Startup Originals Team
The Karnataka High Court has directed the state’s Commercial Taxes Department to refund ₹16.11 crore to Flipkart India, along with interest. The refund relates to a pre-deposit made by Flipkart while challenging tax reassessment orders. The court held that amounts paid under input tax credit (ITC) must be returned in cash when due.
Background of the Dispute
- During the tax periods 2011-12 to 2014-15, the Karnataka tax authorities issued reassessment orders under the Karnataka Value Added Tax (KVAT) Act, 2003. They classified mobile phone chargers as “unscheduled commodities,” which meant a higher tax rate applied.
- The total demand raised against Flipkart was ₹23.01 crore.
Flipkart’s Appeal & Pre-Deposit
- Flipkart initially deposited ₹6.90 crore (30% of the demand) in cash, as required under the VAT law when filing an appeal.
- The remaining ₹16.11 crore (70%) was deposited using Flipkart’s electronic credit ledger (ECL) via input tax credit (ITC). This happened during its appeal before the Karnataka Appellate Tribunal (KAT) in July 2019.
Court Rulings & Department’s Action
- In March 2022, the Karnataka Appellate Tribunal allowed Flipkart’s appeal. The state’s revision petitions were later dismissed. That meant Flipkart became entitled to a full refund of the pre-deposits.
- However, the tax department refunded only the cash portion (₹6.90 crore) and withheld the ₹16.11 crore portion paid via ITC. Flipkart then requested the full refund but was declined.
High Court’s Decision
- The Karnataka High Court, presided by Justice S.R. Krishna Kumar, ordered that the full ₹16.11 crore paid via ITC must be refunded in cash. The court rejected the department’s argument that only cash pre-deposits or arrears of interest or penalties could be refunded in cash.
- The court also directed the department to pay interest on the entire pre-deposit amount (₹23.01 crore) from the date of deposit until the refund is issued.
Significance & Implications
- The ruling clarifies that when a pre-deposit is eligible for refund under the law, it must be paid back in cash, regardless of whether the amount was originally paid in cash or via ITC.
- It provides relief to companies caught in similar disputes, especially in how tax authorities treat payments made from electronic credit ledgers.
- Also, Flipkart gets not only its money back, but interest compensation for the time period the funds were withheld.
Conclusion:
The Karnataka High Court’s order is a win for Flipkart. The decision forces the tax department to refund ₹16.11 crore (the ITC component of the pre-deposit) in cash, plus interest, for a demand originally raised nearly a decade ago. It emphasizes that tax laws must be applied in a way that protects the rights of businesses when making pre-deposits as part of appeals.
