MAFATLAL INDUSTRIES LTD. ETC. ETC. v. UNION OF INDIA ETC. ETC.

DECEMBER 19, 1996 B (A:M. AHMADI, 0., J.S. VERMA, S.C. AGRAWAL, B.P. JEEVAN REDDY, DR. A.S. ANAND, B.L. HANSARIA, S.C. SEN, K.S. PARIPOORNAN AND B.N. KIRPAL, JJ.]

Excise/Customs : c Excise/Customs duty levied on misrepresentation/misapplication/er- roneous interpretation of the statutory provisions under provisions declared unconstitutional or under mistake of law-Remedies open--Maintain_ability of suit under S. 72 of Contract Act or writ petition under Art. 226 or Art. 32 or other remedies provided in Excise Act or Customs Act-Held, where refund is claimed on the ground that provisions of the Central Excises Act/Customs Act whereunder duty levied is or held to be unconstitutional, suit or writ petition would be maintainable-However, all refund claims must be filed and adjudicated under the Central Excises Act or the Customs Act-In such cases suit invoking S. 72 of Contract Act would be bamd-Writ jurisdiction in such cases to be exercised in accordance with the legislative intent manifested in the Act-fn all situations refund can only be allowed where manufacturer- assessee has not passed on the burden of tax to third parties viz. con- sumers-Presumption is of passing on the burden to the consumers-Burden on the manufacturer to rebut the presumption by establishing to the con- trary-Doctrine of undue enrichment applicable to such assessees but not applicable to State-Contract Act, 1872, S.72.

Excise duty paid under a provision declared unconstitution- al----Petitioner failing to assail its constitutionality and the decision becoming final-Declaration of unconstitutionality obtained by another person on another ground-Held cannot be availed of by such petitioner to reopen the decision in his case.

., Excise duty paid under mistake of law-Refund-Maintainability of suit or writ petition-Held, Once assessment or levy became final in case of a manufacturer- assessee, he cannot later file suit or writ petition claiming H 585

586 SUPREME COURT REPORTS[1996] SUPP.10 S.C.R.

A refund on the ground that decision of Court or Tribunal in another person's case led Jiim to discover the mistake of law under which he paid the duty. In . all cases where suit or writ petition is open, it is necessary for the plain- tiff/petitioner to file suit or writ petition within the limitation period under S.17(1)(c) of Limitation Act and to allege and establish that he has not passed on the burden of tax to the consume1~Where claim has to ?e made under the Central Excises Act or Customs Act, and no suit lies, such claim to be preferred within the period of limitation prescribed under the said Acts--LimitationAct, 1963, S.17(1)(c).

State can raise plea in defence, of spending away the amount of tax collected under unconstitutional law and/or of financial chaos in administra- tion of the State, as a result of allowing claim of refund-Such plea by assessee not tenable where he has not passed on the burden of duty to others.

State cannot reclaim the refunded amounts where no proceedings are pending-All pending matters to be governed by the law declared in the present case notwithstanding any refunds made in such pending proceedings.

Excise Law:

Central Excises and Salt Act, 1944-Ss.Jl-B, 11-C, 12-A, 12-B, 12-C, E 12-~Validity of-Held, valid-S.11-B not a device to retain illegally col- lected du~Ss.11-B and 12-B have the effect of changing the very nature of excise duty.

S.11-B-Retrospective operation-Refund-Tax levied under mistake of F law-Limitation-Held, S.11-B applies to all pending proceedings but not to those proceedings which have become final after appeal period expired before the commencement of the 1991 Amendment Act-Application for refund under S.11-B to be made within six months from date of payment of du~Since this requirement cannot be complied with in respect of pending decrees or orders, to ensure that such orders and decrees are not frnstrated, it 'G must be deemed that the duties were paid 'under protest' within the meaning of second proviso to S.11- B(l)-Customs Act. 1962, S.27.

Central Excise Rules, 1944-R.233-B-<Jrounds for payment of duty under protest-Assessee need not particularise the grounds-Letter of protest H acknowledged by the Officer shall be proof of payment of duty under protest

MAFA1LALINDS. LTD. v. U.O.I. 587 under S.11-B of the Central Excises and Salt Act. A Constitution of India, 1950 :

A1t. 14-Taxing statutes-Discretion of the Legislature-State allowed to pick and choose districts, objects, persons, methods and even rates for . taxation with reasonableness-Courts view laws relating to economic activities B I ' with greater latitude than other matters.

