Captive consumption of industrial alcohol avoids purchase tax and supports refund where unjust enrichment is not shown.

Industrial alcohol manufactured within an integrated unit and transferred for captive use in the assessee's own chemical plant was not subject to purchase tax under the U.P. Sales of Motor Spirit, Diesel Oil and Alcohol Taxation Act, 1939, because the transfer was for internal consumption and not a market sale. Refund of the tax paid was also allowed, as the burden had not been passed on and the doctrine of unjust enrichment did not apply. The assessee therefore obtained complete relief on both chargeability and refund.

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Issues: (i) whether purchase tax was leviable on industrial alcohol manufactured by the assessee in its distillery and captively consumed in its chemical unit; (ii) whether the assessee was entitled to refund of the purchase tax paid on such captive consumption or whether the claim was barred by unjust enrichment.

Issue (i): Whether purchase tax was leviable on industrial alcohol manufactured by the assessee in its distillery and captively consumed in its chemical unit.

Analysis: The statutory scheme under Section 2(d) and Section 3(1)(c) of the U.P. Sales of Motor Spirit, Diesel Oil and Alcohol Taxation Act, 1939 was applied to the admitted facts that the distillery and chemical units formed an integrated industrial arrangement and that the alcohol manufactured in the distillery was transferred for internal use in the chemical plant and not sold in the market. The Court followed the earlier binding decision on the same issue and held that transfer of alcohol from the distillery to the chemical unit for captive consumption did not attract purchase tax under the Act.

Conclusion: Purchase tax was not leviable on industrial alcohol manufactured by the assessee and captively consumed in its chemical unit, and this issue was decided in favour of the assessee.

Issue (ii): Whether the assessee was entitled to refund of the purchase tax paid on such captive consumption or whether the claim was barred by unjust enrichment.

Analysis: The tax was paid on industrial alcohol used as raw material in the manufacture of chemicals, and there was no sale of the taxed input to consumers so as to shift the burden downstream. On that basis, the doctrine of unjust enrichment was held inapplicable, and refund was supported by the principle that tax paid on raw material consumed in manufacturing finished products is refundable when the burden has not been passed on.

Conclusion: The assessee was entitled to refund of the purchase tax paid, and the plea of unjust enrichment was rejected.

Final Conclusion: The petition succeeded on both the chargeability and refund questions, resulting in complete relief to the assessee.

Ratio Decidendi: Where industrial alcohol is manufactured within an integrated unit and is captively consumed as raw material in another unit of the same assessee without sale, purchase tax is not exigible under the Act, and refund of tax so paid cannot be denied on the ground of unjust enrichment if the burden has not been passed on.

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