Tata Sponge Iron Ltd. vs State of Orissa

B.S. Chauhan, C.J.—This writ petition has been filed for issuance of a direction to the opposite parties to refund the sales tax collected from the petitioner-company by quashing the order dated February 4, 1998 (annexure 1) and assessment order dated March 24, 1998 (annexure 2) to the writ petition.

The petitioner had established a large-scale industrial unit. However, it claimed benefit of tax exemption in view of part III of the Industrial Policy Resolution, 1989 (hereinafter called "IPR 1989") by filing an application on January 22, 1991. As the same was not granted, he filed OJC No. 6198 of 1994 which was decided vide judgment and order dated May 5, 1995 Ipitata Sponge Iron Ltd. v. State of Orissa [2001] 122 STC 259 (Ori). Subsequent thereto, respondent No. 5 recommended the case of the petitioner for granting benefit of tax holidays vide letter dated March 10, 1997. As no action was taken in pursuance of the said letter, the petitioner again approached this Court by filing OJC No. 5990 of 1997 which was also disposed of Tata Sponge Iron Ltd. State of Orissa [2001] 122 STC 354 (Ori) making certain observation and issuing certain direction to the respondent to consider the claim of the petitioner. It''s claim was rejected vide order dated February 4, 1998 and assessment order dated March 24, 1998 was passed. Hence this petition.

The learned Counsel for the petitioner has submitted that it is settled legal position that tax collected without authority of law is unconstitutional, illegal and petitioner is entitled for refund of the same and as such the petitioner was entitled to the benefit of IPR, 1989 and the opposite parties-authorities are bound to refund the amount of tax collected from it.

Be that as it may, learned Counsel for the petitioner could not satisfy the court by showing any material on record that the tax liability of the State authority for the period it claimed refund has not been passed on to consumers. Therefore, the claim of refund would amount to unjust enrichment.

In K.S. Satyanarayana Vs. V.R. Narayana Rao, the honourable Supreme Court has held that juristic basis for such an order of recovery, even if not based on contract or tort, may fall on another category of quasi-contract or restitution. The honourable Supreme Court, while deciding the said case, approved and followed two decision of English Courts, namely Fibrosa v. Fairbairn [1942] 2 All ER 122 and Nelson v. Larholt [1947] 2 All ER 751, which are quite illuminating and the relevant parts thereof, respectively, are reproduced as under:

...any civilised system of law is bound to provide remedies for cases of what has been called unjust enrichment or unjust benefit, that is, to prevent a man from retaining the money of, or some benefit derived from, another which it is against conscience that he should keep. Such remedies in English law are generically different from remedies in contract or in tort, and are now recognised to fall within a third category of the common law which has been called quasi-contract or restitution.

It is no longer appropriate to draw distinction between law and equity. Principles have now to be stated in the light of their combined effect. Nor is it necessary to canvass the niceties of the old forms of action. Remedies now depend on the substance of the right, not on whether they can be fitted into a particular framework. The right here is not peculiar to equity or contract or tort, but falls naturally within the important category of cases where the court orders restitution if the justice of the case so requires.

For the same, reliance can also safely be placed on the judgment in State of Madhya Pradesh Vs. Vyankatlal and Another, wherein the apex court observed that "...only the persons on whom lay the ultimate burden to pay the amount, would be entitled to get the refund of the same, and if it is not possible to identify the person on whom such burden has been placed for payment towards the fund, the amount of the fund can be utilised by the Government for the purpose for which the fund was created...."

While deciding that case, the honourable Supreme Court relied upon a large number of its earlier judgments, e.g., The Orient Paper Mills Ltd. Vs. The State of Orissa and Others, ; The State of Bombay and Another Vs. The United Motors (India) Ltd. and Others, , Shiv Shankar Dal Mills and Others Vs. State of Haryana and Others, , The Newabganj Sugar Mills Co. Ltd. and Others Vs. The Union of India (UOI) and Others, and Sales Tax Officer, Banaras and Others Vs. Kanhaiya Lal Mukundlal Saraf, .

In The Newabganj Sugar Mills Co. Ltd. and Others Vs. The Union of India (UOI) and Others, , the honourable Supreme Court devised a procedure to deal with a situation where equity demanded re-distribution but procedural expensiveness and cumbersomeness effectively thwarted legal action by directing the Registrar of the High Court to receive and dispose of claim from the ultimate consumer for excess price paid on proper proof.

In Amar Nath Om Prakash and Others Vs. State of Punjab and Others, , the apex court observed that a mere declaration that the levy and collection of fee in excess of the required amount would automatically vest in the dealer, the right to get excess amount when in fact he did not bear the burden of it and the morale and equitable owner of it was the consumer public to whom burden had been passed on.

Similar view had been taken by the Supreme Court in Indian Oil Corporation Vs. Municipal Corporation, Jullundhar and others, .