Arts, 14 and 19--Reasonableness of a statutory provision-Mere pos- sibility of abuse by those in charge of administering it-Not a ground for holding it procedurally or substantively unreasonable-Administrative C Law-Judicial Review.

Art. 226-rHigh Court to exercise its writ jurisdiction in consonance with the legislative intent manifested by the statutory provisions involved-Jurisdic- tion under Art. 226 to be exercised to effectuate the regime of law and not to abrogate it.-Maintainability of writ petitio1t-Altemative remedy-Refund D claim against tax/duty wrongly paid-Remedy under the relevant Act alone to be pursued-Central Excises and Salt Act, 1944, S.11: B-Customs Act, 1962, S.27.

Article 265-Tax levied or collected contrary to law-Refund of-Where taxing statute provides•/or refund, validity of such provision must be examined E with reference to other provisions of the Constitution-Where refund is claimed on the groun4 that tax has been paid undet mistake of law, claimant- assessee must plead andI prove that he has not passed on the tax burden to third persons.

_Contract Act, 1872: F

S. 72-Action for restitution under-Based on equity-Person claiming restitution must plead and prove that he suffered loss or injury-Burden of proof on petitioner/plaintiff since the fact whether duty passed on or not is within his special and exclusive knowledge-If assessee passes on the tax G burden to third persons, no suit for refund on ground of mistake of law would be maintainabl~vidence Act, 1872 : S.lO(r-Sale of Goods Act. 1930. S.64-A.

Civil Procedure Code, 190&-S.9-Civil Court's jurisdiction-Bar of by implicatio1t-Suit not maintainable where a complete mechanism for redres- H

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A sal is provided by the statute concerned-Central Excises and Salt Act, 1944, ' S.11-B-Customs Act, 1962, S.27.

DOCTRINES-Doctrine of unjust enrichment-Doctrine of restitu- tion-Discussed.

B WORDS AND PHRASES-..!'Tax''--''Levy''-''lurisdiction''--''lurisdic- tional error''-Meaning of

The present appeals and writ petitions raised certain questions concerning the refund of Excise & Customs duty collected contrary to law. C These questions related to the correctness of certain earlier decisions of Supreme Court, concept of unjust enrichment, interpretation of Article 265 of the Constitution of India and of the provisions of the Central Excises and Salt Act 1944 and the Customs Act 1962.

The main topic of controversy viz. refund of Excise duty was D governed by different provisions over the years; viz.(i) upto August 6, 1977, the refund of duties was governed by Rule 11, as it stood upto that date; (ii) between August 6, 1977 and November 16, 1980 refund of duties was governed by Rule 11 as it obtained during the said period; (iii) from November 16, 1980 upto September 19, 1991 (date of coming into force of E 1991 Amendment Act) the refund of duties was governed by Section llB as it stood during the said period; (iv) with effect from September 19, 1991 the refund of duties is governed by Section llB as amended by the 1991 Amendment Act and the allied provisions. Though different provisions governed the subject of refund during different times, there is one feature uniformly common to all of them viz. they purport to be exhaustive on subject of refund and they provided a period of limitation for making such claims.

In these appeals and writ petitions the appellants/writ petitioners contended that the provisions relating to refund of excise/customs duty did not preclude the filing of a suit or the filing of a writ petition claiming refund where tax has been collected contrary to law by virtue of Article 265 of the Constitution and that the question of passing on the burden of duty is totally irrelevant in the matter of refund; that the law laid down in ~~W~~~~~~~TI~~~~~~ H consistently by different Benches of the Supreme Court and that there were

