HON’BLE THE CHIEF JUSTICE SRI ANIL R. DAVE AND HON’BLE SRI JUSTICE RAMESH RANGANATHAN WRIT PETITION No.4977 of 2009 Between: Bharat Sanchar Nigam Ltd. ...Petitioner And State of Andhra Pradesh, Represented by its Principal Secretary, Department, Hyderabad and another. …Respondents % 24.7.2009 ! Counsel for the petitioner : Sri E. Manohar, Senior Advocate, Assisted by Sri R.S. Murthy, Standing Counsel for BSNL. ^ Counsel for the respondents : Sri K. Raji Reddy, Special Standing Counsel for Commercial Taxes. Ø Head Note: ? CITATIONS: 1. (1975) 100 ITR 401 2. 1987 Tax L.R. 814 3. (1997) 106 STC 188 4. (1991) 82 STC 367 5. AIR 1977 SC 183 = (1977) 1 SCC 133 6. AIR 1969 SC 707 IN THE HIGH COURT OF JUDICATURE OF ANDHRA PRADESH AT HYDERABAD FRIDAY, THE TWENTY FOURTH DAY OF JULY, TWO THOUSAND AND NINE PRESENT HON’BLE THE CHIEF JUSTICE SRI ANIL R. DAVE AND HON’BLE SRI JUSTICE RAMESH RANGANATHAN Writ Petition No.4977 of 2009 Between: Bharat Sanchar Nigam Ltd., Represented by its Chief General Manager (Telecom), A.P. Circle, Hyderabad. …Petitioner And 1. State of Andhra Pradesh, Represented by its Principal Secretary, Revenue Department, Secretariat, Hyderabad. 2. The Deputy Commissioner (CT), Government of Andhra Pradesh, Abids Division, Hyderabad. …Respondents Petition under Article 226 of the Constitution of India praying that in the circumstances stated in the affidavit filed in support of the writ petition, the High Court will be pleased to issue a writ of certiorari calling for the records relating to the Order in Proceedings Rc.No.C6/248/03, dated 19.2.2009 of the Deputy Commissioner (CT), Abids Division, Hyderabad, the 2nd respondent herein, and quash the same and direct the respondents to refund the amount of Rs.14,52,29,260/- with interest to the petitioner. Counsel for the petitioner : Sri E. Manohar, Senior Advocate, assisted by Sri R.S. Murthy, Standing Counsel for BSNL. Counsel for the respondents : Sri K. Raji Reddy, Special Standing Counsel for Commercial Taxes The Court made the following: ORDER: (Per Sri Anil R. Dave, C.J.) 1) The short question involved in this petition is whether the respondent authorities have unfettered right to withhold the amount payable to the petitioner by way of refund under the provisions of Section 40 (2) of the Andhra Pradesh Value Added Tax Act, 2005 (hereinafter referred to as “the APVAT Act”). 2) The facts, which are not in dispute, are as under: By virtue of an order dated 28th November, 2007 passed in T.A. No.1142 of 2007 by the Andhra Pradesh Sales Tax Appellate Tribunal, Hyderabad (for short “STAT”), a sum of Rs.14,52,29,260/-, has become payable to the petitioner. As the said amount was not refunded to the petitioner by the respondent authorities, the petitioner was constrained to file Writ Petition No.14312 of 2007 before this Court praying for a direction to the respondent authorities for refund of the afore-stated amount. After hearing the concerned advocates, this Court, by an order dated 9th June, 2008, disposed of the petition by observing that the petitioner should make a representation to the respondent authorities for refund of the amount. Accordingly, a representation dated 30th September, 2008 was made by the petitioner, but the said representation has been turned down by the impugned order dated 19th February, 2009. 3) By virtue of the impugned order dated 19th February, 2009, respondent No.2 has opined that grant of refund of Rs.14,52,29,260/- is likely to adversely affect the revenue and, therefore, he has ordered withholding of the said amount till further orders under the power vested in him under Section 33-C of the Andhra Pradesh General Sales Tax Act, 1957 (for short, “the APGST Act”) read with Section 40(2) of the APVAT Act. Being aggrieved by the afore-stated order, the petitioner has approached this Court with a prayer that the impugned order be quashed and the respondents be directed to pay the amount of refund with interest thereon. 4) Learned Senior Advocate, Sri E. Manohar, appearing for the petitioner, has submitted that the impugned order is not sustainable. To substantiate his submission, he has referred to several provisions of the APVAT Act so as to make out a case on merits that the petitioner had rightly succeeded before the STAT. 5) We are of the view that we need not go into merits of the case for the reason that TRC No.245 of 2008 filed by the respondent authorities against the order passed by the STAT in T.A.No.1142 of 2007 is pending before this Court. At this juncture, we are not at all concerned with the merits of the case because prayer of the petitioner in this petition is for refund of the amount along with interest thereon and, therefore, though