M/S. Jay Vee Rice & General Mills vs State Of Haryana & Ors

4. There is a second issue which arises for our

consideration, i.e., as to whether the State is empowered to

recover certain amounts as purchase tax in light of the

scheme envisaged under the Haryana General Sales Tax

Act, 1973 (hereinafter referred to as "the Act") and also

keeping in view that no sales tax was paid, as payment of

the same was specifically excluded.

5. The appellants-companies are engaged in the business

of purchase of paddy and manufacture of rice therefrom.

The assessees are registered under the Haryana General

Sales Tax Act, 1973 (hereinafter referred to as "the Act") and

also under the Haryana Value Added Tax Act, 2003. The

assessees were granted exemption from the payment of

sales tax under Rule 28A of the Haryana Sales Tax Rules,

1975 (hereinafter referred to as "the Rules") for a period of

seven years with effect from 3.10.1995 to 2.10.2002 under

Exemption Certificate, which has been attached with the

appeals. By virtue of this Exemption Certificate issued

3 under the Haryana Sales Tax Rules, 1975, the appellants

were exempted from payment of sales tax.

6. However, by virtue of Note (i) of the Haryana

Government Notification dated 17.10.1996, which was

incorporated vide an amendment to clause 2(i) of Schedule

III of the Rules, the appellants while supplying rice to

District Food and Supplies Controller (hereinafter referred to

as "DFSC") collected purchase tax among other things by

way of price received from the DFSC. The aforesaid Note (i)

by virtue of which such tax was collected reads as follows:-

"Note (i): The above prices of rice are for net rate of naked grains inclusive of purchase tax (emphasis added) and mandi charges of paddy and depreciation of gunny bags used for packing paddy but exclusive of cost of gunny bags and taxes, if any, after ex-mill stage of rice."

7. Therefore, although the appellants were exempted from

the payment of sales tax, but since they had collected

purchase tax on paddy from the DFSC as part of the price

received from the DFSC, the respondents took up a plea

that they are required to pay purchase tax so collected as

tax or as the amount as tax collected and the amount which

since collected was required to be deposited in the

government treasury.

4

8. The contention of the appellants on the other hand,

however, was that the appellants were granted exemption

from the payment of both sales as also purchase tax which

would be amply clear from a harmonious reading of Section

13-B of the Act and also Rule 28A, sub-Rule 2(k) of the

Rules.

Section 13-B of the Act reads as follows:-

"Power to Exempt Certain Class of Industries-The State Government may, if satisfied that it is necessary or expedient so to do in the interest of industrial development of the State, exempt such class of industries from payment of sales tax, for such period and subject to such conditions as may be prescribed."

Rule 28-A (2k) reads as follows:-

Sub-rule 2(k) - "exemption certificate means a certificate granted in form S.T.-73 by the Deputy Excise and Taxation Commissioner of the district to the eligible industrial unit holding eligibility certificate which entitles the unit to avail of exemption from the payment of sales or purchase tax or both, as the case may be."

9. It is the case of the appellants that since there was a

difference between the original Section 13-B of the Act as

inserted on 08.09.1988, and Rule 28A(2k) of the Rules,

Section 13-B was subsequently amended by deleting the

5 word "sales" and consequently the new Section reads as

under:-

"Power to Exempt Certain Class of Industries-The State Government may, if satisfied that it is necessary or expedient so to do in the interest of industrial development of the State, exempt such class of industries from payment of tax, for such period and subject to such conditions as may be prescribed."

10. Relying on the said amendment, the learned counsel

appearing for the appellants submitted that by use of the

word "tax" instead of the words "sales tax", the legislature

intended to declare that the exemption was available on

both sales as well as purchase tax.

11. It is interesting to note that while the Act and the

Rules were so amended, due to a legislative omission, the

statutory Forms ST-72 and ST-73 relating to grant of

exemption remained unchanged. Eligibility in Form ST-72

was granted to the appellants for a period of 9 years and

upto a total benefit of 41.95 lakhs.