MAFATLALINDS. LTD. v. U.0.1. 589 no good or compelling reasons to deviate from or to overrule the decision in Kanhaiya Lal; referring. to the second alternative condition imposed by Section 424 wherein it was provided that if the manufacturer gives a bond undertaking to refund the same to purchaser within a particular period he would be entitled to claim the refund, it was urged that such a condition could have been imposed in the Central Excises and Customs Act as well; that even if it is legitimate for Parliament to prescribe that in case the money was P!lS!ed on it must be made over to the person from whom it was collected, and this should be done through the medium of manufac· turer/tax payer and not through any other medium; that a claim for refund has to be filed within six months from the relevant date but since appel· late/revision proceedings or for that matter proceedings in High C Court/Supreme Court take number of years and by the time the claimant succeeds and asks for refund his claim will be barred and it will be thrown out on the ground that it has not been filed within six months from the date of payment of duty; that Rule 233B which prescribes the procedure to be followed in cases where duty is paid under protest requires the assessee to state the grounds for payment of duty under protest and that it may well happen that the authority to. whom the letter of protest is submitted may refuse to record it if he is not satisfied with the grounds of protest; that the amended Section llB is prospective in operation and cannot apply to pending proceedings; that Section 12A was also inserted by the 1991 (Amendment) Act and therefore it is not expected of any manufacturer/assessee to maintain the records required by Section 12A prior to its coming into force; that in respect of an application filed before the commencement of the said Act it is not possible to comply with the requirements of sub-section (1) in so far as it requires the filing of documents referred to in Section 12A and this circumstance was urged as F a ground for holding that the amended Section llB applies only to refund applications filed after coming into force of the 1991 (Amendment) Act; that tlie right to recover the excise duty paid is both a constitutional and a statutory right; and that all these factors militate against giving retrospective effect to Section llB. G It was also submitted that the real purpose behind Section llB and its allied provisions was not to benefit the consumers by refusing refund to manufacturer (on the ground of passing on the burden) but only to enable the Government to retain the illegally collected taxes; that the creation of the Consumer Welfare Fund is a mere pretence and not an H

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A honest exercise; that as per Section 12D even a Consumer who has really borne the burden of tax and is in a position to establish that fact is yet not entitled to apply for refund of the duty since the Rules do not provide for such a situation; that there is no provision in the Act to locate the person really entitled to refund and to make over the money to him; that in a B competitive atmosphere and for other commercial reasons it may happen that the manufacture is obliged to sell his goods at less than its proper price and the manufacturer may have to forego not only his profit but also part of excise duty and that in such a case levy and collection of full excise duty would cease to be a duty of excise and it will become a tax on income · or on business; that Section llD provides for double taxation and that C sub-section (i) of Section llD makes the manufacturer liable to pay duty which he collects from the buyer as part of the price of goods even where the manufacturer has already paid the duty at the time of removal of the goods.

D On behalf of the Union of India it was contended that Kanhaiya Lal has been wrongly decided; that no suit or writ petition lies for refund of duty except in the case of unconstitutional levy and even in such cases the claim is subject to proof that burden of duty has not been passed on to ·the purchaser; that in all other cases claims of refund can be· made only under and in accordance with the provisions of the Act/Rules governing the subject of refund and in no other manner and in no other forum; that in any event since Kanhaiya Lal did not deal with the effect of passing on · _ the duty to a third party it was neither raised nor considered therein; hence it is no authority for the proposition that the manufacturer/payer can recover the duty paid even if he has passed on the burden to others; that the distinction between the constitutional values obtaining in countries like United States of America, Canada and Australia or United Kingdom and the values obtaining under our Constitution are different; that the philosophy and the core values of our Constitution must be kept in mind while understanding and applying the provisions of Art. 265 of the Con- G stitution and Section 72 of the Contract Act that it ill· becomes the manufacturers/assessees to espouse the cause of consumers when all the while they had been making a killing at their expense; that no consumer organisation had come forward to voice any grievance against the relevant provisions; that clause (e) of the proviso to sub-section (2) of Section 118 H did provide for the buyer of the good~ to whom the burden of duty has

MAFA1LAL INDS. LTD. v. U.O.I. 591 been passed on to apply for refund of duty to him, provided that he has not in his turn passed on the duty to others and therefore it was not correct to suggest that the Act did not provide for refund of duty to the person who has actually borne the burden; that there in no vice in the relevant provisions of the Act; that Rules can not be relied upon to impugn the validity of an enactment, which must stand or fall on its own strength; that the defect in the Rules if any, could always be corrected if the experience warrant it; that the Court may indicate the modification needed in the Rules and that the Government is always prepared to make appropriate changes in the Rules since it views the process as a trial and error method; and that in case a manufacturer is obliged to sell his goods at a price lower than the normal price declared under S.4 it is always open to him to approach the excise authorities for redetermination of the assessable value.

