2011 (10) TMI 561 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Entitlement to purchase coal at a reduced tax rate.
2. Legality of the communication directing the payment of higher tax.
3. Claim for refund of excess tax paid.
4. Application of the principle of unjust enrichment.

Issue-wise Detailed Analysis:

1. Entitlement to Purchase Coal at a Reduced Tax Rate:
The petitioner, a public limited company engaged in the manufacture of various products, was granted a recognition certificate under section 4B(2) of the U.P. Trade Tax Act. This certificate entitled the petitioner to purchase coal at a reduced tax rate of two percent instead of the standard four percent. The petitioner used the coal to generate electricity in a captive power plant, which was entirely consumed in its manufacturing process.

2. Legality of the Communication Directing the Payment of Higher Tax:
In June 2003, the Deputy Commissioner, Commercial Tax, issued a letter directing the seller to realize trade tax at the rate of four percent due to amendments in the Trade Tax Act. The petitioner challenged this directive through a writ petition, seeking a writ of certiorari to quash the communication and prohibit the respondent from charging tax in excess of two percent.

3. Claim for Refund of Excess Tax Paid:
The petitioner also sought a refund for the excess tax paid (two percent over the entitled rate) on coal purchases up to December 31, 2007. The enforcement of the U.P. Value Added Tax Act, 2008, confined the relief sought to the period before this date. The respondents did not deny the petitioner's entitlement to the reduced tax rate under the recognition certificate but argued that the certificate was for manufacturing aluminum, not electricity.

4. Application of the Principle of Unjust Enrichment:
The respondents contended that the petitioner should have claimed the refund during assessments or under section 29A(3) of the U.P. Trade Tax Act. They argued that the petitioner had passed the burden of the four percent trade tax onto consumers, invoking the principle of unjust enrichment. The petitioner failed to provide evidence that the trade tax was not included in the price of finished products.

The respondents relied on the Supreme Court's decision in Mafatlal Industries Ltd. v. Union of India, which established that claims for refunds cannot be entertained if the tax burden has been passed onto consumers, except where the tax is unconstitutional. The petitioner argued that taxes on captive consumption for manufacturing are exceptions to this principle, citing Bhadrachalam Paperboards Ltd. v. Government of Andhra Pradesh and Dhampur Sugar Mills v. State of U.P., where refunds were allowed for taxes on raw materials used in manufacturing.

However, the respondents countered with the Supreme Court's decision in Union of India v. Solar Pesticides Pvt. Ltd., which extended the principle of unjust enrichment to captive consumption. This was further supported by Commissioner of Customs, Chennai v. Borax India Ltd. and State of Maharashtra v. Swanstone Multiplex Cinema (P) Ltd., which upheld the application of unjust enrichment in similar contexts.

The court concluded that the petitioner did not provide sufficient pleadings or evidence to rebut the presumption that the tax burden was passed onto consumers. Consequently, the court dismissed the writ petition, denying the refund on the grounds of unjust enrichment.