CWP No.19941 of 2005 -1- IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH CWP No.19941 of 2005 Date of decision:07.05.2009 M/s Raghbar Dass Hukam Chand .....Petitioner versus State of Haryana and others .....Respondents Coram:- HON'BLE MR. JUSTICE M. M. KUMAR. HON'BLE MR. JUSTICE H. S. BHALLA. Present: Mr. Avneesh Jhingan, Advocate and Mr. Sandeep Goyal, Advocate for the petitioner(s) Ms. Ritu Bahri, DAG, Haryana for respondents. M. M. KUMAR , J 1. This batch of four petitions have raised an interesting question of law namely whether the higher authorities in the hierarchy of Sales Tax Department, Haryana in the garb of exercising power of granting sanction under Rule 36 of Haryana General Sales Tax Rules, 1975 to the refund orders passed by Assessing Officer, could set aside such order of Assessment. The aforesaid question has arisen in pursuance of various orders passed in these petitions whereby the order of Assessment has been set aside. 2. For the sake of convenience, facts are being referred from CWP No.19941 of 2005. The petitioner-firm is duly registered under the Haryana Value Added Tax Act, 2003 (for CWP No.19941 of 2005 -2- brevity VAT Act) and the Central Sales Tax Act, 1956. It was earlier also registered under the then prevailing statute knowing as Haryana General Sales Tax Act, 1973 (for brevity GST Act) which stood repealed on 1.04.2003. The petitioner-firm is transacting business of trading at Jagadari and Sh. Ashok Kumar is the sole proprietor of the firm. 3. The Excise and Taxation Officer-cum-Assessing Authority, Jagadari finalised the deemed assessment and worked out the refund due in respect of assessment year 2001- 2002 vide order dated 14.02.2005 (P-1). Likewise it also finalized the deemed assessment in respect of assessment year 2002-2003 vide order dated 16.02.2005 (P-2). As a result of the assessment orders, the petitioner was found entitled to refund/adjustment of Rs.1,53,628/- and Rs.4,57,808/- in respect of the assessment year 2001-2002 and assessment year 2002- 2003 respectively. The petitioner has given details of the background of the deemed assessment by placing reliance on the amendment dated 30.10.2001 made in the Rules (P-3). 4. For effective administration of Sales Tax and VAT, the whole State of Haryana has been divided into four Division and Ambala Division is one of them. The Division consists of Ambala, Panchkula, Yamuna Nagar, Karnal, Kaithal and Kurukshetra. A Joint Excise and Taxation Commissioner has been made Head of each Division who is responsible for tax administration in the area of his jurisdiction. For deemed CWP No.19941 of 2005 -3- assessment special procedure was adopted. The pecuniary jurisdiction for Assistant Excise and Taxation Officer-cum- Assessing Authority (to be referred as ATEO) was increased from rupees fifteen lacs to rupees fifty lacs. Accordingly, cases in which annual aggregate of sales and exports did not exceed Rs.5,00,000/- can be decided by AETO. Accordingly, the AETO- respondent No.2 finalised the assessment of the petitioner-firm in respect of two assessment years i.e. 2001-2002 vide order dated 14.02.2005 (P-1) and in respect of assessment year 2002-2003 vide order dated 16.02.2005 (P-2). 5. In respect of assessment year 1999-2000, an appeal filed by the petitioner-firm was pending before the Haryana Tax Appellate Tribunal. The Tribunal had entertained the appeal without prior payment on 13.05.2005 being STA No.2 of 2005. The Tribunal has directed the Assessing Authority that the additional demand of Rs.1,18,374/- in respect of assessment year 1999-2000 should be deposited against the amount of refund allowed for Rs.1,53,628/- in respect of assessment year 2001-2002 (P-1). The amount of refund/adjustment as indicated in the assessment order dated 14.02.2005 and 16.02.2005 (P-1 and P-2), has not been released. Accordingly, the petitioner filed an application on 16.08.2005 praying for refund/adjustment of the amount as per the assessment orders. In pursuance of Rule 36, the pecuniary jurisdiction for passing the order of refund is vested in Deputy Excise and Taxation Commissioner CWP No.19941 of 2005 -4- (to be referred as DETC). The Assessing Authority forwarded the application of the petitioner-firm with his own recommendation and requested for approval of the refund as per the assessment orders. 