1.1. Applying the proposition enunciated by a seven-Judge Bench of this Court in Kamala Mills, it must be held that Section ll·B of the Central Excises and Salt Act (both befo1·e and after amendment) is valid. and constitutional. So long as Section 11-B is constitutionally valid, it has to be followed and given elTect to. There is no reason to doubt the con- stitutionality of the said provision. It must also be remembered that Central Excises and Salt Act is a special enactment creating new and special obligations and rights, which at the same time prescribes the procedure for levy, assessment, collection, refund and all other incidental and ancillary provisions. As pointed out in the Statement of Objects and Reasons appended to the Bill which became the Act, the Act along with the Rules was intended to "form a complete central excise code". The idea was "to consolidate in a single enactment all the laws relating to central duties of excise". The Act is a self-contained enactment. It contains provisions for collecting the taxes which are due according to law but have not been collected and also for refunding the taxes which have been collected contrary to law, viz., Sections 11-A and ll·B and its allied provisions. Both provisions contain a uniform rule of limitation, viz., six months, with an exception in each case. Sections ll·A and 11-B are complimentary to each H

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A other. Where a statute creates a special right or a liability and also provides the procedure for the determination of the right or liability by the Tribunals constituted in that behalf and provides further that all questions about the said right and liability shall be determined by the Tribunals so constituted, the resort to civil court is not available-except to the limited extent pointed out in Kamala Mills. Central Excise Act specifi- B cally provides for refund, It expressly declares that no refund shall be made except in accordance therewith. The jurisdiction of a civil court is expressly barred · vide sub-section (5) of Section 11-B, prior to its amend- ment in 1991, and sub-section (3) of Section 11-B, as amended in 1991. It is relevant to notice that the Act provides for more than one appeal against the orders made under Section 11-B/Rule 11. Since 1981, an appeal is provided to this Court also from the orders of the Tribunal. While Tribunal is not a departmental organ, this court is a civil court. In this view of the matter and the express and additional bar exclusivity contained in Rule 11/Section 11-B, at all points of time, it must be held that any and every ground including the violation of tne principles of natural justice and infraction of fundamental principles of judicial procedure can be urged in these appeals, obviating the necessity of a suit or a writ petition in matters relating to refund. [682-H; 683-A; C-H; 684-A-B]

1.2. Once the constitutionality of the provisions of the Act including the provisions relating to refund is beyond question, they constitute "law" within the meaning of Article 265 of the Constitution. It follows that any action taken under and in accordance with the said provisions would be an action taken under the "authority of law'', within the meaning of Article

265. In the face of the express provision which expressly declares that no claim for refund of any duty shall be entertained except in accordance with the said provisions, it is not permissible to resort to Section 72 of the Contract Act to do precisely that which is expressly prohibited by the said provisions. For this reason, a suit for refund would also not lie. Taking any other view would amount to nullifying the provisions in Rule 11/Sec- tion 11-B, which it needs no emphasis, cannot be done. It, therefore, follows that any and every claim for refund of excise duty can be made only under and in accordance with Rule 11 or Section 11-B, as the case may be, in the forums provided by the Act, No suit can be filed for refund of duty invoking Section 72 of the Contract Act So far as the jurisdiction of the High Court under Article 226-or for that matter, the jurisdiction of this Court under H Article 32 • is concerned, it is obvious that the provisions of the Act cannot

p. 593 Copy page pinpoint

· bar and curtail these remedies. It is, however, equally obvious that while A exercising the power under Article 226/Article 32, the Court would certainly take note of the legiidative intent manifested in the provisions of the Act and would exercise their jurisdiction consistent with the provisions of the enactment. [684-C-G] B 1.3. Where a provision of the Act whereunder the duty has been levied is found to be unconstitutional for violation of any of the constitutional limitations, is a situation not contemplated by the Act. The Act does not contemplate any of its provisions being declared unconstitutional and therefore it does not provide for its consequences. Rule 11/Section 11-B are premised upon the supposition that the provisions of the Act are good and c valid. But where any provision under which duty is levied is found to. be unconstitutional, Article 265 steps in. The very collection and/or retention of tax without the authority of law entitles the person, from whom it is collected, to claim its refund. A corresponding obligation upon the State to refund it can also be said to flow from it. This can be called the right to refund arising under and by virtue of the Constitutional provisions, viz., Article

265. But it does not follow from this that refund follows automatically. ·Article 265 cannot be read in isolation. It must be read in the light of the cone«:pts of economic and social justice envisaged in the Preamble and the · guiding principles of State Policy adumbrated in Articles 38 and 39. The very concept of economic justice means and demands that unless the claimant (for refund) establishes that he had not passed on the burden of the duty/tax to others, he has no just claim for refund. It would be a parody .. of economic. justice to refund the duty to a claimant who has already collected the said .amount from his buyers. The refund should really be made to the persons who have actually borne its burden - that would be economic justice. Conferring an unwarranted and unmerited monetary benefit upon an individual is the very anti-thesis of the concept of economic justice and the principles underlying Articles 38 and 39. Now, the right to refund arising as a result of declaration of unconstitutionality of a ·' provision of the enactment can also be looked at as a statutory right of restitution. It can be said in such a case that the tax paid has been paid under · a mistake of law which mistake of law was discovered by the manufacturer/assessee on the declaration of invalidity of the provision by the Court. Section 72 of the Contract Act may be attracted to such a case and a claim for refund of tax on this score can be maintained with reference to Section 72. This too, however, does not mean that the taxes · H

