Denying Refund is illegal if holded for cross verification of payment made : HC

S.R.R. Viswanath for the Petitioner.

ORDER

Per Sri Justice M.S. Ramachandra Rao

The Background facts

The petitioner in this Writ Petition is M/s ACC Limited, a Company registered under the Companies Act, 1956 and engaged in the manufacture of cement and cement products.

2. The petitioner was assessed to Sales tax during the years 1979-80 and 1980-81 on the turnover relating to packing material i.e gunnies under the APGST Act,1957 (for short ‘the Act’). Vide order dt.27.3.1984, the original adjudicatory authority levied tax at basic rates of 3% and 8% on packing material and cement respectively and completed assessment for 1979-80. Similar order was passed on 20.3.1985 for the assessment years 1980-81.

3. Subsequently, the said orders were revised by the Dy. Commissioner (CT), Begumpet Division on 11.3.1987 (1979-80) and 9.3.1987 (1980-81) on the ground that the Commercial Tax Officer had levied basic tax at 3% instead of 8% on packing material, and so an additional demand was raised by Form B-3 demand notice.

4. The said additional demand was the subject matter of challenge before the Supreme Court of India in WP.No.1688 of 1987. Pursuant to an interim order passed by the said Court, petitioner paid Rs.13,03,679/- and Rs.15,06,753/- through Demand drafts bearing No. 014826 and 014827 both dt.31.5.1988 drawn on the Central Bank of India, Secunderabad in favor of the Commercial Tax Officer, Company Circle, Punjagutta. The Supreme Court on 25.9.1989 remanded the matter to the 2nd respondent.

5. By order dt.24.1.1990, the 2nd respondent again confirmed the levy on packing material at the basic rate of 8% and levied additional tax of Rs.28,10,432/-.

6. Aggrieved by the said order, petitioner preferred TA.No.s398 and 399 of 1990 before the Sales Tax Appellate Tribunal.

7. The said Tribunal, by a common order dt.3.2.1993 allowed the appeals filed by the petitioner.

8. In spite of the said orders the said amount of Rs.28,10,432/- was not refunded to petitioner. Petitioner therefore seeks refund of Rs.28,10,432/- from the respondent.

9. Further for 1991-92, there was a demand dt.22.1.20014 against the petitioner for Rs.52,82,922/- and after adjusting the excess refund of Rs.28,10,432/- , petitioner paid the balance tax of Rs.24,72,450/-.

10. There was also an excess refund on 4.1.2009 of Rs.4,21,05,330/-for the years 1989-90, 1994-95, 1996-97 to 1999-00.

11. While refunding the said amount through order Rc. No.21141/96-97 dt.5.5.2009, the Dy. Commissioner (CT), Begumpet Division, Hyderabad ( respondent no.2) directed to withhold Rs.28,10,472/- for want of getting cross verification on payment details from the Commercial Tax Officer concerned.

12. This is assailed by petitioner in this Writ Petition.

The prayer in the Writ petition

13. The petitioner seeks a Writ of Mandamus declaring that the impugned order dt.5.5.2009 withholding the refund of Rs.28,10,432/-is arbitrary, illegal and without jurisdiction; to set aside the same; and to direct the respondents to refund the said amount with interest at 12% p.a from 2.8.1993 to 22.1.2004 as per Sec.33-F of the Act and also at 12% p.a from 5.11.2009 till date as per Sec.33-F of the Act apart from costs.

14. In the counter affidavit filed on behalf of the respondents on 31.3.2015, it is stated that in the absence of realization particulars relating to the amount of Rs.28,10,432/-, credit was not given, which resulted in withholding of the said amount.

15. So on 21.4.2015, a Division Bench presided over by Justice R.Subash Reddy ( as his Lordship then was) recorded all the above facts , noted that under the Act, if there is delay in refunding the amount due to the assessee, interest is also required to be paid to the assessee, called for a report from the Commissioner of Commercial Taxes ( Telangana) to be submitted by 28.4.2015 indicating the reasons for withholding the said amount and whether such amount paid by the petitioner by way of Demand Draft were realized or not and if not realized, why the same was not realized, and the persons responsible for such dereliction of duty.

16. Thereafter the matter was listed on 28.4.2015, 15.6.2015, 24.9.2019,24,10,2019,7,11,2019,13.11.2019 but no report as directed by this Court in it’s order dt.21.4.2015 has been filed more than 4 ½ years.

