“Refund Due Is a Debt Owed”: Jharkhand HC Slams State for 3-Year Delay, Orders 6% Interest on ₹1.47 Cr Tax Refund
Safiya Malik
The High Court of Jharkhand Division Bench of Chief Justice M. S. Ramachandra Rao and Justice Deepak Roshan held that the petitioner was entitled to receive interest at the rate of 6% per annum on the refunded amount of excess tax from the date of issuance of the excess demand notice. The Court directed the respondent authorities to pay the calculated interest within eight weeks, failing which the petitioner would be entitled to additional costs. The Court found no justification for the delay in refund processing and held that statutory rights under the Jharkhand Value Added Tax Act, 2005, had been violated.
The petitioner, a company incorporated under the Companies Act, 1956, sought the issuance of a writ of mandamus directing the respondent authorities to refund an amount of ₹1,47,62,037 for the Assessment Year 2011–12, along with statutory interest under Section 55 of the Jharkhand Value Added Tax Act, 2005 (JVAT Act). The refund claim was based on an excess demand notice dated 31 August 2020, which was received by the petitioner only on 15 December 2022.
The petitioner’s case stemmed from an original assessment order under Section 35(6) of the JVAT Act, which had determined a tax liability of ₹12,53,62,383 for the relevant assessment year. The petitioner had paid ₹12,56,00,362 and received a demand notice stating a 'NIL' amount was payable, with an excess of ₹2,37,979 to be adjusted against liabilities under the Central Sales Tax Act, 1956.
Subsequently, the petitioner challenged the original assessment by filing an appeal under Section 79 of the JVAT Act. The appellate authority remanded the matter for a fresh assessment, and the reassessed tax liability was reduced to ₹11,06,00,346. This led to the issuance of an excess demand notice dated 31 August 2020, indicating that the petitioner had paid ₹1,47,62,037 in excess.
Although the excess demand notice was dated August 2020, the petitioner contended that it was received only in December 2022. On 17 February 2023, the petitioner submitted an electronic refund application. Despite this, the refund was not processed in accordance with the timelines prescribed under Section 55 of the JVAT Act, which mandates disposal of refund applications within 90 days.
The respondents communicated that outstanding tax liabilities for other assessment years had delayed the refund process. However, the petitioner responded by providing clarifications regarding these liabilities. The department eventually refunded the principal amount of ₹1,47,62,037 on 29 March 2024, during the pendency of the writ petition. The issue of statutory interest, however, remained unaddressed.
The petitioner contended that the refund was incomplete without payment of statutory interest as required by the JVAT Act. The petitioner further cited the decision in M/s. Kirloskar Brothers Ltd. v. State of Jharkhand & Ors. (W.P. (T) No. 4783 of 2022), where it was held that existing tax dues under different assessment years could not be a ground to deny or delay refund under Rule 19(5) of the JVAT Rules.
The respondents filed a counter-affidavit stating that a request had been made to release the funds, but no explanation was given regarding the delay in processing the refund or the statutory interest due.
The Division Bench considered the delay in service of the excess demand notice and the silence of the respondent authorities on statutory interest. The Court stated:
“We observe that the Counter Affidavit is silent on the aspect of statutory interest that the Petitioner is entitled to receive under Section 55 of the JVAT Act.”
The Court recorded that no explanation was offered for the service of the demand notice more than two years after its issuance:
“The Petitioner has categorically stated in Paras 17, 21, 43 and 44 of the Writ Petition that the excess demand notice dated 31.08.2020, was received by the Petitioner only on 15.12.2022… No reply, whatsoever, has been given by the Respondents to such averments.”
The Bench further stated that statutory obligations under the JVAT Act could not be bypassed on grounds of non-availability of funds:
“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 held that the petitioner was entitled to interest from two distinct points—first, from 31 August 2020 (the date of issuance of the excess demand notice), and second, from 90 days after the submission of the refund application, dated 17 February 2023:
“Respondents are liable to pay interest to the Petitioner, from the expiry of 90 days from the date of submission of the Refund Application… and also interest from the date of issuance of Demand Notice dated 31.08.2020 since the Petitioner was unable to file its Refund Application in absence of the excess demand notice.”
On the nature of the refund, the Court remarked:
“The interest awarded is a measure of recompense… refund due and payable to the assessee is a debt owed… for the time that it was deprived the use of its funds.”
The Bench determined that no valid reason had been furnished for the delay in processing the refund application even after its formal submission and acknowledged receipt:
“No justification has been given as to why the said demand notice was served only in the year December, 2022… no reasons have been assigned as to why even after filing of the refund application on 17.02.2023 the same has been kept pending.”
The Court issued the following directions:
“Accordingly, we are of the opinion that 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.”
“Accordingly, it is directed that the respondents shall pay the interest after calculating the same as indicated hereinabove.”
“The entire payment of interest shall be made to the Petitioner within a period of eight weeks from the date of receipt/production of copy of this order; failing which the Petitioner shall also be entitled for cost of Rs.1,00,000/-.”
“Consequently, the instant writ application stands allowed. Pending I.A.s, if any, also stand closed.”
Advocates Representing the Parties
For the Petitioners: Mr. M.S. Mittal, Senior Advocate; Mr. Salona Mittal, Advocate; Ms. Ishika Tulsyan, Advocate
For the Respondents: Mr. Ashok Kumar Yadav, Senior Standing Counsel-I; Mr. Aditya Kumar, Assistant Counsel
Case Title: M/s. Castrol India Limited v. The State of Jharkhand and Others
Neutral Citation: 2025:JHHC:10210-DB
Case Number: W.P. (T) No. 7091 of 2023
Bench: Chief Justice M. S. Ramachandra Rao, Justice Deepak Roshan
[Read/Download order]
