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Judgment
We have heard Shri Bharat Ji Agrawal, senior advocate assisted by Shri Piyush Agrawal for the petitioner. Shri S. P. Kesarwani, Additional Chief Standing Counsel appears for the respondents. The petitioner is a public limited company engaged in the manufacture of caustic soda, chemicals, pesticides and other formulations, for which the petitioner requires electricity and for that purpose it has established a captive thermal power plant. The electricity generated in the captive power plant at Renukoot is entirely consumed in the manufacturing process. Ordinarily the trade tax is paid on the purchase of coal as one of the declared goods, at the rate of four percent. The petitioner, as manufacturer has been granted a recognition certificate u/s 4B(2) of the U.P. Trade Tax Act, as manufacturer of caustic soda, chemicals, pesticides and formulations, which entitles it to purchase coal, as one of the notified goods, a: the rate of two percent, to be collected and deposited by the seller.
A letter was written by the Deputy Commissioner, Commercial Tax, Sonbhadra in June 2003, to NCL, Bina/Kakari/Kharia, Duddhichua, Distt. Sonbhadra, directing it, that in view of the amendments made in the Trade Tax Act u/s 4B on May 9, 2003, the seller should realise four percent as trade tax and to deposit the same with the Trade Tax Department. The NCL was reminded that in the meeting dated June 17, 2003, it was informed and that since after May 2003, the trade tax be deposited on form No. 4 at four percent.
By this writ petition the petitioner has prayed for writ of certiorari to quash the communication dated 2/3rd September, 2003 issued by the NCL in response to the communication issued by the Deputy Commissioner, Commercial Tax and has also prayed for direction to prohibit respondent No. 1 from charging any tax in excess of two percent on the purchase of coal from respondent No. 1 against form IIIB.
By an amendment application the petitioner has prayed to insert paras 36A, 36B and 36C and relief No. (iiiA) to the effect that writ of mandamus be issued directing respondent No. 1, to refund the tax realized in excess of two percent on the purchase of coal by the petitioner against form IIIB up to December 31, 2007.
With effect from January 1, 2008 the U.P. Value Added Tax Act, 2008 was enforced. The relief in this writ petition is thus confined to refund of two percent of commercial tax, paid by the petitioner to the National Coal Fields Ltd., on the purchase of coal for the captive power generation.
In the counter-affidavit, it is not denied that the entire electricity produced by the Renu Sagar Power Plant is consumed by the petitioner as raw material in the production of aluminium and its products. The respondents have also not denied that the recognition certificate u/s 4B(2) given to the petitioner, entitles it to purchase coal as declared goods at the rate of two percent. In the counter-affidavit it is stated that the recognition certificate is given for the purpose of manufacture of aluminium, and not for production of electricity. We are however, not concerned with this question as to whether the terms of recognition certificate entitle purchase of coal for the purpose of manufacture of aluminium or electricity, as the entire electricity produced by the captive generation from coal is consumed in the manufacture of aluminium.
Shri S.P. Kesarwani, Additional Chief Standing Counsel, has raised objections to the effect that the petitioner should have claimed the refund, in his assessments, or u/s 29A(3) of the U.P. Trade Tax Act, 1948. He further submits that in any case the relief of refund cannot be given to the petitioner as the petitioner has passed on the burden of entire four percent of trade tax on coal, to the consumers of aluminium and its products. He submits that there is no averment in the writ petition to the effect that price of finished products manufactured by the petitioner did not include the trade tax paid on purchase of coal at four percent. There is no material on record to show that the price did not include the trade tax paid on coal at the rate of four percent.
Shri S.P. Kesarwani has relied upon Mafatlal Industries Ltd. and Others Vs. Union of India (UOI) and Others, , in which the principles of unjust enrichment were established by the Supreme Court. It was held that except in a case, where the tax or duty is held to be unconstitutional, the claim of refund cannot be entertained, if the burden has been passed on to the consumer. A person claiming refund cannot be allowed on the principles of unjust enrichment to claim refund of the duty, which has been paid illegally or by way of mistake, if burden has been passed on to the consumer.
