Belated refund applications and refund under MVA T Act, 2002

Earlier, there used to be speaking assessments orders in all cases. Therefore, irrespective of the data in the return in the course of assessments, dealers were able to put before the assessing authority the correct position, as per record and also used to get refunds as per the said records. Thus, even if refund was not claimed in the return, the dealer could, in the course of assessment, put forth his claim.

Refund as per returns under MVA T Act, 2002
Under the MVAT Act, there is a prescribed procedure for getting refunds as per returns. The procedure for granting refunds is given in section 51 of the MVAT Act, 2002. If a dealer is entitled to a refund, as per returns filed by him, then he can file an application u/s. 51 (form 501) for claiming the said refund. The department can process the application and if satisfied, refund will be granted.

However, there is time limit for filing such an application for refund. Upto 2008-09, the said time limit was three years. On 01-05-2011 section 51(7) was amended, so as to curtail the time limit from three years to 18 months. As per the interpretation of the Department, the said curtailed period was to apply from the year 2009-10. However, the matter was contested before the Hon’ble Bombay High Court and in case of Vaibhav Steel Corporation (69 VST 460), it was held that refund being a substantive right, the amendment should apply prospectively and can not apply to prior periods. Accordingly, in the above case, though application for the year 2009-10 was filed after 18 months but as it was within 36 months, the Hon’ble High Court directed the authorities to process the application.

Refund application for 2010-11
In the case of Vaibhav Steel Corporation, the issue was about 2009-10. Therefore, there was uncertainty about application of the said ruling to the period 2010-11. It was contended by the department that the said ruling will not apply to the period 2010-11.

Recent judgment in case of Sagar Enterprises
Recently, the Hon’ble Bombay High Court had one more occasion to deal with the above controversy. In the judgment in the case of Sagar Enterprises (WP No. 12191 of 2013, dated 15-07-2014), in addition to the period 2009-10, year 2010-11 was also involved, the Hon’ble High Court has observed as under;

“2. The claim of the Petitioner is for refund. That arises in the backdrop of the returns for the Financial Years 2009- 2010 and 2010-2011 under the Maharashtra Value Added Tax Act, 2 002. The Petitioner claims that as per section 61 of the Maharashtra Value Added Tax Act, 2002 the Audit Report was filed before the due date prescribed. The Audit Report for the aforesaid period resulted in refund to the tune of Rs.17,51,801/- and Rs. 7,24,218/- respectively.

3. The Petitioner claims that he approached the Authorities for refund being a dealer covered by the Act, but what has been brought to his notice is the circular under which the Commissioner notified that all such applications and to seek refund ought to be within the period prescribed by s/s. (7) of section 51 of the Act. It is urged that the circular insists that the Maharashtra Act No. XV/2011 by which section 16(4) was inserted w.e.f. 01-05-2011 would govern the claim. Meaning thereby, that an application for refund cannot be entertained unless it is made within 18 months from the end of the year containing the period to which the return relates.

4. The learned counsel appearing for the Petitioner states that the words “18 months” were substituted for the original words “three years” by the Maharashtra Act No. XV/2011 w.e.f. 01-05-2011. This cannot govern the claim for refund for the prior period. In fact the Assessment Orders passed by the Deputy Commissioner of Sales Tax, Business Audit Branch, Mumbai and the Assistant Commissioner of Sales Tax, Refund Audit Branch are referred to in the petition. Thus, it is submitted that so long as the claim of the Petitioner pertains to the Accounting Years 2009- 2010 and 2010-2011 the applications for refund could have been filed within a period of three years and not the curtailed period. The circular, therefore, travels much beyond the legal provision and in any event the circular cannot govern and control interpretation of the subject legal provision, is the submission of the Petitioner’s Advocate.

5. Mr. Vagyani, learned Government Pleader appearing on behalf of the Respondents, on instructions, states that though such stand has been taken and reiterated in the affidavit filed by the Joint Commissioner (Respondent No. 3) in reply to this Writ Petition, now he has received instructions to state before this Court that the Petitioner’s refund applications shall be processed after they being treated as filed under the unamended provision. The refund applications shall be processed and an order will be passed thereon as expeditiously as possible and before 31st August, 2014.

