2001 (4) TMI 84 - SC - Central Excise

No vend fee after 25 October 1989; deposits retained, but unrecovered dues, even under bank guarantees, unrealisable u/s 39

SC held that, following its earlier prospective declaration of invalidity of the relevant provisions authorising vend fee on industrial alcohol, there was ... Prospective overruling - authority of law under Article 265 - distinction between levy and collection (levy and collect) - bank guarantee not equivalent to payment - unjust enrichmentProspective overruling - distinction between levy and collection (levy and collect) - authority of law under Article 265 - Whether States can collect vend fee in respect of industrial alcohol for periods prior to 25th October, 1989 and thereafter following the Constitution Bench's prospective declaration in Synthetics & Chemicals Ltd. - HELD THAT: - The Court held that the Constitution Bench in Synthetics declared the impugned provisions unconstitutional but moulded relief prospectively. The declaration that the provisions were illegal prospectively protected amounts already realised by the State while restraining the States from enforcing the levy further. Article 265 requires authority of law to levy or collect tax; although a levy may have been validly made prior to 25th October, 1989 by virtue of the earlier law, collection after the prospective declaration is impermissible where no realisation had occurred before that date. The Court explained the non synonymy of 'levy' and 'collect': levy is charging/assessment while collection is the physical realisation; what had not been collected by the State as on 25th October, 1989 could not be recovered thereafter. Consequently the State cannot collect vend fee for the period prior to 25th October, 1989 (where it had not been realised) or thereafter notwithstanding notices or recovery proceedings. [Paras 28, 31, 32]State cannot collect vend fee for periods prior to 25th October, 1989 (to the extent not realised by that date) or thereafter; realisations already made are not to be refunded.Bank guarantee not equivalent to payment - prospective overruling - Whether monies secured by bank guarantees or furnished as security pursuant to interim orders can be encashed or realised by the State after the prospective declaration. - HELD THAT: - Relying on this Court's prior exposition that a bank guarantee furnished pursuant to an interim order is security and is not equivalent to payment, the Court held that where the State was held not to be entitled to collect vend fee after 25th October, 1989 it could not invoke bank guarantees to realise the vend fee for the relevant periods. The furnishing of a bank guarantee was a mechanism to avoid making payment and cannot be treated as actual realisation; what cannot be done directly (collecting after the judgment) cannot be done indirectly (encashing guarantees). [Paras 20, 33]Bank guarantees furnished as security cannot be encashed to realise vend fee in respect of periods that the State is not entitled to collect after the prospective declaration.Realisation of deposits made under interim orders - prospective overruling - Whether amounts deposited with the State pursuant to interim orders and ordered to be kept in a separate account are to be treated as realisations and retained by the State or refundable. - HELD THAT: - Although the Court noted that the Synthetics judgment did not expressly deal with deposits made under interim orders, it concluded that in the circumstances of these cases it would be sophistry to treat such deposits as not being 'realisations' for the purposes of the U.P. Excise Act. Therefore amounts actually deposited with the State pursuant to interim orders (even if ordered to be kept in a separate account) remain with the State and are not refundable, consistent with the Synthetics direction that collected taxes need not be refunded. [Paras 16, 36]Amounts deposited with the State pursuant to interim orders are treated as realisations and are not refundable; amounts not actually collected by the State cannot be realised after the prospective declaration.Unjust enrichment - prospective overruling - Whether the principle of unjust enrichment permits the State to recover vend fee after the statute was struck down prospectively. - HELD THAT: - The Court observed that the principle of unjust enrichment has been invoked in prior cases to deny refunds where the taxpayer had passed on the burden; however, that principle cannot be used to empower the State to recover vend fee after the statute has been declared unconstitutional prospectively and the Court has restrained future enforcement. There was no factual basis to hold that appellants had realised the vend fee from customers so as to justify recovery on unjust enrichment grounds. [Paras 37, 38]Unjust enrichment does not justify permitting the State to recover vend fee after the prospective declaration; recovery is barred where the statute has been struck down