Facts of the Case

The petitioner, M/s A.K. Das Associates Ltd., challenged the order dated 14.10.2020 passed by the Additional Commissioner of Sales Tax, Odisha, under Section 60 of the Odisha Value Added Tax Act, 2004 (OVAT Act), whereby the refund amounting to ₹25,21,860/- was withheld.

The impugned order itself recorded that it had been passed without providing any opportunity of hearing to the petitioner-dealer. Aggrieved by the denial of refund and violation of the principles of natural justice, the petitioner approached the Orissa High Court by filing the writ petition.

 

Issues Involved

  1. Whether the Commissioner can withhold a tax refund under Section 60(1) of the Odisha Value Added Tax Act, 2004 without granting an opportunity of hearing to the dealer.
  2. Whether an order adversely affecting the rights of a taxpayer can be passed unilaterally in the absence of an express provision dispensing with the requirement of hearing.
  3. Whether the impugned refund withholding order was liable to be set aside for violation of the principles of natural justice.

 

Petitioner’s Arguments

  • The petitioner submitted that the refund had been withheld without issuing any notice or granting an opportunity of hearing.
  • It was argued that the impugned order adversely affected the petitioner's legal right to receive the refund.
  • Since Section 60 of the OVAT Act does not exclude the requirement of hearing, the authority was bound to follow the principles of natural justice before withholding the refund.
  • Therefore, the impugned order deserved to be quashed.

 

Respondent’s Arguments

  • The Department relied upon Section 60(1) of the Odisha Value Added Tax Act, 2004.
  • It was contended that where proceedings or appeals are pending and the Commissioner forms an opinion that grant of refund may adversely affect revenue recovery, the refund may be withheld until disposal of such proceedings.
  • On this basis, the Department attempted to justify the withholding of the refund without granting a prior hearing.

 

Court Order / Findings

The Orissa High Court held that:

  • Section 60(1) of the OVAT Act nowhere authorises the Commissioner to pass an order withholding refund unilaterally without hearing the dealer.
  • Since withholding of refund is an adverse action against the taxpayer, observance of the principles of natural justice is mandatory.
  • The authority was required to issue notice and provide the dealer with an opportunity of hearing before exercising powers under Section 60(1).
  • As the impugned order had admittedly been passed without hearing the petitioner, it was unsustainable in law.

Accordingly, the Court:

  • Set aside the impugned order dated 14.10.2020.
  • Granted liberty to the Commissioner to pass a fresh order under Section 60(1) of the OVAT Act after issuing notice and granting an opportunity of hearing to the petitioner.
  • Directed the Joint Commissioner of Sales Tax (Appeal), CT & GST, Territorial Range, Bhubaneswar, to dispose of the pending appeal within three months from the receipt of the certified copy of the Court's order.

 

Important Clarification

  • Section 60 of the Odisha Value Added Tax Act does not exclude compliance with the principles of natural justice.
  • An order withholding tax refund has civil consequences and therefore cannot be passed without providing an opportunity of hearing.
  • Even where the statute empowers withholding of refund in the interest of revenue, such power must be exercised fairly and after following due process.
  • The judgment reinforces that statutory discretion must be exercised in accordance with the principles of natural justice unless expressly excluded by law.

 

Sections Involved

  • Section 60(1) of the Odisha Value Added Tax Act, 2004 (OVAT Act) – Power to withhold refund where appeal or other proceedings are pending and grant of refund may adversely affect revenue recovery.

 

Link to download the order -

https://www.mytaxexpert.co.in/uploads/1782969952_86compressed.pdf

 

Disclaimer

This content is shared strictly for general information and knowledge purposes only. Readers should independently verify the information from reliable sources. It is not intended to provide legal, professional, or advisory guidance. The author and the organisation disclaim all liability arising from the use of this content. The material has been prepared with the assistance of AI tools.