6. The DETC after examining the case has opined that the amount of refund worked out by the Assessing Officer could not be approved in view of provisions of Section 15(A) of the Act. He issued notice for appearance to the petitioner with a view to seek its explanation (P-4 and P-5). The petitioner sent their reply on 10.09.2005 and took the stand that Section 15(A) of the Act was not applicable in the facts and circumstances of the case. The petitioner-firm also pleaded that Rule 36, did not entitle the DETO to change the quantum of refund or to set aside the order of Assessing Authority. However, the DETC vide order dated 10.10.2005 rejected the recommendation of the Assessing Authority and also the objection filed by the petitioner- firm. He examined the issues on merit and concluded that the refund worked out by the Assessing Authority was contrary to the GST Act and the Rules framed thereunder (P-6 and P-7). This order is subject matter of challenge in the instant petition. 7. The DETC has opined that the reason for putting up the report for sanctioning the amount of refund exceeding Rs.10,000/- before him is that he alone has been regarded as the Sanctioning Authority and the Assessing Authority has no power in that respect, after quoting the provisions of Rule 36 of CWP No.19941 of 2005 -5- GST Rules. The DETC has also rejected the arguments raised by the dealer – petitioner by observing as under: - “Similarly the final argument that their appeal against the order for the year 1999-2000 revised by the DETC (1)-cum-Reversional Authority is pending before the Tribunal and the Hon'ble Tribunal has ordered the amount allowed to be refunded by the A.A. to be adjusted against that demand and non issue of refund by the A.A. at this stage will amount to dis-honoring the order of the Hon'ble Tribunal is also devoid of merit. When the refund has not become final and the A.A. has no legal power to allow the same then how can this be adjusted without going through the legality of the same.” 8. The DETC also examined the admissibility of refund as per the provision of Section 15(A) of the GST Act. According to him, reduction or refund of payment under Section 15(A) could accrue to a dealer who is a manufacturer of goods, and he has held that in the present case, the dealer is a trader and that there is no provision under the GST Act or the Rules to allow refund to such a dealer. The DETC interpreted Section 15(A) of the GST Act observing that it prohibits the refund of purchase tax paid on paddy which is further subject to the provisions contained in Clause (iii) of Sub-section (1) of Section 15. He CWP No.19941 of 2005 -6- has concluded that recommendation of refund by the Assessing Authority is contrary to the provisions of the GST Act and the Rules on the basis of following rationale which reads thus: - “Further this Section 15A is also subject to the provision contained in clause (iii) of sub section (1) of Section 15, which deals with the levy of tax on paddy purchased from with in the state and used in the manufacture of rice. This clause (iii) provides that the tax leviable on rice procured from paddy purchased in the state and the purchase tax has been paid on this paddy in the state shall be reduced by the amount of this purchase tax paid in the state. Thus the turnover liable to tax on the sale of rice (procured from out of the paddy purchased and milled inside the state) sold to dealers within the state is the difference between the sale value of rice and the purchase value of paddy on which purchase tax has already been paid. And the dealer from whom the rice in question has been purchased here in has paid, if any, only the purchase tax on paddy and this fact has also been admitted by the learned ITP in his submissions available on file. And further as discussed Section 15A specially prohibits the refund of this purchase tax on paddy by any dealer and this matter has already been decided by the Hon'ble Apex Court in favour of CWP No.19941 of 2005 -7- the revenue in the Monga Rice Mills case. No support can be taken of by the dealer of the decision of the Hon'ble Tribunal in L.T. Overseas case after the decision of the Hon'ble Apex Court. The contention by the learned ITP that the sale has been made in the course of exports out of the territory of India and hence they are eligible for refund is also devoid of any merit. He has failed to draw my attention to any provision in his support under which a refund can be allowed. The provisions relating to export just contains that there will be no tax on the sale of goods in the course of exports and no where under the Central Sales Tax Act (Central Act) refund of tax paid on the purchase of goods sold to the exporters in the course of export under Section 5(3) of the Central Act has been provided for. In the present case the A.A. has not levied any tax on the sale of rice made in the course of export under Section 5(3) of