learned Senior Advocate, Sri E. Manohar has made several submissions on merits of the case, we do not go into the same. 6) It has been submitted by learned Senior Advocate, Sri E. Manohar that the petitioner had succeeded before the STAT and it is not in dispute that by virtue of the impugned order passed by the STAT, the afore-stated amount of Rs.14,52,29,260/- has become payable to the petitioner. He has fairly admitted that TRC.No.245 of 2008 has been filed against the order in T.A.No.1142 of 2007 passed by the STAT, but this Court has not granted any order with regard to stay of implementation of the afore-stated order and, therefore, the amount payable to the petitioner must be paid by the respondent authorities. 7) The learned Senior Advocate has relied upon the judgment delivered by this Court in A.P. State Road Transport Corporation v. CIT[1]. It has been submitted by him that though the said case relates to the provisions of the Income-tax Act, this Court has observed in the said judgment that the power conferred on the Income-tax Officer for withholding the amount of refund and interest thereon is not absolute. The officer must be satisfied that the interest of the revenue would suffer by granting refund of amount, and only in that event, the amount of refund can be withheld. In the instant case, according to the learned Senior Advocate, the petitioner has succeeded before the STAT and, therefore, without any justifiable reason, the amount payable to the petitioner by way of refund cannot be withheld by the respondent authorities. 8) Similarly, the learned Senior Advocate has relied upon the judgment delivered in M/s. Leader Valves Pvt. Ltd. v. I.T. Commissioner, Jullundur[2]. In the said judgment, Punjab and Haryana High Court has held that payment of refund cannot be withheld during pendency of reference, unless it is likely to affect the revenue adversely. 9) The learned Senior Advocate has also relied upon an un- reported judgment delivered by this court in Writ Petition No.22266 of 2008 and batch, disposed of on 2nd April, 2009, in the case of M/s. Pulp N. Pack Private Ltd. v. The Commercial Tax Officer, Nidadavolu Circle. This Court has held in the said judgment that withholding of refund would have adverse impact on the dealer and by virtue of such an action on the part of the State, the assessee is deprived of higher rate of interest. It has also been held in the said judgment that power to withhold the amount of refund is not an absolute power, and it has to be exercised only after forming an opinion about the possible adverse impact of paying the amount of refund, upon the revenue. 10) It has been finally submitted by the learned Senior Advocate that no specific reason has been stated in the impugned order for withholding the refund. What is stated therein is that the payment of refund to the petitioner is likely to adversely affect the revenue. 11) The learned Senior Advocate has, therefore, submitted that by quashing the impugned order, the respondent authorities be directed to make payment of the refund with interest thereon. 12) On the other hand, Sri K. Raji Reddy, learned Special Standing Counsel for Commercial Taxes, has submitted that the petitioner has no right to get the refund of the amount in view of the provisions of Section 40(2) of the APVAT Act, especially when the respondent authorities have challenged the validity of the order, in pursuance of which the petitioner is claiming the amount of refund. It has been submitted by him that as a Tax Revision Case has already been filed in this Court and as the respondent authorities are quite hopeful of succeeding in the said revision case, if the amount of refund is paid to the petitioner at this juncture, the State exchequer would be adversely affected, because, ultimately, the amount will have to be recovered from the petitioner along with interest thereon upon succeeding in the Tax Revision Case. It has been submitted that the entire exercise with regard to recovery of the amount of tax will have to be done again upon succeeding in the afore-stated revision case filed by the respondent authorities if the amount of refund is paid to the petitioner now. It has been further submitted by the learned Standing Counsel that payment of such a huge amount of refund along with interest thereon would adversely affect the State exchequer. 