2002 (12) TMI 77 - SC - Income Tax

Legality and validity of clause 9A of the Cement Control Order 1967? Whether the appellants are entitled to refund of the contribution made by them under clause 9A of the Control Order? Held that - In the present case, it is clear that the burden of payment under clause 9A was passed on to the customers. The President of the Cement Manufacturer Association, soon after the insertion of the amendment in February, 1982, in a communication dated March 12, 1982, sent to the Secretary of Ministry of Commerce, Department of Industrial Development, Government of India, while giving break-up of the price of non-levy cement added in the said price, a sum of Rs. 9 per mt. payable under clause 9A on production of the non-levy cement. Further, it appears that the levy under clause 9A was accepted by the entire cement industry except the challenge made by the four appellants by filing the writ petitions; one just before the contribution under clause 9A was withdrawn and three after it was withdrawn. Besides the principles of unjust enrichment on equitable principles which squarely apply here, the applicants are not entitled to claim refund of amount paid into the CRA under clause 9A. It is evident that the amount so deposited was expended for the purpose under the Control Order. Under these circumstances, we direct that pursuant to declaration of invalidity of clause 9A of the Control Order, the amount of contribution already paid under clause 9A will not be liable to be refunded to the appellants.

Issues Involved:
1. Legality and validity of clause 9A of the Cement Control Order, 1967.
2. Whether the payment under clause 9A constitutes a tax without authority of law.
3. Whether clause 9A is ultra vires section 18G of the Industries (Development and Regulation) Act, 1951.
4. Entitlement of the appellants to a refund of the contributions made under clause 9A.

Detailed Analysis:

1. Legality and Validity of Clause 9A of the Cement Control Order, 1967:
The appellants, cement manufacturers, challenged the legality and validity of clause 9A of the Cement Control Order, 1967. Clause 9A required every producer to pay Rs. 9 per metric tonne of non-levy cement produced to the Cement Regulation Account (CRA). This clause was incorporated in 1982 and withdrawn on December 15, 1986. The High Court upheld the validity of clause 9A, but the appellants contended that the payment under clause 9A was in the nature of a tax without the authority of law.

2. Whether the Payment Under Clause 9A Constitutes a Tax Without Authority of Law:
The appellants argued that the payment under clause 9A was a tax and lacked legal authority. They cited various precedents, including Attorney-General v. Wilts United Dairies and Attorney-General for New South Wales v. Homebush Flour Mills Ltd., to support their argument that the levy was a compulsive exaction of money, thus constituting a tax. The court had to determine whether the contribution payable under clause 9A amounted to compulsory exaction and hence had an essential feature of taxation.

3. Whether Clause 9A is Ultra Vires Section 18G of the Industries (Development and Regulation) Act, 1951:
The appellants contended that clause 9A was ultra vires section 18G of the Act, which did not authorize such a levy. The court examined the scheme and circumstances under which clause 9A was inserted. It was found that the money paid by buyers of non-levy cement became the property of the cement manufacturers, and thus, the levy under clause 9A was a compulsory exaction amounting to a tax. Since there was no legal sanction for such a tax, clause 9A was declared ultra vires section 18G of the Act.

4. Entitlement of the Appellants to a Refund of the Contributions Made Under Clause 9A:
The court held that there is no automatic right to a refund of tax paid under an unconstitutional provision. The principles of unjust enrichment apply, meaning the claimant must establish that they did not pass on the burden to another person. In this case, it was clear that the burden of payment under clause 9A was passed on to the customers. The Cement Manufacturer Association's communication indicated that the Rs. 9 per metric tonne was included in the price of non-levy cement and recovered from customers. Therefore, the appellants were not entitled to a refund of the contributions made under clause 9A.

Conclusion:
The Supreme Court set aside the impugned judgment of the High Court to the extent it upheld clause 9A, declaring it ultra vires section 18G of the Act. However, the court denied the appellants' claim for a refund of the contributions made under clause 9A, applying the principles of unjust enrichment. The appeals were allowed to this limited extent, with parties bearing their own costs.

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