In State of Rajasthan and Others Vs. Novelty Stores, etc., , the apex court observed as under:

The orders of the High Court in the impugned appeals are to be set aside on the sole ground that the respondents after paying octroi duty have passed on the burden to the consumers and collected from the consumers.... Therefore, the order of refund would be an unjust enrichment for them. This Court has repeatedly held that such a refund should not be ordered...since respondents are not entitled to the refund of the amount which is already collected and passed on the burden to the consumers, these appeals are to be allowed....

In Entry Tax Officer, Bangalore Vs. Chandanmal Champalal and Co. Etc. Etc., the honourable Supreme Court held that any direction for refund would amount to unjust enrichment of the respondents who were merely dealers and had passed on the burden to the consumers. The dealers had not suffered any loss, they had merely passed on liability.

Similar view has been reiterated in Mafatlal Industries Ltd. and Others Vs. Union of India (UOI) and Others, , M/s. Pawan Alloys and Casting Pvt. Ltd., Meerut etc, etc. Vs. U.P. State Electricity Board and others, , M/s. Acqueous Victuals Pvt. Ltd. Vs. State of U.P. and Others, and Bhadrachalam Paperboards Ltd. and Another Vs. The Government of Andhra Pradesh and Others, .

In Shree Digvijay Cement Co. Ltd. and Another Vs. Union of India (UOI) and Another, , the honourable apex court explained the scope of the principle of unjust enrichment and held that before a claim is accepted, the claimant has to establish and satisfy the authority concerned that he has not passed on burden to any other person, i.e., consumer. In absence thereof, the money paid by somebody else cannot be claimed by him. The court held as under:

...Where the burden of duty has been passed on, the claimant cannot say that he has suffered any real loss or prejudice. Real loss or prejudice is suffered in such a case by the person who has ultimately borne the burden and it is only that person who can legitimately claim its refund. But where such person does not come forward or where it is not possible to refund the amount to him for one or the other reasons, it is just and appropriate that amount is retained by the State, i.e., by the people. The doctrine of unjust enrichment is a just and solitary doctrine. The power of the court is not meant to be exercised for unjustly enriching a person. The doctrine of unjust enrichment is, however, inapplicable to the State, for, the State represent the people of the country. No one can speak of the people being unjustly enriched.... Besides the principles of unjust enrichment, on equitable principles which squarely apply here, the applicants are not entitled to claim refund of amount paid....

Similar view has been reiterated in Flash Laboratories Ltd. Vs. Collector of Central Excise, New Delhi, , Hindustan Metal Pressing Works Vs. Commissioner of Central Excise, Pune, ; Commissioner of Central Excise, Chandigarh-II Vs. Steel Strips Ltd., , Commissioner of Central Excise, Mumbai-II Vs. Allied Photographics India Ltd., and Triveni Chemicals Limited Vs. Union of India (UOI) and Another, .

The learned Counsel for the petitioner has made a very wide claims raising a large number of issues. However, he is not able to satisfy the court as to under what circumstances, the findings of fact recorded by the assessing authority is factually incorrect. It may be pertinent to mention hereunder the relevant part of the assessment order:

The dealer-company has admittedly returned no amount to its purchasers from whom he collected the sales tax during the tax holidays period and the dealer-company submitted that it will be a cumbersome process to return the sales tax so collected to its purchasers if refund of that amount is allowed. Instead the dealer submitted that if tax holidays period is extended by two months it can legally avail exemption for a period of five years. It is thus seen that the dealer-company expresses its difficulty in returning the sales tax so collected to its purchasers. He however wants that two months tax holiday period should be extended to him as it did not avail tax exemption during the month of December 1994 and January 1995. The dealer-company furnished a list of dealers from whom he collected tax during the month of December 1994 and January 1995. But in view of the difficulties expressed in returning the taxes to the purchasers the dealer-company scope to enrich itself cannot be overruled and I am not satisfied that the dealer-company will not enrich itself if the refund is allowed to him. As regards extension of further two months tax holidays period, it is observed that the dealer-company has been allowed benefits of IPR 1989 during the month of December 1994 to January 1995. He is not entitled to refund of tax collected and paid during the said period, because of his failure to satisfy me that the refund to tax collected during December 1994 and January 1995 if granted will not enrich him.

Thus a very clear finding of fact has been recorded by the assessing authority that petitioner passed on the tax liability to the consumers.

There is nothing on record to show that the aforesaid findings of fact recorded by the assessing authority are factually incorrect. There is nothing on record to show that the petitioner-assessee has not passed on the liability on the incident of sale to any other person. In such a fact-situation there can be no justification for the petitioner-assessee to claim refund as it would amount to unjust enrichment.

The petition, therefore, lacks merit and is dismissed.

B.N. Mahapatra, J.

I agree.