The Bombay High Court recently held that the department's decision to adjust the petitioner's refund without informing them while assessing their Amnesty Scheme application went against the fundamental principles of natural justice.
A division bench of this Court noted that the Amnesty Scheme was introduced to settle pending tax disputes and protect revenue and aimed to resolve arrears of tax, interest, penalty, or late fee up to June 30, 2017, resulting from the implementation of the GST Act.
Brief Facts:
The company which filed the petition or being assessed is a corporation that acquires vehicles from Tata Motors Limited (TML) and then sells them to dealers both in and outside of Maharashtra. Previously, this corporation was known as "TML Distribution Limited". The NCLT Mumbai Bench passed an order to transfer all the assets and liabilities of TML Distribution Company Limited from the transferor company to the transferee company, which is TML Business Services Limited.
The petitioner had been registered under both the Maharashtra Value Added Tax Act, 2002 (MVAT Act) and the Central Sales Tax Act, 1956 (CST Act). The Assessing Officer had issued an Assessment Order demanding a payment of Rs. 17,76,93,422, which included taxes and interest. The petitioner appealed the decision and was able to reduce the demand to Rs. 14,00,74,890.
On March 6, 2019, the Government of Maharashtra introduced an ordinance called the Maharashtra Settlement of Arrears of Tax, Interest, Penalty, or Late Fee Ordinance, 2019 (Amnesty Scheme). This ordinance provided an opportunity to settle outstanding arrears of tax, interest, penalty, and late fee as of April 1, 2019, by paying a portion of the total amount owed.
The petitioner applied for the Amnesty Scheme on May 13, 2019, to settle their outstanding dues for the 2010-2011 financial year. They proposed to make a payment of Rs. 8,46,84,821, which was acknowledged by the department.
Later, the petitioner received a Refund Adjustment Order informing them that their refund of Rs. 10,69,89,606 would be used to pay off their tax debt for the 2010-2011 financial year. Interestingly, both the defect notice and the refund adjustment order seem to have been issued by the same person, specifically the Deputy Commissioner of State Tax.
Contentions of the Petitioner:
Learned Counsel for the petitioner contended that the respondents were not authorized to use the refund of Rs. 10,69,89,606 to pay off the liability of Rs. 14,00,74,890 for the 2010-2011 financial year. This was because the petitioner had already applied to settle their dues for that year in accordance with the provisions of the ordinance. He further submitted that the respondents' action of using the refund had resulted in the petitioner being denied their refund of Rs. 10,69,89,606.
Observations of the Court:
The court observed that there was only one day between the issuance of the defect notice and the refund adjustment order. The court concluded that this short time frame did not allow the petitioner enough opportunity to address their concerns with the department.
As a result, the court invalidated the defect notice and the refund adjustment order. The court ordered the matter to be sent back to the respondent authorities. Further, it instructed the authorities to hear the petitioner's case and consider their submissions before making a decision on the refund application. The authorities were instructed to provide a written explanation for their decision within six weeks.
The decision of the Court:
The Bombay HC in view of the breach of the principles of natural justice set aside the Defect Notice dated 22 May 2019 and the Refund Adjustment Order dated 23 May 2019.
Case Title: TML Business Services Limited vs The Deputy Commissioner of State Tax
Coram: Justice Nitin Jamdar and Abhay Ahuja
Case No.: WRIT PETITION NO. 8343 OF 2019
Advocate for the Petitioner: Mr. R. A. Dada
Advocate for the Respondent: Smt. S. D. Vyas
Read Judgment @LatestLaws.com
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