1989 (11) TMI 150 - HC - Central Excise

Refund of Unlawful Excise Duty Under Art. 226 Must Prevent Unjust Enrichment and Reach Actual Tax Payers

HC held that where excise duty is collected without authority of law, the State is bound to refund it, ordinarily to the person from whom it was ... Refund of excise duty - levy and collection of excise duty upon the photographic printing papers manufactured - validity of the price charged by its sole distributor - Where the tax admittedly or has been held to be levied and collected by the State without the authority of law, whether refund of the tax must be granted to the assessee or applying the principle of ‘unjust enrichment’ no refund should be made to the assessee unless he can pass on the benefit to the ultimate consumer? - HELD THAT:- There is no real contradiction between the two concepts, viz. (1) the State is bound to refund amounts collected without authority of law and (2) the jurisdiction under Article 226 is discretionary and equitable in nature. Before further discussing the question of adjustment of equities and moulding the relief, we may deal with some of the other points raised before us. It is also settled law that it is not beyond the competence of the legislature to enact a law depriving assessee’s right to obtain refund of tax, duty or fee collected from him without authority of law when he had already realized the said amounts from his purchasers. The Petitioners have attempted to distinguish the Supreme Court decision in the case of Ayurveda Pharmacy v. State of Tamil Nadu, [1989 (3) TMI 187 - SUPREME COURT], on the ground that the Petitioners in the said reported case had themselves made a statement before the Supreme Court that out of the amounts of sales tax refundable to them they would return excess amounts of tax collected to those customers who might apply to the Petitioners and the balance would be donated to an Educational Foundation for Ayurveda. The case of Ayurveda Pharmacy v. State of Tamil Nadu (supra) is in fact an instance where benefits of refund of sales tax which had been illegally collected were extended, by consent/concession of the Petitioners, to those who had ultimately borne the burden of illegal taxation. But even when the parties to a Writ Petition do not give their consent, the Court does not lack jurisdiction to pass appropriate consequential orders for giving benefits of tax refunds to those who had ultimately shouldered its burden. Thus, we reach the conclusion that when tax has been collected without authority of law, the State is bound to refund the case. Ordinarily, the tax illegally collected ought to be returned to the person from whom it had been collected. The concept of unjust enrichment is, however, not altogether irrelevant in the matter of granting refund of tax which has been collected without authority of law. Having collected tax without the authority of law, the State cannot have any preferential claim to decide how the amount of tax which is refundable shall be spent. According to the facts and circumstances of each case, the Writ Court would decide whether it is the State or the assessee or any third agency who ought to be entrusted with the duty of extending the benefit of tax refund to those who had ultimately borne the burden. As already stated, if consensus of the parties could be reached, the Writ Court may act on the same. When the same is not possible, the Court has to exercise its own discretion according to the facts of each case for achieving the object of benefiting those who had borne the ultimate burden. Again, we may mention only some of the instances of forms in which such consequential relief may be granted. A fund may be created under a scheme for welfare of the particular industry and for the benefit of the consumers of the product. In case the excisable product is of mass consumption, benefit of refund may be given by way of reduction of its price for a certain period or by promotion of research, rationalisation, etc. It would be always preferable in those cases to leave the discretion with Court to decide how the consequential relief ought to be formulated. The aforesaid discussion answers the question posed to us by the learned Single Judge. It will now be for him to apply those principles to the facts of the present case. Issues Involved:1. Legality of levy and collection of excise duty.2. Claim for refund of excise duty and the principle of 'unjust enrichment'.3. Application of equitable principles and Article 226 of the Constitution.4. Jurisdiction of the Court in granting relief and moulding the consequential relief.Summary:1. Legality of Levy and Collection of Excise Duty:The learned Single Judge found that the levy and collection of excise duty on photographic printing papers manufactured by the Petitioner No. 1 according to the price charged by its sole distributor was illegal and unauthorized.2. Claim for Refund of Excise Duty and the Principle of 'Unjust Enrichment':The Respondents opposed the refund claim on the ground that the Petitioner No. 1 had passed on the burden of the duty, arguing that refunding the duty would result in unjust enrichment. The Court examined various precedents, including *Ogale Glass Works Ltd. v. Union of India*, *Associated Bearing Company Limited v. Union of India*, and *Maharashtra Vegetable Products Pvt. Ltd. v. Union of India*, where similar claims were discussed. The principle of unjust enrichment was analyzed, with the Court noting that the State cannot retain money collected without authority of law merely by alleging that the burden was passed on.3. Application of Equitable Principles and Article 226 of the Constitution:The Court emphasized that its jurisdiction under Article 226 is discretionary and based on equitable principles. The Court must balance the equities involved, ensuring that neither the State nor the Petitioner unjustly enrich themselves. The Court highlighted that the State has a duty to refund sums collected without authority of law, but the relief must be appropriately moulded to prevent unjust enrichment.4. Jurisdiction of the Court in Granting Relief and Moulding the Consequential Relief:The Court discussed the necessity of adjusting conflicting claims equitably, suggesting that relief should be moulded to benefit those who ultimately bore the tax burden. The Court provided examples of how such relief could be structured, such as creating a fund for industry welfare or reducing product prices. The Court rejected extreme positions from both parties, emphasizing the need for a balanced approach.Conclusion:The Court concluded that when tax is collected without authority of law, the State must refund the amount. However, the concept of unjust enrichment is relevant, and the Court must exercise discretion in granting relief, ensuring that the refund benefits those who bore the ultimate burden. The learned Single Judge was tasked with applying these principles to the facts of the present case. The Court clarified that the discussion was limited to Writ Petitions for refund of illegal tax and did not extend to suits before Civil Courts or departmental proceedings for refund.