12. Assessment for the years 1996-97 was completed by

the assessing authority. While doing so, no purchase tax

was levied but in the assessment order, it was held that

since payment of the rice received from the government was

6 inclusive of purchase tax which was received by the

assessees but was not deposited, the same should be

deposited by the assessees.

13. Being aggrieved by the aforesaid order of assessment,

a first appeal was filed which was dismissed, holding that

the amount sought to be recovered by the department has

not been levied as purchase tax, but the said amount is

being recovered since the assessees had received a price of

rice inclusive of purchase tax.

14. On further appeal filed by the assessees, the Haryana

Tax Tribunal dismissed the appeals holding that since the

exemption certificate was only for sales tax and the same

was not amended, the liability to pay purchase tax would

arise and would continue. While holding that the

appellants should restitute the amount which they had

received from the DFSC as purchase tax, the Tribunal also

made an observation and sent to the Government, a request

to provide relief to them in the exercise of its sovereign

power. The said request was however, not acceded to by the

Government.

7

15. Being aggrieved by the aforesaid order, the appellants

filed writ petitions in the High Court, which were dismissed

under the impugned judgment and order out of which the

present appeals arise.

16. The aforesaid facts would clearly indicate that the

Assessing Officer as also the First Appellate Authority did

not decide the liability of the appellant to pay the purchase

tax, but had held that since the payment of the price of rice

received from the government was inclusive of purchase tax,

the same was required to be deposited with the government

exchequer. Therefore, since the amount had not been

deposited by the appellants, they could be recovered by the

assessing authorities. The Tribunal, however, held that

since the exemption certificate was only for sales tax and

the same was not amended, the liability to pay purchase tax

would continue. The High Court, moreover, held that the

appellants were liable to pay purchase tax as there was no

exemption granted to the appellants from payment of

purchase tax at any point of time.

17. We have already referred to the aforesaid note

appended to the Notification dated 17.10.1996. The

8 aforesaid note leaves no room for doubt that the assessees,

while supplying rice to DFSC, collected purchase tax

amongst other things by way of the procurement price.

18. Since they had collected the purchase tax, they were

required to deposit the same in the government exchequer

and there could be no justification for them to retain the

purchase tax and appropriate the same to their own use.

Retention of such purchase tax collected by the appellant

amounts to unjust enrichment which is not permissible in

view of the law laid down by the Constitution Bench of this

Court in the case of Mafatlal Industries Ltd. and Others

Vs. Union of India And Ors., reported in (1997) 5 SCC

536.

This Court in the said case held as under:-

"254..............The Excise Officer cannot tax more than what is permitted by the statute. If the levy is in excess of the statute, then its retention by the State is unauthorised by law. What is being retained is not in enforcement of the charging section but something else. Such illegally collected tax is not the property of the State and is not within the disposing power of the State.............."

9 19. In Sahakari Khand Udyog Mandal Ltd. v. CCE &

Customs, reported at (2005) 3 SCC 738, this Court (at

page 748) elaborated upon the aspect of unjust enrichment

thus:

"31. Stated simply, "unjust enrichment" means retention of a benefit by a person that is unjust or inequitable. "Unjust enrichment" occurs when a person retains money or benefits which in justice, equity and good conscience, belong to someone else.

32. The doctrine of "unjust enrichment", therefore, is that no person can be allowed to enrich inequitably at the expense of another. A right of recovery under the doctrine of "unjust enrichment" arises where retention of a benefit is considered contrary to justice or against equity.... .......34. In the leading case of Fibrosa v. Fairbairn, Lord Wright stated the principle thus:

(All ER p.135 H) "[A]ny civilised system of law is bound to provide remedies for cases of what has been called unjust enrichment or unjust benefit, that is, to prevent a man from retaining the money of, or some benefit derived from, another which it is against conscience that he should keep. Such remedies in English law are generically different from remedies in contract or in tort, and are now recognised to fall within a third category of the common law which has been called quasi- contract or restitution."

