State levy on cement manufacture exceeded legislative competence; unlawful cess could not be retained despite unjust enrichment arguments.

A levy on cement manufacture and production under the Meghalaya Cement Cess Act, 2010 was held beyond State legislative competence because the charging provision targeted manufacture or production rather than sale or purchase, and the collection machinery could not cure that defect. The Court further held that an unauthorised cess could not be retained merely by invoking unjust enrichment, even if the burden may have been passed on to consumers. Relief was structured to balance restitution and public interest, with refund directed in the manner specified and unlawful collections barred from being appropriated as revenue.

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Issues: (i) Whether the State had legislative competence to impose cess on the manufacture and production of cement under the Meghalaya Cement Cess Act, 2010. (ii) Whether the petitioners were entitled to refund of the cess collected, and on what basis the retained amount could be dealt with.

Issue (i): Whether the State had legislative competence to impose cess on the manufacture and production of cement under the Meghalaya Cement Cess Act, 2010.

Analysis: The charging provision fastened liability on persons or factories producing cement within the State, which in substance operated as a levy on manufacture or production and not on sale or purchase. The State's reliance on Entry 54 of the State List was untenable because that entry authorises taxation only on sale or purchase of goods. Cement was also not among the commodities covered by Entry 84 of the Union List as it then stood. The manner of collection under the Act could not enlarge the charging provision or cure the lack of power to levy the impost.

Conclusion: The levy was beyond the State's legislative competence and the Act was ultra vires the Constitution.

Issue (ii): Whether the petitioners were entitled to refund of the cess collected, and on what basis the retained amount could be dealt with.

Analysis: Although the State invoked unjust enrichment on the footing that the levy may have been passed on to consumers, the Court held that an illegal and unauthorised exaction cannot be retained merely because recovery from end-users may be difficult. At the same time, the Court adopted an ad hoc remedial approach to balance restitution with deterrence, directing a refund to the petitioners of a fixed percentage of the amount collected from them and requiring part of the total realisation to be earmarked for a public purpose.

Conclusion: The petitioners were entitled to refund in the manner directed, and the State could not appropriate the unlawful cess as revenue.

Final Conclusion: The impugned cess law was struck down as constitutionally invalid, and the relief granted combined restitution to the petitioners with a deterrent public-purpose direction against retention of the unlawful collections.

Ratio Decidendi: A levy whose charging provision taxes manufacture or production can be sustained only if the State has legislative competence over that field; a collection mechanism cannot expand the scope of the charging section, and an unauthorised tax cannot be retained merely by invoking unjust enrichment.

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