COMMISSIONER OF TRADE AND TAXES versus FEMC PRATIBHA JOINT VENTURE
[2024] 6 S.C.R. 337, Supreme Court of India, 2024
Outcome: Dismissed (Dismissed)
Segment: Issues
* Author
[2024] 6 S.C.R. 337 : 2024 INSC 364
Commissioner of Trade and Taxes 
v. 
FEMC Pratibha Joint Venture
(Civil Appeal No. 3940 of 2024)
01 May 2024
[Pamidighantam Sri Narasimha* and 
Prasanna Bhalachandra Varale, JJ.]
Issues for Consideration
(1)	
Whether the timeline for refund prescribed under s. 38(3) of 
the Delhi Value Added Tax Act, 2004 must be mandatorily 
followed while recovering dues under the Act; and
(2)	
Whether the Tax Assessing Officer could pass an adjustment 
order to adjust Respondent’s claim for refund against default 
notices issued subsequently.
Headnotes†
Tax-VAT – Delhi Value Added Tax Act, 2004. – ss. 38(3) and 42 
– Respondent claimed refund of excess tax credit along with 
interest for 4th quarter of 2015-2016 and 1st quarter of 2017-2018 
– Appellant did not refund – Issued adjustment order against 
dues under four default notices issued in 2020, 2021 and 2022 
– Adjustment order quashed by High Court – Appellant directed 
to refund with interest – High Court’s judgment affirmed.
Held: Respondent claimed refund of excess tax credit along with 
applicable interest under Delhi Value Added Tax Act, 2004, s. 42, for 
the 4th quarter of 2015-2016 and 1st quarter of 2017-2018 through 
return filed on 29.03.2019 – Appellant did not refund until 2022 
– Adjustment order issued to adjust Respondent’s claims against 
four default notices issued in 2020, 2021 and 2022 – Adjustment 
order challenged in High Court and is quashed – High Court’s 
judgment
affirmed.
Language of s. 38(3) of 2004 Act is mandatory – Timeline stipulated 
must be adhered to – Object of provision to ensure refunds are 
processed and issued in a timely manner – Adjustment under 
s. 38(2) permitted only against amounts ‘due under the Act’ –
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Appellant not justified in retaining refund amount and adjusting it 
towards notices issued subsequent to the refund period – Effect 
of timeline under s. 38(3) not only for calculation of interest under 
s. 42 – Contention rejected. [Paras 6-10]
Case Law Cited
Flipkart India Private Limited v. Value Added Tax 
Officer, Ward 300, 2023 SCC OnLine Del 5201; Swarn 
Darsan Impex v. Commissioner, Value Added Tax, 
2010 SCC OnLine Del 4697; Nucleus Marketing and 
Communication v. Commissioner of Delhi Value Added 
Tax, 2016 SCC OnLine Del 3941; Rockwell Industries 
v. Commissioner of Trade and Taxes, 2019 SCC 
OnLine Del 8432; ITD-ITD CEM JV v. Commissioner 
of Trade and Taxes, 2019 SCC OnLine Del 9568; 
Ramky Infrastructure Ltd. v. Commissioner of Trade and 
Taxes, 2023 SCC OnLine Del 4236; Commissioner of 
Trade and Taxes v. Corsan Corviam Construction S.A. 
Sadbhav Engineering Ltd. JV, 2023 SCC OnLine Del 
1900 - referred to.
List of Acts
Delhi Value Added Tax Act, 2004.
List of Keywords
Refund; Adjustment; Adjustment order; Timeline; Default notices. 
Case Arising From
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 3940 of 2024
From the Judgment and Order dated 21.09.2023 of the High Court 
of Delhi at New Delhi in WP (C) No. 2491 of 2023
Appearances for Parties
N Venkataraman, A.S.G., Mukesh Kumar Maroria, V C Bharathi, 
Udai Khanna, Siddharth Sinha, Advs. for the Appellant.
Rajesh Jain, Virag Tiwari, Rishabh Jain, Ramashish,
K. J. Bhat, 
Avadh Bihari Kaushik, Advs. for the Respondent.
[2024] 6 S.C.R. 