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A paid under an unconstitutional provision of law are automatically refun- dable under Section 72 which contains a rule of equity and once it is a rule of equity, it necessarily follows that equitable considerations are relevant in applying the said rule. Thus, whether the right to refund of taxes paid under an unconstitutional provision of law is treated as a constitutional right B flowing from Article 265 or as a statutory right/equitable right affirmed by Section 72 of the Contract Act, the result is the same - there is no automatic or unconditional right to refund. [684-H; 685-A-G; 686-A-B]

State of Madhya Pradesh & Ors. v. Bhailal Bhai, [1964] 6 S.C.R. 261 overruled. c Bengal Immunity Co. Ltd. v. State of Bihar & Ors., [1955] 2 S.C.R. 603, held applicable.

State of Kera/a v. Aluminium Industries Ltd., (1965) 16 S.T.C. 689, D held inapplicable.

Kamala Mills Ltd. v. State of Bombay, [1966) 1 S.C.R. 64; Dhulabhai & Ors. v. State of Madhya Pradesh & Anr., [1968) 3 S.C.R. 662; D. Cawasji & Co. Etc. v. State of Mysore & Anr., [1975) 2 S.C.R. 511 and R.S. Joshi v. Ajit Mills , [1978] 1 S.C.R. 338, relied on. E Budh Prakash Jai Prakash v. Sales Tax Officer, Kanpur, (1952) A.L. J. 332; Wolf & Sons v. Dadyaba Khimji & Co., (1919) I.L.R. 44 Born. 631; Appavoo Chettiar v. South Indian Railway, A.l.R. (1929) Mad. 648; Jagdish Prasad Pannalal v. Produce Exchange Corporation Ltd., A.I.R. (1946) Cal. F 245; Shibha Prasad Singh v. Srish Chandra Nundi, (1949) L.R. 76 I.A. 244; Finn & Illuri Subbayya Chetty & Sons v. State ofAndhra Pradesh, (1964] 1 S.C.R. 752; K.S. Venkataraman & Co. v. State of Madras, (1966] 2 S.C.R. 229; Raleigh Investment Co. Ltd. v. The Governor General in Counci~ (1947) L.R. 74 I.A. 50; KS. Venkataraman Bharat Kala Bhandar Ltd. v. M.C. •. G Dhamangaon, (1965) 3 S.C.R. 499; Tilokchand Motichand & Ors. v. H.B. Munshi &Anr., (1969] 2 S.C.R. 824; Kantilal Babula/ v. H.C. Patel, 21 S.T.C. 174 and R. Abdul Quader & Co. v. Sales Tax Officer, Hyderabad, [1964] 6 S.C.R. 867, referred to.

2.1. One of the important principles of law, based upon public policy, H is the sanctity attaching to the finality of any proceeding, be it a suit or any other proceeding. Where a duty has been collected under a particular A order which has become final, the refund of that duty cannot be claimed unless the order (whether it is an order of assessment, adjudication or any other order under which the duty is paid) is set aside according to law. So long as that order stands, the duty cannot be recovered back nor can any claim for its refund be entertained. But what is happening now is that the I B . duty which has been paid under a proceeding which has become final long ago • may be an year back, ten years back or even twenty or more years back • is sought to be recovered on the ground of alleged discovery of mistake of law on the basis of a decision of a High Court or the Supreme Court. It is necessary to point out in this behalf that for filing an appeal or for adopting a remedy provided by the Act, the limitation generally C prescribed is about three months (little more or less does not matter). But according to the present practice, writs and suits are being filed after lapse of a long number of years and the rule of limitation applicable in that behalf issaid to be three years from the date of discovery of mistake of The incongruity of the situation needs no emphasis. And all this D .,ecause another manufacturer or assessee has obtained a decision favourable to him. What has indeed been happening all these years is that just because one or a few of the assessees succeed in having their inter· pretation or contention accepted by a High Court or the Supreme Court, all the manufacturers/assessees all over the country are filing refund claims within three years of such decision, irrespective of the fact that they may have paid the duty, say thirty years back, under similar provisions • and their claims are being allowed by courts. All this is said to be flowing from Article 265 which basis, is totally unsustainable for the reason that the Central Excises Act and the Rules made thereunder including Section 11· B/Rule 11 too constitute "law" within the meaning of Article 265 and that in the face of the said provisions • which are exclusive in their nature • no claim for refund is maintainable except under and in accordance therewith. (686-H; 687-A-F]