Shri Bharat Ji Agrawal, learned counsel for the petitioner, submits that taxes and duties paid on captive consumption for manufacture, are an exception to the principle laid down in Mafatlal Industries Ltd. and Others Vs. Union of India (UOI) and Others, . In para 107, a clarification was made in Mafatlal Industries Ltd. and Others Vs. Union of India (UOI) and Others, that the situation in the case of captive consumption has not been dealt with, in the opinion. The question was left open. He submits that in Bhadrachalam Paperboards Ltd. and Another Vs. The Government of Andhra Pradesh and Others, , the Supreme Court in the case of collection of sales tax on royalty and extraction charges paid for supply of bamboo and hardwood from the forest was collected illegally. The petitioner claimed consequential relief of refund of tax. The High Court did not accept the claim of refund on the ground of unjust enrichment. The Supreme Court held in paras 8 and 9 as follows (page 660 in 111 STC):
We have seen that the appellants sought a declaration that the tax demanded and collected on the transactions in question for the period from 1978-79 onwards was illegal, null and void. The High Court in the light of the decision of this court, in State of Orissa and Others Vs. Titaghur Paper Mills Company Limited and Another, , held that the transactions in question were not exigible to tax. The refund was, however, denied on the ground that the appellants must be deemed to have passed on the liability to the consumer.
We find that the High Court was not right in so presuming in the light of the case put forward by the Government Pleader as extracted above. The appellants have reimbursed a tax liability which was on the Forest Department and the appellants have consumed the goods for manufacturing paperboards, etc. Therefore, the question of the appellants passing on the tax liability to the consumer, on the facts of this case, would not arise. Consequently, the appellants are entitled for refund of the tax collected from them, not for the entire period but for the period commencing three years prior to the date of filing of the writ petition.
Shri Bharat Ji Agrawal also relied upon the Division Bench decision of this court in Dhampur Sugar Mills v. State of U.P. [1999] UPTC 924 in which it was held by this court in para 8, repealing the defence taken by the State for unjust enrichment as follows:
The petitioner has further prayed for the refund of purchase tax which it had paid on the industrial alcohol manufactured in its distillery and captively consumed by it in its chemical factory. Shri C. S. Singh, learned counsel for the respondents, had vehemently opposed the prayer of refund of the amount of purchase tax on the ground that if the refund of purchase tax which it had paid, is allowed to the petitioner, it may amount to unjust enrichment. It is noteworthy to mention that the respondents have realised amount of purchase tax from the petitioner on industrial alcohol which it had manufactured in its distillery and has used/consumed captively in manufacturing of chemicals in its chemical unit. Such industrial alcohol is in fact raw material for the purpose of manufacture of chemicals. There is no question of passing on the burden of purchase tax to the consumers as such nor the petitioner can be said to have realised the purchase tax from its customers which it had paid on industrial alcohol. The honourable Supreme Court in the case of Bhadrachalam Paperboards Ltd. and Another Vs. The Government of Andhra Pradesh and Others, , while considering the question of unjust enrichment and refund of tax paid by a person on the raw material which it had consumed in manufacturing of finished products, had held that the appellants therein have consumed goods for manufacturing of papers board, etc., and, therefore, the question of the appellants passing on the tax liability to the consumers would not arise. Consequently, the appellants therein were entitled for refund of the tax collected from them. Similar view had been taken by the honourable Supreme Court in case of the Deputy Commissioner etc. Vs. Consumer Cooperative Stores Ltd., . The Division Bench of this court in case of Vam Organic Chemicals Limited reported in [1999] UPTC 13, held that the question of unjust enrichment will not arise where the tax had been paid on the raw material and is consumed in the manufacture of finished products.