13) It has been submitted by the learned Standing Counsel that if the State is called upon to pay such a huge amount at this juncture, especially when the respondent authorities are hopeful of succeeding in the TRC, the revenue would surely be adversely affected. In the circumstances, after previous approval of the Commissioner of Commercial Taxes, the amount of refund has been rightly withheld by the respondent authorities. Looking to the quantum of the amount of refund, as per Rule 59 of the APVAT Rules, approval of the Commissioner of Commercial Taxes was obtained though Section 40(2) of the APVAT Act requires approval of the Deputy Commissioner. The learned Standing Counsel has referred to and relied upon the judgment of this Court in A.P. State Road Transport Corporation v. CIT (supra). The law laid down in the said judgment is to the effect that if the Income-tax Officer is satisfied that interest of the revenue would suffer due to payment of refund, it is open to the revenue to withhold the amount. It has been further submitted by the learned Standing Counsel that there was a similar provision with regard to withholding payment of refund in the Income-tax Act, 1961 and, therefore, the law laid down in the afore-stated judgment can be very well applied to the instant case. 14) The learned Standing Counsel has also relied upon the judgment delivered in the case of Gopi Bar v. Commercial Tax Officer[3], wherein this Court had refused to exercise its extraordinary jurisdiction under Article 226 of the Constitution of India for giving a direction to the respondent State authorities to refund the amount of tax. 15) Thereafter, the learned Standing Counsel has relied upon the judgment delivered in the case of Sarvaraya Textiles Ltd. v. C.T.O.[4], wherein this Court had held that an order withholding refund was proper as permission of the Deputy Commissioner was obtained before passing the impugned order withholding the refund. 16) In the circumstances, it has been submitted by the learned Standing Counsel that the petition deserves to be rejected. 17) We have heard the learned Advocates and have perused the relevant orders passed by the respondent authorities and the judgments referred to hereinabove. 18) Section 40 of the APVAT Act reads as under: 40. Power to adjust, withhold refunds.-- (1) The Commissioner or the authority prescribed shall have the power to adjust any amount due to be refunded against any tax, penalty and interest outstanding against a VAT dealer or a TOT dealer or any other dealer. (2) Where an order giving rise to a refund is the subject matter of an appeal or further proceeding, or where any other proceeding is pending, and the authority prescribed is of the opinion that the grant of the refund is likely to adversely affect the revenue, the authority prescribed may, with the previous approval of the Deputy Commissioner, withhold the refund till such time as the Deputy Commissioner may determine. (3) Where any demand of tax or penalty or both is disputed by a VAT dealer or TOT dealer before any appellate authority or Sales Tax Appellate Tribunal or High Court and the demand becomes finally due either partly or fully an interest at the rate of one percent per month shall be charged from the date such tax or penalty was originally due.” 19) It is true that as per the provisions of Section 40 (2) of the APVAT Act (which is pari materia to that of Section 33-C of the APGST Act, which has now been repealed), the respondent authorities have power to withhold payment of refund. The said power has to be exercised after obtaining approval of the Deputy Commissioner. Though Section 40(2) of the APVAT Act empowers the concerned authority to withhold the amount of refund, such power is not an unfettered power vesting with the concerned officer of the revenue. Once the said power is given to an authority, such power has to be exercised with discretion. There must be sound reasons for which the amount payable to an assessee – citizen is to be withheld. If one reads the provisions of Section 40(2) of the APVAT Act, which has been reproduced hereinabove, it clearly says that “……..the authority prescribed is of the opinion that the grant of the refund is likely to adversely affect the revenue……….” (emphasis added). Thus, before exercising the power to withhold payment of refund under the provisions of Section 40(2) of the APVAT Act, the concerned authority including the Deputy Commissioner must form an opinion that payment of refund would adversely affect the revenue. 20) Though there is no provision in the section that reasons should be recorded for withholding the amount of refund, in our opinion, it becomes obligatory on the part of the Deputy Commissioner to record reasons before according approval for withholding the amount of refund. 