the Central Act.” 9. The respondent has filed a written statement and has not disputed the broad facts. However, it has been claimed that alternate remedy of appeal under Section 39 of the Act and revision under Section 40 have not been exhausted before approaching this Court by filing the petition under Article 226 of CWP No.19941 of 2005 -8- the Constitution. They have also defended the impugned order refusing to accord sanction to the refund vouchers on merit. It has further been claimed that the instructions dated 26.11.2001 on which reliance has been placed by the petitioner do not apply to the facts of this case and has disputed the power of the Assessing Authority to finalise the deemed assessment on the basis of those instructions. 10. Mr. Avneesh Jhingan, and Mr. Sandeep Goyal, learned counsel for the petitioners have vehemently argued that the power of the sanctioning authority to the refund orders forwarded by the Assessing Authority does not extend to set aside the order by appreciating the controversy on merit. According to the learned counsel, if such a course is permitted then it would result into encroaching upon the power of the appellate authority which according to Section 39 vests in a designated appellate authority. Both the learned counsel have maintained that in the garb of exercising power of granting approval to the refund vouchers, the officer cannot set aside the order by entering into merit of the assessment order. In support of their submission learned counsel have placed reliance on a judgment of the Supreme Court rendered in the case of The State of Madhya Pradesh v. Haji Hasan Dada, (1966) 17 STC 343 and argued that until the order of assessment is set aside in an appropriate proceedings initiated under the statute, full effect has to be given to such an order. They have also placed CWP No.19941 of 2005 -9- reliance on a Division Bench judgment of Allahabad High Court in the case of Tin Plate Company of India Limited v. Sales Tax Officer and another, (1993) 90 STC 314 and another Division Bench judgment of Rajasthan High Court in the case of Union of India and another v. State of Rajasthan, (1993) 91 STC 284 . On the basis of the aforesaid judgments, they have argued that correctness of the declaration made in the assessment order cannot be reconsidered in the refund proceedings. They have then placed reliance on two judgments of the Supreme Court under the Customs and Excise Act namely Priya Blue Industries Ltd. v. Commissioner of Customs (Preventive), 2004 (172) ELT 145 and Collector of Central Excise, Kanpur v. Flock (India) Pvt. Ltd., 2000 (120) ELT 285 and argued that once the assessment order is passed the refund has to be claimed in accordance with such an order. 11. Ms. Ritu Bahri learned State Counsel on the other hand submitted that the petitioner could have availed alternative remedy of filing an appeal and raised all those issues which are now being agitated before this Court. She has pointed out that existence of an alternative remedy should ordinarily be insisted upon by the Courts and the petitioners are liable to be relegated to the remedy of appeal. She has however, argued that the amount of refund is always adjustable. In cases where dealer is likely to pay dues of the department, the refund is not permitted. According to her, if the assessment order is so absurd that no CWP No.19941 of 2005 -10- body can sustain such an order then there is no bar on the power of the superior officer to refuse the grant of sanction to the refund order. 12. After hearing learned counsel for the parties and perusing the paper book with their assistance, we would first examine and analyze the provision of Rule 36 which is the basis of exercising power by the officer sanctioning the refund. The aforesaid rule in so far it is applicable to the facts of the present case reads thus:- Rule 36 “Determination of Amount of Refund (Section 43) When the assessing authority is satisfied after such scrutiny of accounts and such enquiries as it considers necessary that the claim for refund is admissible, he shall, subject to proviso to Section 43 determine the amount of refund due if not already determined under Sections 39, 40, 41 and record an order sanctioning the refund, if the amount to be refunded does not exceed ten thousand rupees. If the amount to be refunded exceeds ten thousand rupees but does not exceed five lacs rupees, he shall submit the record of the case together with his recommendation to the Officer Incharge of the District. If the amount of refund exceeds five lac rupees but does not exceed ten lacs rupees, the CWP No.19941 of 2005 -11- district in-charge shall refer the case to Joint Excise and Taxation Commissioner of the division for his approval. In case the amount of refund exceeds ten lacs rupees, the case shall be referred by the district incharge along with his recommendations to the Commissioner for his prior permission. The decision is all such cases shall be taken within a period of ninety days” 13. A perusal of the Rule shows that the Assessing Authority after scrutiny of account and making of inquiries (subject to any adjustment as contemplated by proviso to Section 43(1) of GST Act) is obliged to determine the amount of refund if not determined by the appellate authority under Section 39 or by the Revisional Authority under Section 40 etc. The provision also postulates the pecuniary limits. The Assessing Authority could exercise the power of refund if the amount of refund is Rs.10,000/- or less than Rs.10,000/-. However, in cases where the amount of refund exceeds Rs.10,000/- but does not exceed Rs.5,00,000/- then the Assessing Officer is required to submit the record of the case along with his own recommendation to the Officer Incharge of the District. In cases where the amount exceeds Rs.5,00,000/- but does not exceed Rs.10,00,000/- then District Incharge is under obligation to refer the case to Joint Excise and Taxation Commissioner of the CWP No.19941 of 2005 -12- Division. In case, the amount of refund exceeds Rs.10,00,000/- then case is required to be referred by the District Incharge along his recommendations to the Commissioner for granting prior permission. There is nothing in Rule 36 which may go beyond the power to accord approval to the amount of refund by the higher authorities in hierarchy that may suggest that such an authority is competent to exercise power by substituting its own opinion with that of the Assessing Authority. 14. The necessary distinction between the powers of recording assessment order and the power of determination of amount of refund by an Assessing Authority has to be borne in mind. According to the definition clause of Section 2(a) of the GST Act read with Rule 2(c) of the Rules, the Assessing Authority continues to be the Excise and Taxation Officer or the Assistant Excise and Taxation Officer. The assessment order has to be framed by the Assessing Authority in exercise of powers under Chapter (V) which deals with returns, assessment, reassessment and collection. After the assessment order has been passed under Chapter (V) of the GST Act, the question of refund has to be considered in accordance with Section 43 under Chapter (VII). Section 43 of that Chapter deals with refund and, therefore, it would be useful to read Section 43, which is as under: - “Section – 43 [REFUND] [(1)] [The assessing authority or a person appointed to assist the Commissioner under CWP No.19941 of 2005 -13- sub-section (1) of section 3, as the case may be] shall, in the prescribed manner, refund to a dealer or to any other person the amount of tax or penalty or interest paid by him in excess of the amount due from him under this Act, either by a refund voucher, or at the option of the dealer by adjustment of the amount so paid against the amount due from him in respect of any other period. Provided that the [assessing authority or a person appointed to assist the Commissioner under sub- section (1) of section 3, as the case may be] shall first adjust the amount to be refunded towards the recovery of any amount due, on the date of adjustment from the dealer and shall then refund the balance, if any. [(2) Where an amount required to be refunded by the assessing authority to any person by virtue of an order issued under this Act is not so refunded to him within the period as may be prescribed, the dealer shall be entitled to interest at such rates and on such terms and conditions as may be prescribed].” 15. It is pertinent to notice that Rule 36 has been framed to achieve the object contemplated by Section 43. Therefore, Rule 36 has to be read in the light of the provisions of Section 43. A perusal of Section 43 shows that an obligation is cast on the assessing authority or any other authority to refund to a dealer or any other person the amount of tax or penalty or CWP No.19941 of 2005 -14- interest paid by him in excess of the amount due from him under the Act. According to the proviso, it is also legal obligation casts on the assessing authority or any other authority to first adjust the amount to be refunded towards the recovery of any amount due on the date of adjustment from the dealer and the balance is to be refunded. In cases where refund amount is not paid within the period