2010 (9) TMI 881 - SC - VAT and Sales Tax

Purchase tax on the purchase of paddy - appellants/dealers had collected purchase tax on paddy from the Government or its agencies along with procurement price of levy fixed under the said Levy Order Held that - purchase tax collected on paddy from the buyer, the same has to go to the Government exchequer. If however, such tax was found to be legally not payable after its collection from the purchaser, it either has to go back to the purchaser from whom it was collected or has to be surrendered to the State exchequer and a dealer cannot retain it as otherwise the same will amount to unjust enrichment, appeals are dismissed

Issues Involved:
1. Interpretation of Note (i) to Schedule III under clause 2(i) of the Haryana Rice Procurement Levy Order, 1985.
2. Empowerment of the State to recover amounts as purchase tax under the Haryana General Sales Tax Act, 1973.

Detailed Analysis:

Issue 1: Interpretation of Note (i) to Schedule III under clause 2(i) of the Haryana Rice Procurement Levy Order, 1985

The primary issue is whether the appellants/dealers collected purchase tax on paddy from the Government or its agencies along with the procurement price of levy fixed under the Haryana Rice Procurement Levy Order, 1985. The appellants were engaged in the purchase of paddy and manufacture of rice, and were exempted from sales tax under the Haryana General Sales Tax Rules, 1975. However, Note (i) of the Haryana Government Notification dated October 17, 1996, mandated that the prices of rice were inclusive of purchase tax and other charges. Consequently, the appellants collected purchase tax from the District Food and Supplies Controller (DFSC) as part of the procurement price.

The respondents argued that since the appellants collected purchase tax, they were required to deposit the collected amount in the Government treasury. The appellants contended that they were exempted from both sales and purchase tax as per section 13B of the Act and rule 28A(2)(k) of the Rules. The court noted that the exemption certificate was only for sales tax and not for purchase tax. The Tribunal and the High Court upheld that the appellants were liable to pay purchase tax as there was no exemption granted for it.

The court concluded that the appellants collected purchase tax and were required to deposit it in the Government exchequer. Retaining the purchase tax would amount to unjust enrichment, which is impermissible under the law. The court cited the case of Mafatlal Industries Ltd. v. Union of India, which established that illegally collected tax must be returned to the State or the purchaser.

Issue 2: Empowerment of the State to recover amounts as purchase tax under the Haryana General Sales Tax Act, 1973

The second issue is whether the State is empowered to recover certain amounts as purchase tax under the Haryana General Sales Tax Act, 1973, especially when no sales tax was paid due to specific exclusion. The appellants argued that the amendment to section 13B of the Act, which replaced "sales tax" with "tax," indicated that the exemption applied to both sales and purchase tax. However, the court observed that the statutory forms ST-72 and ST-73 remained unchanged, and the exemption certificate was only for sales tax.

The court held that since the appellants collected purchase tax as part of the procurement price, they must deposit the amount with the State exchequer. The court referenced the case of Sahakari Khand Udyog Mandal Ltd. v. Commissioner of Central Excise & Customs, which elaborated on the doctrine of unjust enrichment, stating that no person can retain benefits that belong to someone else.

The court further cited the case of Godfrey Phillips India Ltd. v. State of U.P., where it was held that even if the legality of a tax is successfully challenged, the collected tax must be deposited with the State if it was collected from consumers.

Conclusion:

The court dismissed the appeals, holding that the appellants must deposit the purchase tax collected with the State exchequer. The issue of whether the levy of purchase tax on exempted units was valid was left open for future consideration. The court emphasized that retention of collected tax by the appellants amounted to unjust enrichment, which is not permissible under the law.

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