17. On 26.11.2019, this Court issued show cause notice to Mr. V.Anil Kumar, IAS, Commissioner of Commercial Taxes, State of Telangana to show cause as to why proceedings under the Contempt of courts Act, 1971 should not be initiated against him for willful disobedience of the said order. The Special Government Pleader for the State of Telangana was directed to communicate this order to the said officer.

18. Thereafter on 29.11.2019, an affidavit was filed by the said Officer stating that after he received the order dt.21.4.2015, he asked the Deputy Commissioner (CT) (FAC), Begumpet Division, Hyderabad to verify and report and that the latter gave a report on 27.4.2015.

19. In the said report dt.27.4.2015 of the Dy.Commissioner, he certified that the amount of Rs.28,10,432/- was paid by the petitioner through the two Demand drafts mentioned above; that later the Company Circle was disbanded and the file of the petitioner was transferred to other circles such as Punjagutta, Begumpet and Secunderabad Division; that letters were addressed to the Punjagutta Division and the S.D.Road Circle for particulars of challans for the said DDs, but they expressed their inability to furnish the details; and for want of the challan particulars, refund could not be made to petitioner of the said amount.

20. The Commissioner further stated that he informed the Government Pleader on 18.6.2015 that the Dy. Commissioner (CT), Begumpet informed him that he had contacted the District Treasury Office, but the latter had expressed inability to furnish the information of the challans as only challans up to 3 years would be preserved as per the State Government norms. He further stated he was retiring from service the next day i.e. 30.11.2019.

21. He denied that he committed contempt of court and stated that there was no intentional or deliberate disobedience of the orders passed by the Court.

The consideration by the Court

22. The fact however remains that the Commissioner did not file any report in this Court before 28.4.2015 or till 29.11.2019. He has thus clearly disobeyed the order passed by this Court.

23. Be that as it may, admittedly the respondents admit in their counter affidavit filed on 31.3.2015 stating in para 6 that petitioner has paid Rs.13,03,679/- vide DD No.014826 dt.31.5.1988 and Rs.15,06,753/- vide DD No.014827 dt.31.5.1988 both drawn on the Central Bank of India in favor of Commercial Tax Officer, Punjagutta.

24. The delivery of these Demand Drafts was as per Rule 35 r/w Rule 17 of the APGST Rules, 1957 pursuant to revision demand through Form B-3 notice made by the 1st respondent who had given effect to the revision made by the 2nd respondent. By doing so, payment by the petitioner was complete and nothing more was expected of it.

25. Sec. 64(1) of the Negotiable Instruments Act,1881 makes presentation of a bill of exchange (like a Demand Draft) to the drawee equivalent to payment. In other words, handing over payment by Demand Draft tantamounts to payment in cash and discharges petitioner of it’s obligations. The presentation of the Demand draft and it’s encashment is the exclusive responsibility of the respondents, the petitioner has nothing to do with it and the respondents cannot take advantage of any lapse , if any, in presenting the two Demand drafts to the Bank for realisation.

26. In National Sugar Industry and another v. Narala Venkiah (Died) per L.R 1994(3) ALT 276 by the A.P.High Court, this Court also held that handing over Demand Drafts amounts to payment. In the said case, this Court held:

“12. Admittedly, the plaintiff had to pay 25% of the cost price to the defendants out of Rs. 2,34,715/-, amounting to Rs. 58,000/- for which only Rs. 40,000/- were paid and a balance of Rs. 18,000/-were outstanding. This is made emphatic both in the pleadings and the evidence. But at the same time, admittedly, the balance out of 25% of the cost price was not at all paid much less the plaintiff was interested in paying the same as a part of pursuing or concluding the contract. Therefore, in other words, the transaction failed due to the non-payment of the agreed part payment of the cost-price. There is nothing to indicate either from the pleadings or from the evidence as to where the balance of the agreed part payment was to be paid. Therefore, that may not decide the basis to fix the jurisdiction of the court. However, there is a clear admission and evidence in the case that Rs. 40,000/- were paid by the plaintiff to the defendants by means of two bank drafts (one for Rs. 35,000/- and another for Rs. 5,000/-) which were handed over to one Krishnaswami at Nirmal and it is not denied by the defendants that they received the drafts from Krishnaswami at Madras. P.W.1. has testified about it in emphatic terms. … When the fact remains that Krishnaswami received the two drafts at Nirmal from the plaintiff through P. W.1. within Adilabad district and handed over the same to the defendants, that should decide the place of payment and acceptance as a connecting factor regarding the cause of action. … As rightly pointed out by the learned Advocate for the plaintiff, payment by demand draft tantamounts to payment by cash as the encashment of demand draft is not part of payment. It is common knowledge that in case of demand draft which is almost like a currency note, nothing more has to be done to mean it encashment, except the receipt of the same. Therefore, when the demand drafts were handed over by the plaintiff through P.W.I to Krishnaswamiat Nirmal, the payment of Rs. 40,000/-was complete. Therefore, that created part of cause of action to fix the situs of contract for the purpose of jurisdiction.”(emphasis supplied)