Shri S.P. Kesarwani would submit for the State that the judgment in Bhadrachalam Paperboards Ltd. and Another Vs. The Government of Andhra Pradesh and Others, and the view taken by this court, has been impliedly overruled by the Supreme Court in Union of India and others Vs. Solar Pesticide Pvt. Ltd. and Another, . The question, which was left open by the Supreme Court in Mafatlal Industries Ltd. and Others Vs. Union of India (UOI) and Others, has been answered in para 20 of the opinion as follows:
We are of the opinion that the aforesaid observations would be applicable in the case of captive consumption as well. To claim refund of duty it is immaterial whether the goods imported are used by the importer himself and the duty thereon passed on to the purchaser of the finished product or that the imported goods are sold as such with the incidence of tax being passed on to the buyer. In either case the principle of unjust enrichment will apply and the person responsible for paying the import duty would not be entitled to get the refund because of the plain language of section 27 of the Act. Having passed on the burden of tax to another person, directly or indirectly, it would clearly be a case of unjust enrichment if the importer/seller is then able to get refund of the duty paid from the Government notwithstanding the incidence of tax having already been passed on to the purchaser.
Shri S.P. Kesarwani submits that the judgment in Union of India and others Vs. Solar Pesticide Pvt. Ltd. and Another, has been followed by the Supreme Court in Commissioner of Customs, Chennai v. Borax India Ltd. [2001] 134 ELT 11 (SC). The short judgment in Borax India Ltd. is quoted as follows:
The Tribunal on a question relating to the valuation of the imported raw material, namely, Borax Penta Hydrate Neobar, had upheld the value disclosed by the respondents. Having heard the learned counsel for the appellant, we are of the opinion that the said decision of the Tribunal relating to the value of the imported raw material calls for no interference. However, the Tribunal did not accept the contention of the appellant relating to the question of unjust enrichment. It held that as the goods were captively consumed, then in view of the law then prevailing the consequential relief of refund had to be ordered unaffected by the principles of unjust enrichment.
This court in Union of India and others Vs. Solar Pesticide Pvt. Ltd. and Another, , has come to the conclusion that the principles of unjust enrichment would also be applicable in cases relating to captive consumption. We, therefore, direct that the question as to whether any refund is to be given to the respondents, will be decided in the light of the principles laid down by this court in the aforesaid decision in Union of India and others Vs. Solar Pesticide Pvt. Ltd. and Another, .
The appeals are disposed of in the aforesaid terms.
No costs.
Shri S.P. Kesarwani has also relied upon the latest judgment of the Supreme Court in State of Maharashtra and Others Vs. Swanstone Multiplex Cinema (P) Ltd., , in which the burden of the exemption in tax on the cinema owners passed on to the consumer was not allowed to be refunded to the cinema owners. Following the Union of India and others Vs. Solar Pesticide Pvt. Ltd. and Another, and Sahakari Khand Udyog Mandal Ltd. Vs. Commissioner of Central Excise and Customs, , the Supreme Court held that person who unjustly enriches himself cannot be permitted to retain the same for its benefit. The doctrine of unjust enrichment can be invoked irrespective of any statutory provisions. In this case the Supreme Court directed the entire amount to be deposited with the State, to be paid to some voluntary or charitable organisation for the disadvantaged people particularly women and children.
Shri Bharat Ji Agrawal submits that the principles of unjust enrichment in the case of excise duty is attracted on a presumption raised u/s 27 that duty must have been passed on to the consumer.
