2015 (4) TMI 426 - SC - VAT and Sales Tax

Denial of refund claim - Reduction of entry tax - presumption for unjust enrichment - Denial on the premise of explanation added to Notification No. A-3-80-98-ST-V (49) dated 4.5.1999 to deny the refund to tax paid at higer rate - Held that - The Explanation attached to Notification dated 4.5.1999, or for that mater the Notification dated 5.7.1999, which states that the amount shall not be refunded in any case on the basis that dealer had filed the tax at a higher rate, results in invidious discrimination towards those who have paid the tax at a higher rate, like the appellants, when compared with that category of the persons who were defaulters and have now been allowed to pay the tax at the rate of 1% for the relevant period. There is no basis for creating these two classes and there is no rationale behind it which would have any causal connection with the objective sought to be achieved. It would be pertinent to mention that on repeated query made by this Court to the learned counsel for the respondents, he could not explain or show from any material on record as to what led the authorities to provide such an Explanation. While adding Explanation given in 2008 (11) TMI 387 - SUPREME COURT OF INDIA the Government had kept in mind the principle of unjust enrichment. Presumably because of this reason, the High Court also referred to the judgment in the case of Indian Oil Corporation (1992 (10) TMI 252 - PUNJAB AND HARYANA). However, on such a presumption alone, there cannot be any justification for adding the Explanation of the nature mentioned above. In order to determine as to whether a particular dealer is in fact entitled to refund or not, the Government can go into the issue of unjust enrichment while considering his application for refund. That would depend on the facts of each case. It cannot be presumed that the burden was positively passed on to the buyers by these dealers and, therefore, they are not entitled to refund. - impugned Explanations in the Notifications dated 4.5.1999 and 5.7.1999 are unconstitutional - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of the Explanation appended to the Notification dated 4.5.1999.
2. Alleged violation of Article 14 of the Constitution.
3. Alleged violation of Article 265 of the Constitution.
4. Principle of unjust enrichment.

Issue-wise Analysis:

1. Validity of the Explanation Appended to the Notification Dated 4.5.1999:
The appellants, units of Grasim Industries Limited, challenged the Explanation appended to the Notification dated 4.5.1999, which reduced the entry tax rate to 1% for coal, gypsum, and bauxite but stated that no refunds would be issued for amounts already paid at higher rates. The appellants argued that this Explanation was arbitrary and discriminatory, as it treated those who had paid tax at higher rates differently from those who had not paid at all, without any intelligible differentia or nexus to the objective sought to be achieved.

2. Alleged Violation of Article 14 of the Constitution:
The appellants contended that the Explanation resulted in invidious discrimination, violating Article 14 of the Constitution. The Supreme Court agreed, stating that the Explanation created two categories of taxpayers who were made to pay different rates despite being identically situated. The Court emphasized that there was no rationale or objective behind such a classification, making it arbitrary and discriminatory. The Court cited the case of D.S. Nakara & Ors. v. Union of India to highlight that Article 14 forbids class legislation but allows reasonable classification, which must have a rational relation to the objective sought to be achieved.

3. Alleged Violation of Article 265 of the Constitution:
The appellants also argued that the Explanation amounted to exaction of tax at a higher rate, violating Article 265 of the Constitution, which mandates that no tax shall be levied or collected except by authority of law. The Supreme Court agreed, stating that the legal effect of the Notification dated 4.5.1999 was that entry tax should have been 1% for the relevant period. Therefore, those who had paid at higher rates were entitled to refunds. The Court cited Kunnathat Thathunni Moopil Nair v. State of Kerala & Anr., emphasizing that taxing statutes must comply with Article 14 and Article 265.

4. Principle of Unjust Enrichment:
The State argued that the Explanation might have been added to prevent unjust enrichment. However, the Supreme Court rejected this presumption, stating that the issue of unjust enrichment should be determined on a case-by-case basis when considering refund applications. The Court referenced Corporation Bank v. Saraswati Abharansala & Anr., where it was held that non-refund of excess tax paid would violate both Article 14 and Article 265 of the Constitution.

Conclusion:
The Supreme Court concluded that the Explanation appended to the Notifications dated 4.5.1999 and 5.7.1999 was unconstitutional. The Court quashed the said Explanations and allowed the appeal, emphasizing that all persons, including the appellants, who had paid tax at higher rates during the relevant period were entitled to refunds.