Delhi High Court Rules on Interest Entitlement for VAT Refund Delays Attributable to Dealers

In a significant judgment, the Delhi High Court addressed the issue of interest entitlement on Value Added Tax (VAT) refunds when delays are attributable to the dealer. The court held that if the delay in granting a refund under the Delhi Value Added Tax Act, 2004 (DVAT Act) is due to the dealer's actions or omissions, the period of such delay should be excluded when calculating interest on the refund. ​

Legal Framework: Section 38(3)(a)(ii) and Section 42(1) of the DVAT Act

Under Section 38(3)(a)(ii) of the DVAT Act, the Commissioner is mandated to refund any excess tax, penalty, or interest within two months after the end of the tax period, provided the refund pertains to a quarter. Furthermore, Section 42(1) stipulates that if the refund is not processed within this timeframe, the dealer is entitled to simple interest on the refundable amount. However, the Explanation to Section 42(1) clarifies that any delay caused by the dealer's actions will be excluded from the interest calculation period. 

Case Background: Lithium Urban Technologies Pvt. Ltd

The petitioner, Lithium Urban Technologies Pvt. Ltd, a sustainable urban mobility service provider operating an electric vehicle fleet globally, filed for a refund of ₹25,40,422 for the first quarter of the 2017-18 fiscal year. The company also sought interest on this amount due to the delay in processing the refund. The VAT Commissioner noted that the refund was delayed because the bank details provided by the petitioner were incorrect. Upon receiving the correct bank details, the refund was processed on June 8, 2023, along with interest for the period from February 7, 2023, to June 8, 2023. ​

Court's Analysis and Conclusion

The petitioner contended that interest should be granted from September 2017, the date when the refund entitlement arose. The court, however, observed that the delay was primarily due to the incorrect bank details provided by the petitioner. Citing the Explanation to Section 42(1) of the DVAT Act, the court concluded that since the delay was attributable to the dealer, the period of such delay should be excluded from the interest calculation. Consequently, the court upheld the Commissioner's decision and dismissed the petition. 

Implications of the Judgment

This ruling underscores the importance of accuracy and diligence on the part of dealers when providing information to tax authorities. It establishes that any delays resulting from the dealer's errors or omissions will not warrant interest on refunds during the period of such delays. This decision serves as a precedent, emphasizing that while tax authorities are obligated to process refunds promptly, dealers must ensure that all requisite information is accurate and complete to facilitate timely processing.

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