339
Commissioner of Trade and Taxes v. FEMC Pratibha Joint Venture
Judgment / Order of the Supreme Court
Judgment
Pamidighantam Sri Narasimha, J.
1.	
The issue for consideration before us is whether the timeline for 
refund under Section 38(3) of the Delhi Value Added Tax Act, 20041 
must be mandatorily followed while recovering dues under the Act 
by adjusting them against the refund amount. 
2.	
The brief facts relevant for our purpose are as follows. The respondent 
is a joint venture engaged in the execution of works contracts for 
the Delhi Metro Rail Corporation and makes purchases for this 
purpose. It claimed refund of excess tax credit amounting to Rs. 
17,10,15,285/- for the 4th quarter of 2015-16 through revised return 
filed on 31.03.2017 and Rs. 5,44,39,148/- for the 1st quarter of 2017-
18 through return filed on 29.03.2019, along with applicable interest 
under Section 42 of the Act. The appellant did not pay the refund 
even until 2022, pursuant to which the respondent sent a letter dated 
09.11.2022 for the consideration of their refund. The Value Added 
Tax Officer passed an adjustment order dated 18.11.2022 to adjust 
the respondent’s claims for refund against dues under default notices 
dated 30.03.2020, 23.03.2021, 30.03.2021, and 26.03.2022. The 
respondent then filed a writ petition before the Delhi High Court for 
quashing the adjustment order and the default notices. 
3.	
By judgment dated 21.09.2023, impugned herein, the High
Court quashed the adjustment order and directed refund of Rs. 
17,10,15,285/- for the 4th quarter of 2015-16 and Rs. 5,44,39, 148/- 
for the 1st quarter of 2017-18, along with interest as per Section 42 
till the date of realisation.2 In respect of the default notices, the High 
Court gave liberty to the respondent to avail statutory appeal under 
Section 74 of the Act.
4.	
The present appeal is restricted to the issue of quashing the 
adjustment order. The High Court placed reliance on the Delhi High 
Court’s judgment in Flipkart India Private Limited v. Value Added Tax 
1	
Hereinafter ‘the Act’. 
2	
WP (C) 2491/2023, judgment dated 21.09.2023 (‘Impugned judgment’).
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Officer, Ward 3003 to summarise the law on refund under Section 
38. It held that the department must scrupulously adhere to the 
time limit for processing and issuing the refunds under Section 38. 
Whenever the department seeks to obtain necessary information 
under Section 59 of the Act, it must take steps within the time limit 
envisaged under the Act. Further, the refund amount can be adjusted 
only when an enforceable demand in the nature of tax or duty is 
pending against the assessee. The department does not have any 
legal right or justification to retain the amount beyond the time limit 
prescribed under Section 38.4 In the facts of the present case, it was 
held that the mandate of the Act has not been followed and hence 
the adjustment order is not maintainable.5 
5.	
We have heard the learned ASG for the department and Mr. Rajesh 
Jain, learned counsel for the respondent-assessee. The learned ASG 
has submitted that the timelines specified in Section 38(3) are only 
to ensure that interest is paid if the refund is delayed beyond the 
statutorily prescribed period. However, he has argued, the timeline 
cannot be used to denude the power to adjust refund amounts against 
outstanding dues under Section 38(2). The refund can be adjusted 
as long as outstanding dues exist at the time when the refund is 
processed, even if it is beyond the stipulated timeline. The learned 
counsel for the assessee has supported the
reasoning of the High 
Court and has placed reliance on several judgments of the Delhi 
High Court that affirm this position of law.6
6.	
We find no reason to interfere with the impugned judgment, which 
follows the view that has been consistently adopted by the High 
Court.7 The finding of the High Court is based on the plain language 
of Section 38 of the Act, which reads as follows:
3	
2023 SCC OnLine Del 5201
4	
Impugned judgment, para 10.
5	
ibid, para 11. 
6	
Swarn Darsan Impex v. Commissioner, Value Added Tax, 2010 SCC OnLine Del 4697; Nucleus 
Marketing and Communication v. Commissioner of Delhi Value Added Tax, 2016 SCC OnLine Del 
3941; Rockwell Industries v. Commissioner of Trade and Taxes, 2019 SCC OnLine Del 8432; ITD-ITD 
CEM JV v. Commissioner of Trade and Taxes, 2019 SCC OnLine Del 9568; Ramky Infrastructure Ltd v. 