prospectively.Manner of disposal of unresolved issues - Whether other issues in the connected appeals, including validity of export pass fee, are to be decided in these proceedings. - HELD THAT: - The Court recorded that apart from points decided in Somaiya's case some issues (not covered by that judgment) including the validity of the export pass fee remain to be decided. Counsel for the parties agreed that those questions should now be adjudicated by an appropriate Bench. [Paras 40]Validity of export pass fee and other issues not dealt with are to be decided by an appropriate Bench.Final Conclusion: The Court allowed C.A. No. 4093 of 1991 and held that vend fee amounts actually realised by States prior to the Synthetics judgment (25th October, 1989) need not be refunded, but States cannot collect vend fee for periods not realised as on that date or thereafter; bank guarantees cannot be encashed to realise such dues; deposits made pursuant to interim orders are treated as realisations and retained by the State; remaining issues such as export pass fee are reserved for determination by an appropriate Bench. Issues Involved:1. Legislative competence of the State to levy excise duty or vend fee on industrial alcohol.2. Interpretation of the doctrine of prospective overruling and its application.3. Validity of recovery of vend fee for the period prior to 25th October 1989.4. The effect of interim orders and bank guarantees on the recovery of vend fee.5. The principle of unjust enrichment in the context of vend fee recovery.Detailed Analysis:1. Legislative Competence of the State:The primary issue was whether the State Legislature had the authority to levy excise duty or vend fee on industrial alcohol. The appellants argued that under Entries 8 and 51 of List II, the State could only impose excise duty on potable liquor, and that industrial alcohol fell under Entry 52 of List I, making it subject to Parliament's jurisdiction. The court reaffirmed that the State lacked legislative competence to levy such a fee on industrial alcohol, as established in the second Synthetics case.2. Doctrine of Prospective Overruling:The court examined the doctrine of prospective overruling, which was applied in the second Synthetics case to declare the impugned provisions illegal prospectively. This meant that while the provisions were unconstitutional, they were not invalidated retrospectively. The court emphasized that prospective overruling is a principle that allows the court to mould relief to meet the justice of the case and is rooted in equity. The court concluded that the declaration of invalidity was to take effect from a future date, thus not affecting past transactions.3. Validity of Recovery of Vend Fee:The court held that the State could not recover vend fee for the period prior to 25th October 1989. This interpretation was consistent with the doctrine of prospective overruling, which aimed to prevent the State from enforcing the levy any further while not obligating the State to refund taxes already collected. The court clarified that the words 'levy' and 'collect' are not synonymous; while 'levy' refers to the imposition of tax, 'collect' refers to the actual realization of the tax. Since the levy was invalidated prospectively, any uncollected tax for the period before the judgment could not be collected post-judgment.4. Effect of Interim Orders and Bank Guarantees:The court addressed the issue of interim orders and bank guarantees, ruling that deposits made under interim orders should be treated as realizations. It was determined that the State could retain amounts deposited as vend fee, even if kept in a separate account due to interim orders. However, the court held that the State could not encash bank guarantees for the period prior to 25th October 1989, as this would indirectly allow the State to collect an invalidated levy.5. Principle of Unjust Enrichment:The respondents argued that allowing the appellants to retain the vend fee would result in unjust enrichment. The court rejected this argument, stating that the principle of unjust enrichment does not apply in this context, as the second Synthetics case explicitly stated that no refund should be given. The court also noted the lack of evidence to support the claim that the appellants had passed on the vend fee to their customers.Conclusion:The court allowed Civil Appeal No. 4093 of 1991, declaring that the vend fee realized by the States need not be refunded, and the State could not collect any vend fee for the period prior to 25th October 1989 or thereafter. The court dismissed Civil Appeal No. 2853 of 2001, upholding the principle that what was not collected by the State before the judgment could not be realized later. The court's decision reinforced the principles of legislative competence, prospective overruling, and equitable relief, ensuring that the State could not benefit from an invalidated levy while maintaining the status quo as of the judgment date.