanced or reduced accordingly.
Explanation.- If the delay in granting the refund is attributable to the said person, whether wholly or in
part, the period of the delay attributable to him shall be excluded from the period for which the interest
is payable.”
[2024] 6 S.C.R. 345

Commissioner of Trade and Taxes v. FEMC Pratibha Joint Venture

them on a future date. This would go against the object and purpose
of the provision. This contention is hence rejected.
11. In view of the above, we dismiss the present appeal and affirm
the impugned judgment directing the refund of amounts along with
interest as provided under Section 42 of the Act.
12. Pending applications, if any, are disposed of.

Result of the case: Appeal dismissed.

†
Headnotes prepared by: Aishani Narain, Hony. Associate Editor
(Verified by: Shibani Ghosh, Adv.)