p. 595 Copy page pinpoint

2.2. The second basic concept of law which is violated by permitting · the above situation is the sanctity of the provisions of the Central Excises G and Salt Act itself. The Act provides for levy, assessment, recovery, refund, · appeals and all incidental/ancillary matters. Rule 11 and section 11-B, in particular, provide for refund of taxes which have been collected contrary to law, i.e. on account of a mis-interpretation or mis-construction of a provision of law, rule, notification or regulation. The Act provides for both H

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A the situations represented by Sections 11-A and 11-B. [687-G]

2.3. The principles enunciated in Kamala Mills in the context of Bombay Sales tax Act and Film & Illuri Subbiah Chetty apply with equal fooce in the case of both the Central Excises and Salt Act and the Customs B Act. Hence it is ununderstandable how an assessment/adjudication made under the Act levying or affirming the duty can be ignored because some years later another view of law is taken by another court in another person's case. Nor is there any provision in the Act for re- opening the concluded proceedings on the aforesaid basis. The provisions of the Central Excise Act also constitute "law" within the meaning of Article 265 C and any collection or retention of tax in accordance with or pursuant to the said provisions is collection or retention under "the authority of law" within the meaning of the said Article. In short, no claim for refund is permissible except under and in accordance with Rule 11 and Section 11-B. An order or decree of a court does not become ineffective or unenforceable D simply because at a later point of time, a different view of law is taken. If this theory is applied universally, it will lead to unimaginable chaos. It is, however, suggested that this result follows only in tax matters because of Article 265, as a matter of fact, the situation today is chaotic because of the principles supposedly emerging from Kanhaiyalal and other decisions following it. Every decision of this Court and of the High Courts on a E question of law in favour of the assessee is giving rise to a wave of refund claims all over the country in respect of matters which have become final and are closed long number of years ago. It is not shown that such a thing is happening anywhere else in the world. Article 265 surely could not have been meant to provide for this. Therefore, this Court is of the clear and considered opinion that the theory of mistake of law and the consequent period of limitation of three years from the date of discovery of such mistake of law cannot be invoked by an assessee taking advantage of the decision in another assessee's case. All claims for refund ought to be, and ought to have been filed only under and in accordance with Rule 11/Section 11-B and under no other provision and in no other forum. An assessee must succeed or fail in his own proceedings and the finality of the proceedings in his own case cannot be ignored and refund ordered in his favour just because in another assessee's case, a similar point is decided in favour of the manufac- turer/assessee. [688-E-H; 689-A-D]

H Kamala Mills Ltd. v. State of Bombay, (1966] 1 S.C.R. 64 & Fimi &

MAFA1LAL INDS. LtD. v. U.O.I. 597

Illuri Subbayya Chetty & Sons v. State of Andhra Pradesh, [1964] 1 S.C.R. A 752, relied on.

Sales Tax Officer, Banaras & Ors. v. Kanhaiyalal Mukundlal Saraf, [1959] S.C.R. 1350 and State of Kera/a v. Aluminium Industries Limited, [1965] 16 S.T.C. 689, overruled. B

3.1. The claim for refund is maintainable by virtue of the declaration contained in Article 265 as also under Section 72 of the Contract Act subject to one exception: where a person approaches the High Court or Supreme Court challenging the constitutional validity of a provision but fails, he cannot take advantage of the declaration of unconstitutionality obtained by another person on another ground; this is for the reason that so far as he is concerned, the decision has become final and cannot be re-opened on the basis of a decision on another person's case. In such cases, the plaintiff may also invoke Section 17(1)(c) of the Limitation Act for the purpose of deter- mining the period of limitation for filing a suit. It may also be permissible to adopt a similar rule of limitation in the case of writ petitions seeking refund in such cases. But whether the right to refund or restitution, as it is called, is treated as a constitutional right following from Article 265 or a statutory right arising from Section 72 of the Contract Act, it is neither automatic nor unconditional. Once it is a rule of equity, it is un- under- E standable how can it be said that equitable considerations have no place where a claim is made under the said provision. What those equitable considerations should be is not a matter of law. That depends upon the facts of each case. Indeed, in Kanhaiyalal, the Court accepts that the right to recover the taxes - or the obligation of the State to refund such taxes - under Section 72 of the Contract Act is subject to "questions of estoppel, waiver, limitation or the like", but at the same time, the decision holds that equitable considerations cannot be imported because of the clear and un- ambiguous language of Section 72. Certain amount of inconsistency is involved in the aforesaid two propositions. "Estoppel, Waiver•••• or the like", though rules of evidence, are yet based upon rules of equity and good conscience. So is Section 72. Equitable considerations cannot be held to be irrelevant where a claim for refund is made under Section 72. Now, one of the equitable considerations may be the fact that the person claiming the refund has passed on the burden of duty to another. If so, there is no question of reimbursing him. He cannot be recompensated for what he has not lost, The loser, if any, is the person who has really borne the burden of H