Section 27 of the Excise Act, 1944, is a statutory declaration of the rule of evidence. Even in the absence of this statutory rule, a presumption can be raised in view of Mafatlal Industries Ltd. and Others Vs. Union of India (UOI) and Others, , that manufacturer always includes duty in the price, unless he pleads and establishes that the duty or tax was not included in the price of manufactured goods. Where rule of presumption has been incorporated in the Act, the same may be applied against the person claiming refund. In Mafatlal Industries Ltd. and Others Vs. Union of India (UOI) and Others, , the Supreme Court observed in its majority opinion in para 100 as follows (pages 541 and 542 in 111 STC):
It is next contended that in a competitive atmosphere or for other commercial reasons, it may happen that the manufacturer is obliged to sell his goods at less than its proper price. The suggestion is that the manufacturer may have to forego not only his profit but also part of excise duty and that in such a case levy and collection of full excise duty would cease to be a duty of excise; it will become a tax on income or on business. We are unable to appreciate this argument. Ordinarily, no manufacturer will sell his products at less than the cost price plus duty. He cannot survive in business if he does so. Only in case of distress sales, such a thing is understandable but distress sales are not a normal feature and cannot, therefore, constitute a basis for judging the validity or reasonableness of a provision. Similarly, no one will ordinarily pass on less excise duty than what is exigible and payable. A manufacturer may dip into his profits but would not further dip into the excise duty component. He will do so only in the case of a distress sale again. Just because duty is not separately shown in the invoice price, it does not follow that the manufacturer is not passing on the duty. Nor does it follow therefrom that the manufacturer is absorbing the duty himself. The manner of preparing the invoice is not conclusive. While we cannot visualise all situations, the fact remains that, generally speaking, every manufacturer will sell his goods at something above the cost price plus duty. There may be a loss-making concern but the loss occurs not because of the levy of the excise duty--which is uniformly levied on all manufacturers of similar goods--but for other reasons. No manufacturer can say with any reasonableness that he cannot survive in business unless he collects the duty from both ends. The requirement complained of (prescribed by section 11B) is thus beyond reproach--and so are sections 12A and 12B. All that section 12A requires is that every person who is liable to pay duty of excise on any goods, shall, at the time of clearance of the goods, prominently indicate in all the relevant documents the amount of such duty which will form part of the price at which the goods are to be sold, while section 12B raises a presumption of law that until the contrary is proved, every person who has paid the duty of excise on any goods shall be deemed to have passed on the full incidence of such duty to the buyer of such goods. Since the presumption created by section 12B is a rebuttable presumption of law--and not a conclusive presumption--there is no basis'' for impugning its validity on the ground of procedural unreasonableness or otherwise. This presumption is consistent with the general pattern of commercial life. It indeed gives effect to the very essence of an indirect tax like the excise duty/customs duty. In this connection, it is repeatedly pointed out by the learned counsel for the petitioners-appellants that the levy of duty is upon the manufacturer/assessee and that he cannot disclaim his liability on the ground that he has not passed on the duty. This is undoubtedly true but this again does not affect the validity of section 12A or 12B. A manufacturer who has not passed on the duty can always prove that fact and if it is found that duty was not leviable on the transaction, he will get back the duty paid. Ordinarily speaking, no manufacturer would take the risk of not passing on the burden of duty. It would not be an exaggeration to say that whenever a manufacturer entertains a doubt, he would pass on the duty rather than not passing it on. It must be remembered that manufacturers as a class are knowledgeable persons and more often than not have the benefit of legal advice. And until about 1992, at any rate, Indian market was by and large a sellers'' market.
We find that although not directly, this presumption has also been included in sub-section (4) of section 29 and in section 29A of the U.P. Trade Tax Act, where the tax paid cannot be refunded, unless it is proved to the satisfaction of the assessing authority that the dealer has not passed on liability of such tax to any party as a result of any sale or otherwise.
In the present case, there are no pleadings to the effect either in the writ petition or in the amendment application, which was filed subsequently, that burden has not been passed on to the consumer. The presumption of passing of the burden has not been rebutted by the petitioner. We, therefore, do not find it appropriate on the principles of unjust enrichment, to give any direction for refund of the commercial tax paid on the purchase of coal over and above at the rate of two percent. The writ petition is dismissed.