2008 (11) TMI 387 - SC - VAT and Sales Tax

Whether the petitioner had to pay any tax in excess of the due rates and if so what is the fate of such excess payment? Held that - Appeal allowed. As all the facts are admitted and the State had refused to refund the excess amount of tax realized from the appellant, in our opinion, the writ petition was maintainable. Thus the interest of justice would be served if, instead of the appellant refunding the amount to the first respondent and later claiming refund from the authorities, the State of Kerala is directed to refund the amount of tax collected with interest at the rate of 10 per cent per annum to the first respondent at an early date, and not later than four months from the date of communication of this order. It is ordered accordingly. If, however, the amount is not paid within the aforementioned period, the outstanding amount shall carry interest at 15 per cent per annum.

Issues Involved:
1. Validity of excess sales tax collection and its refund.
2. Retrospective effect of tax rate reduction.
3. Maintainability of writ petition for tax refund.
4. Applicability of the principle of unjust enrichment.

Issue-wise Detailed Analysis:

1. Validity of excess sales tax collection and its refund:
The first respondent, a dealer in bullion gold, conducted transactions amounting to Rs. 42,37,48,518, during which a sales tax of 1% was collected and deposited with the sales tax authorities. However, a subsequent notification (S.R.O. No. 1075/99) reduced the tax rate to 0.5% retrospectively from April 1, 1999. The appellant requested a refund of the excess tax collected, amounting to Rs. 20,97,763.50, but the Assistant Commissioner, Sales Tax, rejected this request, citing S.R.O. No. 1728 of 1993, which stated that tax collected at a higher rate shall be paid over to the Government and shall not be refunded.

2. Retrospective effect of tax rate reduction:
The notification S.R.O. No. 1075/99, which reduced the tax rate to 0.5%, was given retrospective effect from April 1, 1999. This created a legal fiction, making the applicable tax rate 0.5% from that date. The Supreme Court noted that the effect of a legal fiction is well known and must be given full effect, implying that the excess tax collected should be refunded.

3. Maintainability of writ petition for tax refund:
The Division Bench of the High Court allowed the writ appeal, directing the appellant to refund the excess amount collected. The Supreme Court affirmed that the writ petition was maintainable, emphasizing that Article 265 of the Constitution mandates that no tax shall be levied or collected except by authority of law. The Court held that if a substantive provision of a statute provides for a refund, the State cannot, by subordinate legislation, deny the refund of tax paid even by mistake.

4. Applicability of the principle of unjust enrichment:
The Court found that the principle of unjust enrichment did not apply in this case, as it was not argued that the buyer had passed on the excess tax to the purchasers. The Court emphasized that the State must act reasonably and refund the excess tax collected, as mandated by the equality clause in Article 14 of the Constitution.

Conclusion:
The Supreme Court concluded that the State of Kerala must refund the excess tax collected with interest at the rate of 10% per annum to the first respondent within four months from the date of communication of the order. If the amount is not paid within this period, the outstanding amount shall carry interest at 15% per annum. The appeal was allowed with these observations and directions, with no order as to costs.

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