2014 (9) TMI 341 - HC - VAT and Sales Tax

Unjust enrichment - refund of sales tax - Merger / amalgamation - revision proceedings to deny the refund - Transactions of sale and purchase between the two companies were subject to sales tax regime. The assessee accordingly filed returns of tax so paid/collected. By virtue of the subsequent order of the High Court sanctioning the amalgamation scheme and operation of law, such merger related back to the effective date envisaged in the merger scheme. Thus by virtue of such deeming fiction all transactions which took place between the date of the merger scheme and the date of the High Court sanctioning the merger, became those in the nature of branch transfers. - Held that - even in absence of statutory provisions, in case of indirect taxes, Indian Courts have been applying the principle of unjust enrichment on the premise that collection of tax though may have been declared unlawful, if in the meantime, the assessee had passed on the burden thereof to the consumer, refund of such tax to the assessee would amount to unjust enrichment and such refund, therefore, should not be granted. In the present case, from the available material on record, it is neither possible nor our desire to ascertain as to what extent the burden of tax deposited by the petitioner with the Government authorities was passed on to the third party. Learned counsel for the petitioners strenuously urged that in majority of the cases, transactions were in such a nature that the taxes were paid/collected by the transferor and the transferee-companies and no third party transactions were involved. We are not inclined to go into such an issue. This is so because we propose to permit the Commissioner to hear the revision application on the merits. Secondly, full records are not before us. Thirdly, in such complex situation, we would not like to examine the issue at the first instance which can be better done by the Commissioner in the process of hearing revision application. In the result, subject to the declaration made above, namely, that the order of the High Court sanctioning the amalgamation scheme would relate back to the effective date as envisaged in the scheme and that therefore, the merger should be effective from June 1, 1985, we permit the Deputy Commissioner to proceed further with the pending revision application in accordance with law. While doing so, the question of refund/ adjustment of tax, burden of which is passed on to the third party would also be examined. To the extent it is found that such burden was passed on by the petitioners to the third party, principle of unjust enrichment will apply. However, we clarify that if the transaction was purely between the transferor and transferee-companies with no further repercussions, such a transaction would not come within the principle of unjust enrichment.

Issues Involved:
1. Legality of the recovery of tax amount and penalty.
2. Validity of the notice proposing revision of the assessment order.
3. Applicability of the principle of unjust enrichment.

Detailed Analysis:

1. Legality of the Recovery of Tax Amount and Penalty:
The petitioners initially sought to challenge the recovery of Rs. 1,65,29,862 and the penalty order dated June 22, 1999. However, they did not press these reliefs during the proceedings, so the court confined its inquiry to the notice proposing revision of the assessment order.

2. Validity of the Notice Proposing Revision of the Assessment Order:
The petitioners contested the notice dated August 30, 2001, issued by the Deputy Sales Tax Commissioner under section 67 of the Gujarat Sales Tax Act, 1969, which sought to revise the assessment order dated January 15, 1999. The petitioners argued that the transactions during the period from June 1, 1995 (the effective date of the amalgamation scheme) to May 2, 1997 (the date the scheme was sanctioned by the High Court) should be treated as branch transfers and not sales, and thus not subject to sales tax.

The court examined the statutory provisions and noted that under section 67, the Commissioner has the power to revise any order within three years on his own motion or within one year on an application. The court observed that the High Court's order sanctioning the amalgamation scheme would relate back to the effective date mentioned in the scheme, i.e., June 1, 1995. Consequently, any transfers between the transferor and transferee companies during this period should be treated as branch transfers, not sales.

The court referenced the Supreme Court's decision in Marshall Sons and Co. (India) Ltd. v. Income-tax Officer, which held that the effective date of amalgamation is the date specified in the scheme unless modified by the court. The court also cited the Bombay High Court's decision in National Organic Chemical Industries Ltd. v. State of Maharashtra, which supported the view that such transfers should be treated as branch transfers.

3. Applicability of the Principle of Unjust Enrichment:
The respondents argued that granting relief to the petitioners would result in unjust enrichment since sales tax is an indirect tax and the petitioners would have passed on the burden to consumers. The court noted that the principle of unjust enrichment has been recognized in Indian law, particularly in cases of indirect taxes, where refunding the tax to the assessee would result in unjust enrichment if the burden was passed on to consumers.

The court decided not to summarily terminate the revision proceedings, allowing the Deputy Commissioner to examine all factual aspects and come to a final conclusion, considering the legal opinion expressed by the court. The court emphasized that the principle of unjust enrichment would apply if the burden of tax was passed on to third parties, but not if the transactions were purely between the transferor and transferee companies.

Conclusion:
The court permitted the Deputy Commissioner to proceed with the revision application, subject to the declaration that the order of the High Court sanctioning the amalgamation scheme would relate back to the effective date mentioned in the scheme. The court directed that the question of refund/adjustment of tax, considering the principle of unjust enrichment, should also be examined during the revision proceedings. The petition was disposed of with these directions and clarifications, and the interim relief was vacated.

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