HC: Refund Cannot Be Adjusted Against Dues After Opting for MVAT Amnesty Scheme

The petitioner, a registered dealer, had faced tax proceedings over alleged excess input tax credit claims across multiple years. For one year, the matter concluded in the petitioner’s favour, resulting in a refund of Rs. 33.29 lakh. For later years, however, tax demands were raised, which the petitioner chose to settle under the state’s amnesty scheme by paying the prescribed amounts.

The department adjusted the earlier refund against alleged dues of another year. The petitioner challenged this move, arguing that once the settlement was completed, there were no outstanding dues left and the adjustment was contrary to the scheme’s objective.

Issue Before Court: Whether refund from one year can be adjusted after settlement of dues for other years.

HC Held: The High Court ruled in favour of the petitioner and set aside the adjustment. It held that the settlement scheme is meant to bring an end to disputes, and once the taxpayer complies with its conditions, the liability stands settled in full.

The Court further clarified that importing provisions of the general tax law to adjust refunds would defeat the very purpose of the scheme. Since no dues remained after settlement, there was nothing against which the refund could be adjusted. It also noted that the order was passed without giving the petitioner a proper hearing.

Therefore, the Court directed the authorities to release the full refund, along with applicable interest, and reiterated that settlement schemes must be implemented in both letter and spirit.

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