The above principle has been accepted in India. This Court in several cases has applied the doctrine of unjust enrichment."

20. In Orient Paper Mills Ltd. v. State of Orissa & Ors.,

reported at AIR 1961 SC 1438, this Court did not grant

1 refund to a dealer since he had already passed on the

burden to the purchaser. It was observed that it was open

to the legislature to make a provision that an amount of

illegal tax paid by the persons could be claimed only by

them and not by the dealer and such restriction on the right

of the dealer to obtain refund could lawfully be imposed in

the interests of general public.

21. The law laid down in Orient Paper Mills Ltd. (supra)

was quoted with approval by this Court in Mafatlal

Industries Ltd. (supra), and the relevant portion of the said

judgment has been quoted hereinabove.

22. A reference may also be made to a decision of the

Constitution Bench in Godfrey Phillips India Ltd. & Anr.

v. State of U.P & Ors. reported at (2005) 2 SCC 515. In

that case, the constitutional validity of the Uttar Pradesh

Tax on Luxuries Act, 1995 as also other State Acts was

challenged inter alia on the ground of legislative competence

of the State Legislatures. The Court allowed the petition and

held that the State Legislatures were not competent to

impose luxury tax on tobacco and tobacco products and the

Acts were declared ultra vires and unconstitutional. In the

1 intervening period, however, tax was collected by the

appellants from consumers and also paid to the State

Governments. In certain cases, interim relief was obtained

by the appellants from this Court against recovery of tax

and as alleged by the State Governments, the appellants

continued to charge tax from consumers/customers. The

Court held:

It was stated on behalf of the State Governments that after obtaining interim orders from this Court against recovery of luxury tax, the appellants continued to charge such tax from consumers/customers. It is alleged that they did not pay such tax to respective State Governments. It was, therefore, submitted that if the appellants are allowed to retain the amounts collected by them towards luxury tax from consumers, it would amount to `unjust enrichment' by them.

In our opinion, the submission is well founded and deserves to be upheld. If the appellants have collected any amount towards luxury tax from consumers/customers after obtaining interim orders from this Court, they will pay the said amounts to the respective State Governments."

23. The learned counsel appearing for the appellants

would not dispute the position that the payment made to

them by DFSC also included the element of purchase tax.

That being the position and they having collected the 1 purchase tax on paddy from the buyer, the same has to go

to the government exchequer. If however, such tax was

found to be legally not payable after its collection from the

purchaser, it either has to go back to the purchaser from

whom it was collected or has to be surrendered to the State

exchequer and a dealer cannot retain it as otherwise the

same will amount to unjust enrichment which is legally

impermissible.

24. In the present case, since the aforesaid purchase tax

was collected by the appellants, the same is now required to

be paid back to the State exchequer in terms of the orders.

25. Since we have held that the appellants are now

required to pay back the purchase tax element which was

collected by them to the respondents, all the appeals could

be disposed of on the aforesaid ground alone. We have seen

from the decision in Godfrey Phillips India Ltd. (supra)

that even when the legality of a tax has been challenged

successfully, there can be no question of the said tax being

retained by the dealer/manufacturer, notwithstanding its

illegality. In the present instance, it is beyond doubt and

clear from the appellants' own admission that the

1 procurement price included the element of purchase tax.

That there may be an issue relating to the levy of purchase

tax does not in any way, affect the conclusion that the

appellants, who have been unjustly enriched, must deposit

the purchase tax element with the State.

26. Therefore, in the facts and circumstances of the

present case, we are not required to go into the other issue

as to whether or not there could have been levy of purchase

tax on the purchase of paddy in case of exempted units. We

keep that question open to be decided in an appropriate

case.

27. The present appeals are dismissed.

........................................J. [Dr. Mukundakam Sharma]

.............................

...........J. [Anil R. Dave] New Delhi, September 23, 2010.

1