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 collected. However, in writ jurisdiction under Art. 226, the court may mould relief on equitable principles to prevent unjust enrichment, ensuring that the benefit of refund ultimately reaches those who bore the tax burden. The State has no preferential claim to decide application of such funds; the court may entrust implementation to the assessee, the State, or a third agency, including through schemes or price reductions. The matter was remitted to the Single Judge to apply these principles to the case facts.

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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.

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