Commissioner can't withhold refund mechanically, says Punjab and Haryana HC

Saurabh Malik

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Chandigarh, April 11

In a significant judgment liable to change the way the refund of the excess tax is held back, the Punjab and Haryana High Court has ruled that an Excise and Taxation Commissioner cannot mechanically exercise the power to withhold the refund. The Commissioner was required to act judicially.

Act judiciously

The authority, ie Commissioner, has to act judicially and is required to give an opportunity to the assessee to make out case for refund or satisfy him by furnishing security. Punjab & Haryana HC Bench

The ruling by the Bench of Justice Tejinder Singh Dhindsa and Justice Pankaj Jain came in a case where an assessee registered with Yamuna Nagar Assessing Authority under the Haryana VAT Act was held entitled to refundable excess tax of over Rs 2 crore. But the competent authority- Commissioner withheld the refund “in the interest of the state revenue”.

The state’s stand in the matter was that fault could not be found with the impugned order. The department was in the process of filing a review/appeal. As such, the taxing authority rightly recommended to the Commissioner the withholding of the refund.

The Bench asserted that Section 20(5) of the Act mandated that the amount held to be refundable following an order by a court, appellate authority or revising authority would be given back on an application made in the prescribed manner. Section 21 prescribed power to withhold the refund to which an assessee claimed himself to be entitled to.

The Section bestowed the competent authority with the power to withhold the refunds. But the same could be exercised only where the refund order was the subject matter of further proceedings and the taxing authority was of the opinion that the same was likely to adversely affect the recovery in the event of success of such proceedings.

The Bench asserted that the analysis of Section 21 led to the inference that the provision conferred power on the Commissioner to pass an order withholding refund, or allowing it on furnishing security to the satisfaction of certain conditions.

Speaking for the Bench, Justice Jain added that the legislature was conscious of the fact that the power to withhold refund was akin to exercising power to stay money decree. As such, there was an option that the refund could be directed to be made on furnishing security as the objective was only to effect recovery.

“It goes without saying that any order passed to withhold the refund is prejudicial to the interest of assessee. Since the provision itself provides that the Commissioner may pass an order withholding the refund or direct that refund be made on furnishing of security, the said power cannot be exercised mechanically…. The authority ie Commissioner has to act judicially and is required to give an opportunity to the assessee to make out case for refund or satisfy him by furnishing security,” Justice Jain asserted as the Bench ruled that the order withholding the refund was unsustainable.