6. We accept these statements made by Mr.Vagyani on instructions, as undertakings given to this Court. We direct that the refund applications of the Petitioner be processed and disposed of accordingly. No further extension will be granted under any circumstances.”

In light of above, it appears that for 2010-11 also the time limit to submit refund applications was three years. Therefore, the dealers, who have not uploaded applications within 18 months but have submitted it within 18 months thereafter with covering letters etc., will be eligible to take benefit of above judgment.

However, the issue still remains where the applications have not been filed within 36 months. The issue also remains for the other years where there has been a delay in submitting refund applications.

In the above writ petition, the learned advocate for the petitioner brought to the notice of the Hon’ble High Court 252 other cases for which there is delay and hence, the refunds have remained pending. The Hon’ble High Court has called for details and thereafter further action will be taken.

From the above legal position, it appears that the claims of refunds should be considered by Department in substance without rejecting them on technicalities. The dealers can expect relief in regard to refunds irrespective of filing of belated application etc.

Set off vis-à-vis details from vendors
At present under the MVAT Act, set-off is allowed/ disallowed based on cross checking of J1 & J2 annexures given with VAT Audit report in Form 704.

In case of mismatch, set-off is disallowed. In assessment/ appeals department directs furnishing of revised J1/J2 to allow set-off or the copy of Form 704 of vendor etc. On non-production of above, set-off is disallowed.

Before the Tribunal, in the case of Modern Steel (VAT App. No. 47 & 48 of 2014 dt.13-06-2014 readwith Corrigendum dt. 09-0702014). Similar facts arose.

The facts and direction of the Hon. M.S.T. Tribunal are as follows:-

“4. In the Second Appeal, Shri C. B. Thakar, the learned Advocate submitted that the set-off cannot be disallowed on the ground that the purchase are not disclosed by the vendor in the audit report in Form 704 or even has not filed the audit report. He, therefore, submitted that the appeal be remanded for verification of the purchases and enquiry concerning the transactions of M/s. Munirs Dismantling Company/Corporation.

6.    On perusal of the appeal order and assessment order concerning the disallowing of set-off of m/s. munirs Dismantling Company/Corporation, we find that  both  the authorities have not enquired into as to whether the reports are filed and tax is paid on the said transactions also. We do not find that both the authorities have verified the purchases of m/s. munirs dismantling Company/ Corporation. the enquiry conducted by both the authorities is incomplete and require further inquiry and verification. In this view, the order passed by the appellate authority is not sustainable disallowing set-off of rs.1,99,500/- and is liable to be set aside and matter needs to be remanded to the appellate authority for verification and further inquiry.

7.    If set-off is allowed, the same would be available for adjustment of CST dues and there would be no demand in CST appeal. For the reason, it is necessary to set aside the order in CST appeal also. for the forgoing reasons, we pass the following order:

VAT Second Appeals Nos. 47 & 48 of 2013 are allowed. The disallowing of set off on purchase transactions of m/s. munirs dismantling Company/Corporation is set aside. The appellate authority is directed to verify the transactions of m/s. munirs dismantling Company/Corporation and find whether the tax is paid into Government Treasury and decide the claim of set-off in accordance with law and on assessment of the set-off, the refund if found due may be adjusted as per the provisions of law against CST demand and shall recompute the sales tax liability.

Accordingly, appeals are disposed off. Proceedings are closed.” the hon. tribunal has clearly ruled that simply on basis of non disclosure by vendor or non production of copy of form  704  of  vendor,  set-off  cannot  be  disallowed.  The verification of payment of tax by vendor is required to be brought on record.

This  judgment  gives  useful  guidance  in  the  matter  of verification of set off claim by the Department.

Matching on electronic system may be a good tool in hands of department to initiate further inquiry. however,  it cannot be the basis for disallowing set off. Accordingly verification of payment by due legal procedure is necessary on part of department.

It is expected that department will follow the direction of the  tribunal  in  pith  and  substance  and  not  subject  the buyers to unwarranted and unjustified set-off disallowance and levy of interest and penalty.