21) In normal circumstances, once the assessee succeeds in the litigation, the respondent authorities are bound to refund the amount of tax, which was collected from the assessee. Simply because an appeal is filed, the authorities would not be empowered to withhold the amount of refund. So as to see that interest of the State is protected, the Legislature has enacted Section 40(2) of the APVAT Act, but the power granted to withhold the amount vested with the assessing officer has to be exercised with the approval of the Deputy Commissioner. Before granting approval, the Deputy Commissioner, in our opinion, is duty bound to consider the facts of the case and record the reasons for which he would like to give his approval for withholding payment of the amount belonging to the assessee. The reasons must be just and proper. In any case, interest of the revenue would be affected if the amount already collected by the revenue from the assessee is returned. A person making payment would always feel that due to the payment made, he is affected and in a way, payment of even one paisa would affect the revenue as assets of the State would be reduced to that extent by making the payment, but this would not mean that interest of the revenue is adversely affected, if the payment is made in pursuance of a lawful order passed by an authority established by law. Whenever any person has to part with money, he would consider himself to be adversely affected. In such a set of circumstances, one has to look at the reason or justification for retaining someone’s money. For example, if, after considering the facts of the case, the Deputy Commissioner comes to the conclusion that the assessee is not a reliable person, running into losses, or a person, who is a fly by night operator, who is likely to vanish into thin air, having no immovable property; and in the event of his losing in the litigation, it would be difficult for the State to recover the money from him, then the revenue would be justified in withholding the assessee’s money i.e. the refund. To get refund is the right of the assessee because that is the amount belonging to the assessee as per the verdict of an authority established by law and, therefore, without justifiable reason, the revenue cannot withhold the payment of refund. 22) The Deputy Commissioner must come to the conclusion that by not withholding the amount of refund, the State would be adversely affected because the State might not be in a position to recover the said amount. If the assessee is doing well in business for several years, is having sufficient assets and when there is no possibility of the assessee vanishing into thin air without making payment of tax, in our opinion, the Deputy Commissioner cannot give his approval for withholding the refund. In any case, the Deputy Commissioner must record reasons before granting approval so that in the event of the decision of the Deputy Commissioner being challenged, the higher authority or the concerned court can look into the justification given by the Deputy Commissioner for giving an opinion for withholding payment of the amount belonging to the assessee. 23) In the instant case, the concerned authorities including the Commissioner of Commercial Taxes, so as to withhold the amount of refund, ought to have come to a conclusion that the petitioner namely, BSNL is in such a bad shape that in the event of the revenue succeeding in the Tax Revision Case, it would not be possible or it would be extremely difficult for the respondent authorities to recover the said amount from it, or, should have come to a conclusion that the petitioner would vanish into thin air, or for any such reason, the revenue would not be in a position to recover the amount in question. 24) The Deputy Commissioner, or, in the instant case, the Commissioner of Commercial Taxes, must form an opinion that the grant of refund “is likely to adversely affect the revenue”. For forming such an opinion, he must consider all relevant facts and record the reasons. In the instant case, no reason has been recorded by the Commissioner of Commercial Taxes before granting his approval. Even in the counter affidavit filed by the Deputy Commissioner (CT), she has not given any reason which would give any justification to the action taken by her or by the Commissioner of Commercial Taxes against the petitioner. The petitioner, in such a case, cannot be left at the mercy of arbitrariness of a revenue officer. If no reason is assigned or no reason is recorded, normally, this Court would come to a conclusion that without any application of mind or without any justification, the concerned officer has used his power. In our opinion, mere filing of an appeal or revision case would not justify the revenue to withhold the payment of refund under the provisions of Section 40(2) of the APVAT Act. There must be some other factor which would weigh against