27. A Full Bench of the Madras High Court in E.C.Muthuswami Gounder v. V.K.Chennimalai Goundar [1970] 1 MLJ 341 (FB) considered a situation where a debtor had sent money to the creditor by way of money order. A question arose for consideration ‘whether the date of payment i., acknowledgement of the debt is the date of payment made to the post office by the debtor or the date of receipt of the money by the creditor’. The Court held that the date the money was handed over to the post office will be the date of payment. It declared that if a debtor pays a cheque towards a debt which was not in dispute at that time and there is a delay in encashment thereof, nevertheless the payment by cheque made by the debtor to the creditor, as evidenced by the cheque, is to be deemed to take effect from the date when the cheque was drawn and posted by the debtor to the creditor. The date when the creditor realizes the cheque is not significant. And the same principle would be applicable even to payments sent through the media of post office.

28. In CIT v. Ogale Glass Works Ltd. [1955] 1 SCR 185 : AIR 1954 SC 429 : (1954) 25 ITR 529, the Supreme Court also held that

“The engagement of the Government was to make payment by cheques. The cheques were drawn in Delhi and received by the assessee in Aundh by post. According to the course of business usage in general to which, as part of the surrounding circumstances, attention has to be paid under the authorities cited above, the parties must have intended that the cheques should be sent by post which is the usual and normal agency for transmission of such articles and according to the Tribunal’s findings they were in fact received by the assessee by post. Apart from the implication of an agreement arising from such business usage the assessee expressly requested the Government to “remit” the amounts of the bills by cheques. This, on the authorities cited above, clearly amounted in effect to an express request by the assessee to send the cheques by post. The Government did act according to such request and posted the cheques in Delhi. It can scarcely be suggested with any semblance of reasonable plausibility that cheques drawn in Delhi and actually received by post in Aundh would in the normal course of business be posted in some place outside British India. This posting in Delhi, in law, amounted to payment in Delhi. In this view of the matter the referred question should, with respect, have been answered by the High Court in the affirmative. We, therefore, allow the appeal and answer the question accordingly.” (emphasis supplied).

29. We hold, on the basis of the above decisions , that once the respondents admit the receipt of both the Demand drafts dt.31.5.1988 from the petitioner for the sum of Rs.28,10,432/- , payment by the petitioner is deemed to be complete and the petitioner is absolved of it’s obligations; and the withholding of the refund by the respondents on the alleged ground that challans are not traceable in the Sub Treasury of deposit of the Demand Drafts by the Commercial Tax Department, after receipt of the Demand Drafts, i.e cross verification is not possible, cannot be a valid reason at all to withhold the refund of the said sum to the petitioner.

30. In our opinion, this action of the respondents is also violative of Art.14, 19 , 265 and 300-A of the Constitution of India. The respondents cannot be permitted to take advantage of their own negligence, assuming that the Demand drafts handed over by the petitioner, were not presented and encashed by the respondents.