prescribed, the dealer is also entitled to interest at the prescribed rate. It is, thus, obvious that after the assessment order has been passed under Chapter (V), the question of refund would arise thereafter. As to how the refund is to be worked out has been made clear by Section 43 read with Rule 36. Accordingly, the obligations cast on the assessing authority or any other sanctioning authority is clearly delineated by Section 43 read with Rule 36. It would obviously mean that the amount of refund, as worked out in the assessment order, would remain the same without any change and cannot be altered without altering the assessment order itself in appeal or revision etc. However, it does not mean that the whole amount of refund worked out by the assessing authority in an assessment order would become payable to the dealer. There may be other dues of the revenue payable by a dealer which have to be first adjusted from the amount to be refunded as is provided by the proviso to Section 43(1) of the GST Act. The whole gamut of determination of refund does not imply that the assessment order has to be tinkered with but it only implies that CWP No.19941 of 2005 -15- the amount of refund worked out by the assessment order is required to be adjusted towards the recovery of dues of the revenue which might be payable by the dealer. Therefore, there is a marked distinction between the order of assessment and an order concerning determination of amount of refund. Both orders operate in two distinct areas which do not intermingle because determination of amount of refund itself presume the existence of a valid assessment order whereby the amount of refund has been worked out and made payable to a dealer subject, however, to the adjustment of any dues of the revenue. It is for that reason that Rule 36 casts a duty on the assessing authority to scrutinize their accounts, make such inquiries which are considered necessary and to determine the claim of refund. After recording his satisfaction, the assessing authority may have to pass order of refund himself or on account of pecuniary limits it may have to forward the case along with his recommendation to the next higher authority. At this stage, the assessing authority cannot reopen the assessment order nor such a power exists with the higher authority in the hierarchy of administration. Once, the power of the assessing officer for determination of amount of refund is confined only to the area of examining accounts or make such inquiry to determine whether the amount of refund has been correctly worked out, the power of the higher sanctioning authorities in the hierarchy of administration would not extend to review the order of CWP No.19941 of 2005 -16- assessment, examine the same on merit and set it aside. The exercise of such a non-existing power would be wholly without jurisdiction because it would belong to the appellate authority which under the Act has been defined by Section 39 or revisional authority as defined by Section 40 etc. Therefore, there is no jurisdiction to set aside the assessment order by the authority under Rule 36 which vests in the appellate authority or the revisional authority. 16. There is ample authority for the proposition that assessment order cannot be tinkered with and have to be respected unless such orders are set aside in appeal (Section 39) or revised in exercise of revisional power (Section 40). In that regard, reliance may be placed on the judgment of the Hon'ble Supreme Court rendered in the case of Hazi Hasan Dada (supra). In that case, the assessee was engaged in the business of yarn and was registered under the C.P. And Berar Sales Tax Act, 1947 and the Central Sales Tax Act, 1940. He was assessed on his turnover from his business and he paid the amount of tax as assessed. Lateron, he filed an application before the Assistant Commissioner for refund of certain amount by raising the plea that in the turnover of his business of yarn, the charges concerning dyeing were included which were not taxable under the statute. The aforesaid plea was based on a decision of the Board of Revenue holding that the dyeing charges were not taxable. Accordingly, Hon'ble the Supreme CWP No.19941 of 2005 -17- Court held that the order of refund made on the application was unsustainable in the eyes of law unless the order of the assessing authority was set aside in appeal or revision. Placing reliance on a judgment of the Bombay High Court rendered in the case of State of Bombay v. Purushottamdas Dwarakadas Patel (1957) 8 S.T.C. 379, their Lordships observed as under: - “In that case it was held by the High Court that