Commissioner of Trade and Taxes, 2023 SCC OnLine Del 4236; Commissioner of Trade and Taxes v. 
Corsan Corviam Construction S.A. Sadbhav Engineering Ltd JV, 2023 SCC OnLine Del 1900; Flipkart 
India (supra). 
7	
ibid.
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Commissioner of Trade and Taxes v. FEMC Pratibha Joint Venture
“38. Refunds
(1)	 Subject to the other provisions of this section and the 
rules, the Commissioner shall refund to a person the 
amount of tax, penalty and interest, if any, paid by 
such person in excess of the amount due from him. 
(2)	 Before making any refund, the Commissioner shall 
first apply such excess towards the recovery of any 
other amount due under this Act, or under the CST 
Act, 1956 (74 of 1956). 
(3)	 Subject to sub-section (4) and sub-section (5) of this 
section, any amount remaining after the application 
referred to in sub-section (2) of this section shall be 
at the election of the dealer, either – 
(a)	 refunded to the person, – 
(i)	
within one month after the date on which 
the return was furnished or claim for the 
refund was made, if the tax period for the 
person claiming refund is one month;
(ii)	
within two months after the date on which 
the return was furnished or claim for the 
refund was made, if the tax period for the 
person claiming refund is a quarter; or 
(b)	 carried forward to the next tax period as a tax 
credit in that period.
(4)	 Where the Commissioner has issued a notice to the 
person under section 58 of this Act advising him that 
an audit, investigation or inquiry into his business 
affairs will be undertaken or sought additional 
information under section 59 of this Act, the amount 
shall be carried forward to the next tax period as a 
tax
credit in that period.
(5)	 The Commissioner may, as a condition of the payment 
of a refund, demand security from the person pursuant 
to the powers conferred in section 25 of this Act within 
fifteen days from the date on which the return was 
furnished or claim for the refund was made.
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(6)	 The Commissioner shall grant refund within fifteen 
days from the date the dealer furnishes the security 
to his satisfaction under sub-section (5).
(7)	 For calculating the period prescribed in clause (a) of 
sub- section (3), the time taken to – 
(a)	 furnish the security under sub-section (5) to the 
satisfaction of the Commissioner; or 
(b)	 furnish the additional information sought under 
section 59; or
(c)	
furnish returns under section 26 and section 
27; or 
(d)	 furnish the declaration or certificate forms as 
required under Central Sales Tax Act, 1956,
shall be excluded 
(8)	 Notwithstanding anything contained in this section, 
where – 
(a)	 a registered dealer has sold goods to an 
unregistered person; and 
(b)	 the price charged for the goods includes an 
amount of tax payable under this Act;
(c)	
the dealer is seeking the refund of this amount 
or to apply this amount under clause (b) of sub-
section (3) of this section; 
no amount shall be refunded to the dealer or may 
be applied by the dealer under clause (b) of sub-
section (3) of this section unless the Commissioner 
is satisfied that the dealer has refunded the amount 
to the purchaser.
(9)	 Where – 
(a)	 a registered dealer has sold goods to another 
registered dealer; and
(b)	 the price charged for the goods expressly 
includes an amount of tax payable under this Act,
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Commissioner of Trade and Taxes v. FEMC Pratibha Joint Venture
the amount may be refunded to the seller or may 
be applied by the seller under clause (b) of sub-
section (3) of this section and the Commissioner 
may reassess the buyer to deny the amount of the 
corresponding tax credit claimed by such buyer, 
whether or not the seller refunds the amount to the 
buyer.
(10)	 Where a registered dealer sells goods and the price 
charged for the goods is expressed not to include 
an amount of tax payable under this Act the amount 
may be refunded to the seller or may be applied by 
the seller under clause (b) of sub-section (3) of this 
section without the seller being required to refund 
an amount to the purchaser.
(11)	 Notwithstanding anything contained to the contrary 
in sub-section (3) of this section, no refund shall be 
allowed to a dealer who has not filed any return due 
under this Act.”