31. In Reddy Laboratories Limited v. Asst. Commissioner (CT) LTU [2011] 37 VST 76 (AP) (DB) and another, this aspect about delays in refund of Tax being violative of Art.265 of the Constitution of India was dealt with. The Division Bench of the A.P. High Court observed:

“12. … …on a mere subjective opinion that the refund would affect the Revenue adversely, it cannot be withheld. The Government as a litigant to the case before the appellate Tribunal cannot be permitted to withhold the refund only on the ground that they intend to file a tax revision case. Section 40(2) of the VAT Act requires prior approval to withhold the refund by the Deputy Commissioner. When the statute prescribes the authority and also prescribe other authorities for refund/adjustment of VAT/TOT, notwithstanding the fact that the approving authority is a higher official, the legislative choice of conferring power on the Deputy Commissioner cannot be ignored. Even if the Joint Commissioner, by virtue of Rule 59 of VAT Rules, is the authority to approve refund if the amount exceeds Rs. 10,00,000/-, in the event of withholding refund, necessary approval of the Deputy Commissioner has to be obtained. We do not find any inconsistency or incongruity therein. More often than not any quasi-judicial authority would be inferior in the organizational set up in comparison to an authority who takes administrative decisions. On that ground also the advice of the second respondent to the first respondent based on which the impugned endorsement is issued cannot be sustained.

13. Before parting with this case, we are compelled to observe certain things that are recurring in the VAT administration in the State of Andhra Pradesh especially in the area of refunds/adjustments . More often than not we have come across cases where Joint Commissioners/Additional Commissioners have sent proposals for refund to the Government and the approval never comes from the Government. As observed by the Division Bench in BSNL, so as to achieve the distinction of enforcing a fair tax paying structure, the State must act fairly. If the appropriate prescribed authority decides the amount to be refunded, any lapse on the part of the State Government or any of its agents in withholding the same would certainly be violative of Article 265 of the Constitution of India. Repeated contravention of Constitution provision cannot be approved. The State Government would do well to prescribe a time schedule to ensure timeliness in granting approvals for refund of the amounts which it appears has been in place not by reason of the statute or the delegated legislation but only because of certain executive instructions. As there is no challenge to these instructions, we refrain from saying anything more. The argument that the delayed refund would attract interest at 12% per annum is no answer if one appreciates the fact that no businessman or merchant would like the money to be locked up just for the sake of 12% return on the refund, which might come long after the requirement for money is over. Keeping this in view, we direct the Government to pass appropriate orders in all pending refund matters within a period of six weeks.” (emphasis supplied)

32. A feeble defence was also raised by the learned government Pleader relying on Sec.33C of the APGST Act.

33. Section 33 enacts that the assessing authority or the licensing authority as the case may be, shall refund the tax or the license fee if any paid, provisionally by an assessee or licensee for any particular period if it is found to be in excess of the tax or the license fee payable by him for the said period, or on the option of the assessee or licensee to adjust such excess towards any tax or license fee due in respect of any other period.

34. Sections 33A to 33F were inserted by Act 16 of 1963 w.e.f. 1.8.1963.

35. Section 33C of the Act states:

“S.33-C. Power to withhold refund in certain cases: Where an order giving rise to a refund to an assessee or licensee is the subject matter of an appeal or further proceeding, or where any other proceeding under this Act is pending, and the assessing or the licensing authority is of the opinion that the grant of the refund is likely to adversely affect the revenue, the assessing or the licensing authority may, with the previous approval of the Deputy Commissioner, withhold the refund till such time as the Deputy Commissioner may determine.”

36. It thus empowers the assessing or licensing authority, if of the opinion that the grant of refund is likely to adversely affect the revenue, where an order giving rise to a refund to an assessee or licensee is the subject matter of an appeal or further proceeding or where any other proceedings under the Act of 1957 is pending, with the previous approval of the Dy. Commissioner, to withhold the refund till such time as the Dy. Commissioner may determine.

37. The provisions of Sections 33E and 33F deal with interest on delayed refund.

38. Section 33E mandates that if the assessing authority or the licensing authority does not grant the refund within six months from the date on which the claim for refund is made by the assessee or the licensee.

39. Under Section 33A, the State shall pay the assessee or licensee simple interest @ 12% p.a. on the amount directed to be refunded following the expiry of the period of six months aforesaid to the date of the order granting the refund.

40. Section 33F enjoins that where a refund is due to the assessee or licensee in pursuance of an order referred to in Section 33B and the assessing or licensing authority does not grant the refund within a period of six months from the date of such order, the State shall pay the assessee or the licensee simple interest @ 12% p.a. on the amount of refund due from the date following the expiry of the period of six months aforesaid to the date on which the refund is granted.

