Withholding Tax Refunds Without Justification Violates Section 55 Of JVAT Act: Jharkhand High Court

The Jharkhand High Court has held that withholding tax refunds beyond the statutorily prescribed period without adequate justification, violates Section 55 of the Jharkhand Value Added Tax Act, 2005, and deprives the taxpayer of rightful dues. The Court ruled that the refund must carry interest from the date the excess demand was determined, and non-allocation of funds by the State cannot override this obligation.In the words of the Division Bench comprising the Chief Justice MS Ramachadran Rao and Justice Deepak Roshan, “non-allocation of funds cannot be a reason to delay the legitimate refund of the Petitioner, otherwise the very mandate of Section 55 of the JVAT Act will be rendered otiose.”The Court further emphasized, the legal character of such refunds and the obligation to pay interest:, “payment of interest would be a necessary corollary. The interest awarded is a measure of recompense settled that refund due and payable to the assessee is a debt owed and to the Assessee for the time that it was deprived the use of its funds.”This ruling was delivered in a writ petition wherein the petitioner sought the refund of ₹1,47,62,037 for the assessment year 2011–12 along with statutory interest, after the State authorities delayed the process even after issuing an excess demand notice.The case arose from a tax liability initially assessed at ₹12.53 crore under Section 35(6) of the JVAT Act. Although the petitioner had already paid ₹12.56 crore, the department later reassessed the liability to ₹11.06 crore following an appeal and remand. An excess demand notice dated 31.08.2020 acknowledged the overpayment. However, that notice was only received by the petitioner on 15.12.2022. Following this, a refund application was filed on 17.02.2023, but the principal refund was processed only on 29.03.2024, well beyond the stipulated 90-day period.The petitioner contended that the prolonged inaction and the arbitrary insistence on clearing unrelated outstanding dues before processing the refund were illegal. They also argued that interest was due from the date of the excess demand notice, not merely from the date of the refund application.The Court found merit in these claims, “the petitioner has been denied the refund of excess amount deposited by it since 31.08.2020 i.e. date of issuance of excess demand notice and no justification has been given as to why the said demand notice was served only in the year December, 2022.”The Court directed the State authorities, “the petitioner is entitled for 6% Simple Interest on the total amount of refund from 31.08.2020 i.e. the date of issuance of Demand Notice as stated hereinabove till the principal amount has been paid, after reducing the period which the petitioner took in filing the Refund application after receiving the same from the Respondents on 15.12.2022.”The Court ordered that the interest be paid within eight weeks of receipt of the order, failing which a cost of ₹1,00,000 would also be imposed.Case Title: M/s. Castrol India Limited vs The State of Jharkhand and orsLL Citation: 2025 LiveLaw (Jha) 30Click Here To Download Judgement

Withholding Tax Refunds Without Justification Violates Section 55 Of JVAT Act: Jharkhand High Court

Bhavya Singh

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