In Brief
The Supreme Court addressed whether tax authorities must mandatorily follow the refund timeline under Section 38(3) of the Delhi Value Added Tax Act, 2004 when offsetting refunds against outstanding tax dues. A joint venture engaged in Delhi Metro Rail Corporation contracts claimed refunds of over Rs. 22 crores (with interest) filed in 2017 and 2019. The tax department adjusted these refunds against default notices issued in 2020-2022. The Court held that Section 38(3)'s two-month refund timeline is mandatory. Since the default notices were issued after the refund deadline, the dues had not crystallized when the refund should have been paid. The Court rejected the department's argument that the timeline merely sets interest deadlines, holding such interpretation would allow indefinite retention of refunds for future adjustments, contrary to the statute's purpose. The appeal was dismissed and the refunds, with interest, were confirmed.
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