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A duty; the manufacturer who is the claimant has certainly not borne the duty notwithstanding the fact that it is he who has paid the duty. Where such a claim is made, it would be wholly permissible for the court to call upon the petitioner/plaintiff to establish that he has not passed on the burden of duty to a third party and to deny the relief of refund if he is not able to establish the same. [689-F·H; 690-A-H]

3.2. It is necessary to remember that whether the burden of the duty has been passed on to a. third party is a matter within the exclusive knowledge of the manufacturer. He has the relevant evidence • best evidence· in his possession. Nobody else can be reasonably called upon to prove that fact. Since the manufacturer is claiming the refund and also because the fact of passing on the burden of duty is within his special and exclusive knowledge, it is for him to allege and establish that he has not passed on the duty to a third party. This is the requirement which flows from the fact that Sectjon 72 is an equitable provision and that it incor- porates a rule of equity. This requirement flows not only because Section D 72 incorporates a rule of equity but also because both the Central Excises duties and the Customs duties are indirect taxes which are supposed to be and are permitted to be passed on to the buyer. That these duties are indirect taxes, meant to be passed on, is statutorily recognised by Section 64A of_the Sale of Goods Act, 1930 (which was introduced by Indian Sale E of Goods. (Amendment) Act, 1940 and substituted later by Act 33 of 1963. (691-A·D] Tilokchand Motichand & Ors. v. H.B. Munshi & Anr. (1969] 2 S.C.R. 824, affirmed.

F Sales Tax Officer, Benaras & Ors. v. Kanhaiyalal Mukundlal Saraf, [1959] S.C.R. 1350, dissented from. ·

Union of India v. I.T.C., [1993) Suppl. 4 S.C.C. 326, referred to.

4. It would be legitimate for the court to presume, until the contrary is established, that a duty of excise or a customs duty has been passed on. It is a presumption of fact which a court is entitled to draw under Section 114 of the Indian Evidence Act. It is undoubtedly a rebuttable presumption but the burden of rebutting it lies upon the person who claims the refund (plaintiff/petitioner) and it is for him to allege and establish that as a fact he has not· passed on the duty and, therefore, equity demands that his ·

MAFATLAL INDS. LTD. v. U.O.I. 599 claim for refund be allowed. This is the position de hors 1991 (amendment) A Act. The said Amendment Act has done no more than to give statutory recognition to the above concepts. This is the position whether the refund is claimed by way of a suit or by way of a writ petition. The claim for refund by a person who has passed on the burden of tax to another has nothing to commend itself; not law, not equity and certainly not a shred of justice B or morality. In the case of a writ petition under Article 226, it may be noted, there is an additional factor; the power under Article 226 is a discretionary one and will be exercised only in furtherance of interests of justice. This factor too obliges the High Court to enquire and find out whether the petitioner has in fact suffered any loss or prejudice or whether he has c, passed on the burden. In the latter event, the court will be perfectly justified in refusing to grant· relief. The power cannot be exercised to unjustly enrich a person. [692-H; 693-A-D]

5. Kanhaiyalal is not right in saying that the defence of spending away the amount of tax collected under an unconstitutional law is not a good defence to a claim for refund. It is a good defence subject to this rider; where the petitioner- plaintiff alleges and establishes that he has not passed on the burden of the duty to others, his claim for refund may not be refused. In other words, if he is not able to allege and establish that he has not passed on the burden to others his claim for refund will be rejected whether such a claim is made in a suit or a writ petition. It is a case of balancing public interest vis-a-vis private interest. Where the petitioner- plaintiff has not himself suffered any loss or prejudice (having passed on the burden of the duty to others), there is no justice or equity in refunding the tax (collected without the authority oflaw) to him merely because he paid it to the State. It would be a windfall to him. As against it, by refusing refund, the monies would continue to be with the State and available for public purposes. The money really belongs to a third party--neither to the petitioner/plaintiff nor to the State· and to such third party it must go. But "' where it cannot be so done, it is better that it is retained by the State. By any standard of reasonableness, it is difficult to prefer the petitioner- G plaintiff over the State. Taxes are necessary for running the State and for various public purposes and this is the view taken in all jurisdictions. [693-E-H; 694-A]

