2016 (4) TMI 134 - HC - VAT and Sales Tax

Entitlement for refund claim - Amount paid as luxury tax in lieu of bank guarantee as directed by this court - Appellant was requested to pay the tax in cash on specific understanding that such amounts would be refunded, if the appellant was successful in the litigation - Held that - the question of unjust enrichment does not arise, since the appellant was enjoined only to furnish bank guarantee and therefore would not be liable to have the same encashed. It is only because the appellant had paid the amounts as requested by the respondents in cash. The State cannot be permitted to take advantage of a wrongful promise held out by it to deprive the appellant of the amounts that it would otherwise have been entitled to, had it not succumbed to the assurances. Therefore, the appellant is entitled to refund of the amounts paid in pursuance of communications. - Decided in favour of appellant

Summary

Issues Involved:
1. Refund of tax paid under the Kerala Tax on Luxuries Act, 1976.
2. Validity of Section 4A of the Kerala Tax on Luxuries Act, 1976.
3. Application of the principle of unjust enrichment.
4. Impact of interim orders and bank guarantees on tax payments.
5. Interpretation of Supreme Court decisions in similar cases.

Issue-wise Detailed Analysis:

1. Refund of tax paid under the Kerala Tax on Luxuries Act, 1976:
The appellant firm, a registered dealer in tobacco products, challenged the refusal of the Commercial Tax Officer to refund the tax paid under the Kerala Tax on Luxuries Act, 1976. The appellant argued that the amounts paid in lieu of bank guarantees should be refunded based on the specific written undertaking by the authorities that the amounts would be refunded if the appellant succeeded in the litigation.

2. Validity of Section 4A of the Kerala Tax on Luxuries Act, 1976:
The writ petition O.P.No. 2190 of 1995 challenged the liability for payment of luxury tax under Section 4A of the Act. An interim order required the appellant to file returns and furnish bank guarantees. The provision was later declared unconstitutional, invalid, and inoperative by the court, which led to the appellant's claim for a refund of the amounts paid.

3. Application of the principle of unjust enrichment:
The Revenue contended that the appellant had collected amounts towards luxury tax from consumers/customers and therefore was not entitled to a refund. The Supreme Court's decisions in Somaiya Organics (India) Ltd. v. State of UP and Godfrey Philip India Limited v. U.P. were cited to argue that tax already collected should not be refunded. The appellant countered by asserting that no luxury tax was collected from customers, supported by certificates from their auditors.

4. Impact of interim orders and bank guarantees on tax payments:
The interim order in the writ petition allowed the appellant to furnish bank guarantees instead of making cash payments. However, the authorities requested cash payments in lieu of bank guarantees, promising refunds if the appellant succeeded in the litigation. The court found that the appellant had paid amounts in cash based on this assurance and was entitled to a refund since the provision was declared unconstitutional.

5. Interpretation of Supreme Court decisions in similar cases:
The court examined the decisions in Somaiya Organics and Godfrey's case. It noted that in Somaiya Organics, the Supreme Court held that furnishing a bank guarantee does not amount to payment of tax and that no bank guarantee provided in terms of an interim order could be encashed. In Godfrey's case, the principle of unjust enrichment was applied to deny refunds where the tax was collected from end users. The court distinguished the present case by noting that the appellant had not collected tax from customers and had paid amounts in cash based on the authorities' assurance.

Conclusion:
The court concluded that the appellant was entitled to a refund of the amounts paid in lieu of bank guarantees, as the payments were made based on a specific undertaking from the authorities. The judgment of the learned single Judge was set aside, and the writ appeal and writ petition were ordered accordingly. The court emphasized that the State could not take advantage of a wrongful promise to deprive the appellant of the amounts it was entitled to.