the assessee if the respondent authorities want to exercise their power under Section 40(2) of the APVAT Act. 25) Assuming that the opinion of the Deputy Commissioner is subjective, even according to the law laid down by the Hon’ble Supreme Court in the case of Narayan Govind Gavate v. State of Maharashtra[5], the officer should form the opinion in good faith and on the basis of application of mind to the material available with him and his opinion or satisfaction should be such that a man with reasonable prudence would reach such a conclusion. Thus, for forming a particular opinion, the authority should have sufficient material and there must be a direct nexus between the material coming to his notice and the formation of his opinion. 26) I n Rohtas Industries Ltd. v. S.D. Agarwal[6], the Hon’ble Supreme Court has held that the authority must be exercised honestly and not for corrupt or ulterior purposes. The authority must form the requisite opinion honestly and after applying its mind to the relevant material before it; it must act reasonably and not capriciously or arbitrarily. 27) In the recent judgment in the case of Mahender Pal v. State of Haryana, decided on 15th May, 2009, the Hon’ble Supreme Court has held that existence of foundational facts is the sine qua non for formation of an opinion and such an objective satisfaction must be based on an objective criteria; ipse dixit on the part of the State would not serve the purpose. 28) In the instant case, there is no reference to the material which the Commissioner of Commercial Taxes had perused. If there is no material with him with regard to the apprehension of the State of not recovering the amount of refund from the petitioner – assessee, so as to adversely affect the State exchequer, the opinion formed by the Commissioner of Commercial Taxes cannot be said to be just and proper. 29) Thus, the circumstances giving rise to an apprehension in the mind of the authority in the event of the revenue succeeding in the TRC, recovery of refund from the petitioner - assessee would be difficult, must be in existence and we do not find any such circumstance on the record. Even the deponent of the counter affidavit has not referred to such circumstances and, therefore, in our opinion, withholding of payment of the refund cannot be justified by the revenue. We, therefore, come to the conclusion that there was no material for the Commissioner of Commercial Taxes to form an opinion that payment of the refund would adversely affect the revenue. 30) It is deplorable that the State, which is supposed to act fairly, has come out with a case that TRC. No.245 of 2008 has been filed against the order of the STAT in T.A.No.1142 of 2007 and, therefore, the power under Section 40(2) of the APVAT Act has been exercised. It is also pertinent to note that by not making payment of the refund, the respondent authorities, who are litigants before this Court in the TRC, wherein the validity of the order dated 28th November, 2007 in T.A.No.1142 of 2007 passed by the STAT has been challenged, have granted stay to themselves. A litigant cannot decide that he would not implement the order passed by a lawful authority because he has challenged the validity of the said order before a higher forum. Unless the higher forum stays implementation of the said order, the order passed by the concerned authority must be complied with. 31) It is also pertinent to note that in the event of the State succeeding in the afore-stated TRC, the petitioner will have to make payment of tax along with interest thereon and, therefore, in that event, the State is not to suffer at all, whereas, at present, when the petitioner has already succeeded before the STAT and if the amount payable to the petitioner is withheld, the petitioner would be adversely affected. 32) Looking to the above facts, we are of the view that the amount of refund has been wrongly withheld and, therefore, the said amount along with interest thereon shall be paid to the petitioner within four weeks from the date of receipt of this order in accordance with law. If the amount is not paid within four weeks, the amount payable to the petitioner would go on mounting, and in that event, the amount of interest which might have to be paid after four weeks, should be recovered from the officer responsible for causing delay so that the State exchequer may not suffer further. 33) In the circumstances, the impugned order passed under Section 40(2) of the APVAT Act is hereby quashed and set aside. The petition is allowed with no order as to costs. ANIL R. DAVE, C.J. 24th July, 2009 RAMESH RANGANATHAN, J. Note: LR copy be marked. ….REGISTRAR To 1. The Principal Secretary to