Penalty for excess tax collection rejected, but restitution required return of amounts later found not legally payable.

Section 9-B(3) of the Orissa Sales Tax Act, 1947 was treated as a penalty provision applicable only when a registered dealer realises tax in excess of the amount legally payable at the time of collection. Collections made under a notification then in force were not treated as excess realisation merely because the notification was later invalidated, so penalty was not leviable. However, the amount could not be retained by the dealer: applying restitution, unjust enrichment, article 265 of the Constitution and section 72 of the Contract Act, the collected sum was held to be returnable to the State rather than kept by the dealer.

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Issues: (i) Whether penalty under section 9-B(3) of the Orissa Sales Tax Act, 1947 was leviable on the dealer for collections made at a rate later found to be higher than the rate ultimately held payable. (ii) Whether the amount retained by the dealer, though not liable to penalty under section 9-B(3), was nevertheless required to be returned to the State on principles of restitution and unjust enrichment.

Issue (i): Whether penalty under section 9-B(3) of the Orissa Sales Tax Act, 1947 was leviable on the dealer for collections made at a rate later found to be higher than the rate ultimately held payable.

Analysis: The provision applies only where a registered dealer realises tax in excess of the amount payable by him as tax under the Act. The collections made before the judgment declaring the lower rate were made under a notification then in force, and at that point the amount collected represented the tax payable. Once the notification was later nullified, refund became payable, but the earlier collections did not amount to a case of excess realisation attracting the penal provision. The proceeding for penalty was therefore not sustainable.

Conclusion: Penalty under section 9-B(3) was not leviable and the assessee succeeded on this issue.

Issue (ii): Whether the amount retained by the dealer, though not liable to penalty under section 9-B(3), was nevertheless required to be returned to the State on principles of restitution and unjust enrichment.

Analysis: The decision emphasised that tax collected without authority of law cannot be retained by the State, and equally a party that has collected money from customers and is not required to pay it over should not be allowed to enrich itself at their expense. Applying the principles of article 265 of the Constitution of India, section 72 of the Indian Contract Act, 1872, restitution, and unjust enrichment, the Court held that the collected amount should not remain with the dealer and should be returned to the State, with any claim by the customers for refund to be considered by the State if made.

Conclusion: The dealer was not entitled to retain the collected amount and restitutionary principles were applied against it.

Final Conclusion: The penalty proceedings were set aside, but the dealer was not allowed to retain the collected tax, and the appeal was disposed of accordingly.

Ratio Decidendi: Section 9-B(3) applies only to tax realised in excess of the amount legally payable at the time of collection, but amounts collected and later found not payable may still be subject to restitutionary adjustment to prevent unjust enrichment.

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