State Authorities Cannot Retain Excess  Tax Amount Without Authority of Law: Bombay High Court

In a landmark judgment, the Bombay High Court has directed the Maharashtra tax authorities to refund Rs. 10,69,89,606/- to M/s. TML Business Services Ltd. For the year 2011-2012, along with interest. The decision, delivered by Justices K. R. Shriram and Jitendra Jain, underscores the illegality of adjusting refunds against settled dues without proper authority, emphasizing strict adherence to statutory provisions.

The petitioner, M/s. TML Business Services Ltd., sought a refund of Rs. 10,69,89,606/- for the year 2011-2012, which the tax authorities adjusted against the dues for the year 2010-2011. The petitioner had already paid the dues for 2010-2011 under the Maharashtra Settlement of Arrears of Tax, Interest, Penalty or Late Fee Act, 2019 (Settlement Scheme), but the authorities proceeded with the adjustment, leading to the current legal dispute.

The court found that the respondents’ adjustment of the refund was illegal and without authority. As stated by Justice Jitendra Jain, “On the date of refund adjustment order i.e., on 23^rd May 2019, Petitioner had already availed the benefit of the Settlement Scheme for the year 2010-2011 and made payment, and, therefore, there was no outstanding amount for the year 2010-2011 for making any adjustment of the refund for the year 2011-2012.” The court quashed the refund adjustment order and emphasized the importance of adhering to the statutory provisions laid out in the Settlement Scheme and the Maharashtra Value Added Tax Rules, 2005 (MVAT Rules).

The court ruled that the petitioner is entitled to interest on the refunded amount from 1^st June 2019 until the date of payment, as per Rule 88 of the MVAT Rules. Highlighting the principle that state authorities must not retain excess amounts, the judgment noted, “The State authorities cannot retain the excess amount which is not in accordance with law and same would be violative of Article 265 of the Constitution of India.”

Justice Jitendra Jain remarked, “The refund adjustment on 23^rd May 2019 itself is illegal and consequently, Petitioner is entitled for the refund of Rs.10,69,89,606/-.” He further noted, “It is a settled position that the State authorities cannot retain the excess amount which is not in accordance with law and same would be violative of Article 265 of the Constitution of India.”

The Bombay High Court’s judgment reinforces the judiciary’s stance on the unlawful retention of funds by state authorities. By ordering the refund with interest, the court has set a precedent that emphasizes the need for state authorities to act within the bounds of statutory provisions. This decision is expected to have a significant impact on future cases involving tax refunds and adjustments, ensuring greater compliance with legal standards.

Date of Decision: 9^th July 2024

M/s. TML Business Services Ltd. Vs. The Deputy Commissioner of Sales Tax,