Section 42 of the Delhi Value Added Tax Act, 2004: Interest

Section 42(1): Interest on delayed refunds

A person entitled to a refund under the DVAT Act is also entitled to simple interest at the annual rate notified by the Delhi Government. The interest is computed daily, starting from the later of the date the refund became due or the date the excess amount was paid, and ending when the refund is actually granted.

Interest is calculated on the net refundable sum after adjustment of tax, interest, penalty and other dues under the DVAT Act or the Central Sales Tax Act, 1956. If the refund is increased or reduced, the interest is adjusted accordingly. Any delay attributable to the claimant, wholly or partly, is excluded from the interest period.

Section 42(2): Interest on delayed payment

Where a person defaults in paying tax, penalty or another amount due under the Act, simple interest accrues at the notified annual rate, calculated daily from the date of default until payment. Interest is additional to the underlying liability.

The rate is not fixed in Section 42 itself: the applicable government notification and the relevant period must be checked.

Section 42(3): Recalculation after reduction

If tax and penalty due are wholly reduced, interest already paid is refundable. If the underlying amount is varied, the interest must be recalculated accordingly.

Section 42(4): Effect of a stay

If recovery of an amount was stayed by the Appellate Tribunal, a court or another authority and the stay is subsequently vacated, interest is payable even for the period during which the stay operated.

Section 42(5): Recovery of interest

Interest becomes due when the obligation to pay it arises and may be collected in the same manner as tax due under the Act.

Rule 36(3) to (5) and Form DVAT-24

Rule 36 of the Delhi Value Added Tax Rules, 2005 addresses assessment and calculation of interest. Under Rule 36(3), the Commissioner calculates interest under Section 42(2) when making a default assessment under Section 32. Rule 36(4) requires inclusion of the interest in the assessment notice in Form DVAT-24. Under Rule 36(5), interest is calculated up to the date of the recovery certificate and separately stated in that certificate.

Illustrative daily calculation

Simple interest = outstanding amount x applicable annual rate x number of chargeable days / 365, subject to the governing notification, applicable day-count treatment, changes in outstanding principal and exclusions required by law. For example, at an assumed annual rate of 12%, interest on Rs. 100,000 for 30 days would be approximately Rs. 986.30. This is only an illustration, not a statement of the notified DVAT interest rate.

For refunds, identify the later starting date specified in Section 42(1), deduct eligible set-offs and exclude delays attributable to the claimant. For defaults, identify the due date, actual period of default and notified rate for each relevant period.

Official sources and related provisions

Read the Delhi Value Added Tax Act, 2004 (official published compilation), Delhi VAT Rules, 2005 (official published compilation), and Department of Trade and Taxes notifications for applicable amendments and rates. The published compilations may not incorporate every subsequent amendment or notification.

Related provisions include Section 32 (default assessment of tax), Section 38 (refunds), Section 42 (interest) and Section 43 (recovery of tax). See also the Delhi Department of Trade and Taxes Circular No. 06 of 2012-13 on charging of interest.