7.	
Sub-section (1) provides that any amount of tax, penalty and interest 
that is in excess of the amount due from a person shall be refunded to 
him by the Commissioner. Sub-section (2) permits the Commissioner 
to first apply such excess to recover any other amount that is due 
under the Act or the Central Sales Tax Act, 1956. Sub-section (3), 
which is relevant for our purpose, provides the assessee with the 
option of getting the refund or carrying it forward to the next tax 
period as a tax credit. In case of refund, Section 38(3)(a) provides 
the timeline
for refund from the date on which the return is furnished 
or claim for refund is made as: (i) within one month, if the period for 
refund is one month; (ii) within two months, if the period for refund 
is a quarter. Sub-section (4) provides that if notice has been issued 
under Section 58 or additional information has been sought under 
Section 59, then the amount shall be carried forward to the next 
tax period as tax credit. Sub-sections (5) and (6) pertain to security. 
Sub-section (7) provides certain exclusions while calculating the 
period under sub-section (3). Sub-sections (8)-(10) pertain to refund 
in cases of sale to registered and unregistered dealers. Lastly, sub-
section (11) provides that the refund shall not be allowed to a dealer 
who has not filed any return that is due under the Act.
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8.	
The language of Section 38(3) is mandatory and the department 
must adhere to the timeline stipulated therein to fulfil the object of 
the provision, which is to ensure that refunds are processed and 
issued in a timely manner. 
9.	
In the present case, Section 38(3)(a)(ii) is relevant as both the 
refunds in the present case pertain to quarter tax periods. Therefore, 
as per Section 38(3)(a)(ii), the refund should have been processed 
within two months from when the returns were filed (31.03.2017 
and 29.03.2019), which comes up to 31.05.2017 and 29.05.2019. 
The default notices are dated 30.03.2020, 23.03.2021, 30.03.2021, 
and 26.03.2022. It is therefore evident that the default notices 
were issued after the period within which the refund should have 
been processed. Sub-section (2) only permits adjusting amounts 
towards recovery that are “due under the Act”. By the time when 
the refund should have been processed as per the provisions of 
the Act, the dues under the default notices had not crystallised 
and the respondent was not liable to pay the same at the time. 
The appellant-department is therefore not justified in retaining the 
refund amount beyond the stipulated period and then adjusting the 
refund amount against the amounts due under default notices that 
were issued subsequent to the refund period. 
10.	 Further, the learned ASG’s contention that the purpose of the timeline 
provided under sub-section
(3) is only for calculation of interest 
under Section 428 would defeat the object of the provision. Such 
an interpretation would effectively enable the department to retain 
refundable amounts for long durations for the purpose of adjusting 
8	
The relevant portion of Section 42 reads:
“42. Interest
(1) A person entitled to a refund under this Act, shall be entitled to receive, in addition to the refund, 
simple interest at the annual rate notified by the Government from time to time, computed on a daily 
basis from the later of –
(a)	
the date that the refund was due to be paid to the person; or 
(b)	
the date that the overpaid amount was paid by the person, until the date on which the refund is 
given.
PROVIDED that the interest shall be calculated on the amount of refund due after deducting therefrom 
any tax, interest, penalty or any other dues under this Act, or under the Central Sales Tax Act, 1956 (74 
of 1956): 
PROVIDED FURTHER that if the amount of such refund is enhanced or reduced, as the case may be, 
such interest shall be enhanced or reduced accordingly. 
Explanation.- If the delay in granting the refund is attributable to the said person, whether wholly or in 
part, the period of the delay attributable to him shall be excluded from the period for which the interest 
is payable.”
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Commissioner of Trade and Taxes v. FEMC Pratibha Joint Venture
them on a future date. This would go against the object and purpose 
of the provision. This contention is hence rejected. 
11.	 In view of the above, we dismiss the present appeal and affirm 
the impugned judgment directing the refund of amounts along with 
interest as provided under Section 42 of the Act. 
12.	 Pending applications, if any, are disposed of.
Result of the case: Appeal dismissed.
†Headnotes prepared by: Aishani Narain, Hony. Associate Editor 
(Verified by: Shibani Ghosh, Adv.)