1989 (10) TMI 180 - SC - VAT and Sales Tax

Whether the Corporation was liable to refund that part of the amount of octroi duty paid by the petitioners on the quantity of the Horlicks powder imported into the city of Bangalore on the petitioners informing the Corporation that they had despatched that part of the same from time to time by filling the same in bottles to places outside the city of Bangalore even though petitioners had not followed the procedure prescribed in Rules 24 and 25 of Bye-law No. 45 framed by the Corporation and even though they had not even informed of such despatches as and when these were made? Held that - Amounts have been realised as octroi on the entry of the goods on which octroi was not leviable because these were not for use or consumption within the municipal limits. Mere, physical entry into the city limits would not attract the levy of octroi unless goods were brought in for use or consumption or sale. In this case, putting the powder from the drums to the bottles for the purpose of exporting or taking these out of the city is neither use nor consumption of the Horlicks powder attracting the levy of octroi. Such amounts, therefore, cannot be retained by the respondent-Corporation. There is no dispute as to the quantum in view of the fact that the amount has now been found to be certified to be credited pursuant to the direction of the learned single Judge of the High Court. We see no ground as to why amount should not be refunded. Realisation of tax or money without the authority of law is bad under Article 265 of the Constitution. Octroi cannot be levied or collected in respect of goods which are not used or consumed or sold within the municipal limits. So these amounts become collection without the authority of law. The respondent is a statutory authority in the present case. It has no right to retain the amount, so far and so much. These are refundable within the period of limitation. There is no question of limitation. There is no dispute as to the amount. There is no scope of any possible dispute on the plea of undue enrichment of the petitioners. We are, therefore, of the opinion that the Division Bench was in error in the view it took. Where there is no question of undue enrichment, in respect of money collected or retained, refund, to which a citizen is entitled, must be made in a situation like this. Appeal allowed & amounts should be refunded.

Issues Involved:
1. Levy of octroi on Horlicks milkfood powder imported in bulk and rebottled within the municipal limits.
2. Refund of octroi duty on goods exported outside municipal limits.
3. Compliance with procedural rules for claiming refund.
4. Interpretation of "breaking bulk" in the context of octroi rules.
5. Applicability of undue enrichment principle in the context of refund claims.

Issue-wise Detailed Analysis:

1. Levy of Octroi on Horlicks Milkfood Powder Imported in Bulk and Re-bottled Within the Municipal Limits:
The court examined the notification under Section 98(2) of the City of Bangalore Municipal Corporation Act, 1949, which levied octroi on food drinks, including milkfood, brought into the municipal limits for sale, consumption, or use. The petitioners argued that Horlicks powder imported in bulk and re-bottled for export outside the municipal limits should not be subject to octroi as it was not used, consumed, or sold within the city. The court noted that the Horlicks powder remained the same after packing and did not acquire distinct commercial utility, thus, it did not fall within the term "use" as per the precedent set by the High Court of Punjab.

2. Refund of Octroi Duty on Goods Exported Outside Municipal Limits:
The petitioners sought a refund of octroi duty for the quantities of Horlicks powder exported outside the municipal limits after being re-bottled. The respondent corporation rejected the claim, citing non-compliance with Rule 24 of Bye-law 45. The learned single Judge of the Karnataka High Court allowed the writ petition, directing the refund of octroi duty collected for the period commencing three years prior to the filing of the writ petition. The Division Bench, however, reversed this decision, emphasizing the petitioners' non-compliance with procedural rules for claiming refunds.

3. Compliance with Procedural Rules for Claiming Refund:
The Division Bench highlighted that the petitioners did not follow the procedure prescribed in Rules 24 and 25 of Bye-law 45, which required the production of goods at the Central Octroi Office and submission of an application for refund. The court noted that the petitioners' contention that Rule 24 did not apply because the bulk was broken was not accepted by the Division Bench. The Division Bench insisted that compliance with procedural rules was necessary for claiming refunds.

4. Interpretation of "Breaking Bulk" in the Context of Octroi Rules:
The court examined the expression "breaking bulk" and its implications for the refund of octroi duty. The Division Bench held that transferring Horlicks powder from drums to bottles did not constitute "breaking bulk" in a manner that would exempt the petitioners from complying with Rule 24. However, the Supreme Court disagreed, stating that "breaking bulk" should be construed in its literal and ordinary sense. Transferring the product from drums to bottles was considered "breaking bulk," making Rule 24 inapplicable.

5. Applicability of Undue Enrichment Principle in the Context of Refund Claims:
The respondent's counsel argued that the refund should not be granted due to the possibility of undue enrichment of the claimant, a matter pending before the Constitution Bench. The Supreme Court dismissed this argument, noting that octroi is a duty on the entry of goods, payable by the producer or manufacturer, and does not involve passing costs to consumers. Therefore, the principle of undue enrichment was not applicable in this case.

Conclusion:
The Supreme Court held that the amounts collected as octroi on goods not used, consumed, or sold within the municipal limits were collected without authority of law and must be refunded. The Division Bench's interpretation of "breaking bulk" and the necessity of procedural compliance was found to be erroneous. The appeal was allowed, and the judgment of the Division Bench was set aside, directing the refund of the verified amounts to the petitioners.

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