41. Sub-section (2) of Section 33F deals with the refunds withheld under the provisions of Section 33C and enjoins the State Government to pay interest @ 12% p.a. on the amount of refund ultimately determined to be due as a result of the appeal or further proceedings for the period commencing after the expiry of six months from the date of the order referred to in Section 33C to the date the refund is granted.

42. In Pulp N’Pack Private Ltd. v. The Commercial Tax Officer and Ors MANU/AP/0094/2009 = 2009(23) VST 573 (DB)(AP). , a Division Bench of the A.P. High Court considered the scope of exercise of the discretionary power under Sec.33 C by the competent authority to with hold refunds o Tax under the APGST Act, 1957. It held:

“36. From an interactive analysis of the provisions of the 3rd proviso to Sections 21(2), 33-C and 33-F(2) it is apparent: (a) that where no order withholding a refund is passed exercising power Under Section 33C, simple interest @ 18% p.a. on the amount of deposit to be refunded shall have to be paid if refund of the deposit is not made within 60 days from the date of receipt of the order passed Under Section 19 or 21; and (b) that where an order withholding a refund is passed Under Section 33C and the amount of refund is ultimately determined to be due as a result of an order in an appeal or further proceeding, simple interest @ 12% p.a. shall become payable on the amount of refund determined to be due, if the same is paid after the expiry of 6 months from the date of the order referred to in Section 33-C to the date the refund is granted.

37. In the above circumstances an order Under Section 33C withholding the refund does adversely impact the dealer. Not only is he deprived of a higher rate of interest payable by the State for delayed refund of the amounts deposited (at 12% as against 18% p.a.) but the period for which interest is payable is also postponed pejoratively to the dealer’s interest i.e., after 60 days from the date of receipt of an order passed Under Sections 19 of 21 [vide the 3rd proviso to Section 21(2)]; as against the dealer’s entitlement to only a lower percentage of interest (12% p.a.) and if the refund is withheld for a period beyond 6 months from the date of the order referred to in Section 33C [Section 33-F(2)].

38. Since Section 33-C confers a discretionary but not an absolute power to withhold refund and only on the formation of an opinion as to the adverse impact on revenue, the assessing authority must exercise discretion on relevant grounds and for germane reasons.

43. If power granted for a particular purpose by the Statute, is exercised for a different purpose, that power has not been validly exercised. If the exercise of a discretionary power is influenced by considerations that cannot lawfully be taken into account or by the disregard of relevant considerations required to be taken into account, the Courts would hold that the power has not been validly exercised. The interpretation of statutory purpose and of the relevancy of considerations are closely related; since the question in regard to the considerations taken into account in reaching a decision is normally whether that consideration is relevant to the statutory purpose. Where the statutory purpose is explicit, the power conferred, though discretionary, is a grant of discretion to be exercised within the locus of the permitted statutory purpose. Whether the exercise is consistent with the statutory purpose is an aspect falling within judicial review.”

(emphasis supplied)

43. In the instant case, the respondents had withheld the refund for 11 years on ground of ‘want of cross-verification details’ which is not a ground mentioned in Sec.33-C for withholding the refund due to petitioner.

44. Admittedly no proceeding such as an appeal or revision was pending against the petitioner. So Sec.33 F(2) of the APGST Act is also inapplicable.

45. Also a refund withholding order must invariably specify (as per Sec.33C) the period of time during which it will be in force and a refund cannot be withheld indefinitely as has been done in the instant case.

46. Sec.33-E and 33-F of the APGST Act give 6 months time to the respondents to complete the verification and the authorities cannot with hold the refund beyond the said period.

47. Thus there has been an ex-facie abuse of power by the respondents 1 and 2 in denying refund to the petitioners of the sum of Rs.28,10,432/-.

48. Therefore the writ petition is allowed with costs of Rs.25,000/- to be paid by the 5th respondent to the petitioner; a Writ of Mandamus is issued declaring that the impugned order dt.5.5.2009 of the 2nd respondent withholding the refund of Rs.28,10,432/- is arbitrary, illegal and without jurisdiction; the said order is accordingly set aside; and the respondents 1-5 are directed to refund the said amount with interest at 12% p.a from 2.8.1993 to 22.1.2004 as per Sec.33-F of the Act and also at 12% p.a from 5.11.2009 till date as per Sec.33-F of the Act.

49. As a sequel, miscellaneous petitions pending if any, in this Writ Petition, shall stand closed.

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