Sales Tax Office1; Benaras & Ors. v. Kanhaiyalal Mulamdlal Saraf, [1959] S.C.R. 1350, dissented from. H

600 SUPREME COURT REPORTS[1996] SUPP/10 S.C.R.

Kewal Klishan Pwi v. State of Punjab & Ors., [1979] 3 S.C.R. 1217; Newabganj Sugar Mills v. Union of India & Ors., [1976] 1 S.C.R. 893; Amar Nath Om Prakash v. State of Punjab & Ors. Etc., [1985] 2 S.C.R. 72; Indian C Aluminium Company Ltd. v. Thane Municipal Corporation, [1992] Suppl. 1 S.C.C. 480; Indian Oil Corporation v. Municipal Corporation, Jallandhar, [1993] 1 S.C.C. 333; Entry Tax Officer v. Chandanmal Champa/al, [1994] 4 S.C.C. 460; Union of India & Ors. v. lain Spinner Ltd. & Anr., [1992] 4 SCC 389 and Union of India v. I.T.C., [1993] Suppl. 4 S.C.C. 326, referred to. D 6.1. It is true that some of the concepts now affirmed by this Bench e.g., effect of passing on and the relevance of our constitutional values in the matter of judging the legitimacy of a claim for refund were not presented to the bench which decided Kanhaiyalal but that can be no E ground for not entertaining or accepting those concepts. [696-A]

6.2. The right to refund of tax paid under an unconstitutional provision of law is not an absolute or an unconditional right. Similar is the position even if Article 265 can be invoked for claiming refund of taxes collected by misinterpretation or misapplication of a provision of law, · F rules, notifications or regulation. [697-B]

State of Kamataka v. Ranganath Reddy, [1978] 1 S.C.R. 641; Sanjeev Coke Manufactwing Co. v. Bharat Coking Coal, [1983] 1 S.C.R. 1000 and State of Tamil Nadu Etc. Etc. v. L. Abu Kavur Bai & Ors. Etc., [1984] 1 G S.C.R. 725, referred to.

7.1. As regards the submission that it would be just and proper that the amended Section 11-B is held not to take in refund claims arising as a . consequence of appellate or a superior court order, it is not possible to agree. Such a holding would run against the very grain of the entire philosophy underlying the 1991 Amendment. The idea underlying the said

MAFATLALINDS. LTD. v. U.0.1. 601 provisions is that no refund shall be ordered unless the claimant established that he has not passed on the burden to others. Sub-section (3) of the amended Section 11-B is emphatic. It leave no room for making any excep- '- tion in the case of refund claims arising as a result of the decision in ap- peal/reference/writ petition. There is no reason why an exception should be made in favour of such claims which would nullify the provision to a sub- stantial degree. So far as "lack of incentive" argument is concerned, it has no doubt given this Court a pause; it is certainly a substantial plea, but there are adequate answers to it. Firstly, the rule means that only the person who has actually suffered loss or prejudice would fight the levy and apply for refund in case of success. Secondly, in a competitive market economy, as the one embarked upon since 1991-92, the manufacturer's self interest lies in producing more and selling it at competitive prices - the urge to grow. A favourable decision does not merely mean refund; it has a beneficial effect for the subsequent period as well. It is incorrect to suggest that the disputes regarding classification, valuation and claims for exemptions are fought only for refund; it is for more substantial reasons, though the prospect of refund is certainly an added attraction. It may, therefore, be not entirely right to say that the prospect of not getting the refund would dissuade the manufacturers from agitating the questions of exigibility, classification, ap- proval of price lists or the benefit of exemption notifications. The dis-incen- tive, ifanywouldnot, be significant. [701-D-H; 702-A-B] f E 7.2. The position was no different under Rule 11, or for that matter Section 11-B, prior to its amendment in 1991. Sub- rules (3) and (4) of Rule 11 (as it obtained IJetween August 6, 1977 and November 17, 1980) read together indicate that even a claim for refund arising as a result of an appel- late or other order of a superior court/authority was within the purview of the said rule though treated differently. The same position continued under F Section 11-B, prior to its amendmentin 1991. Sub-sections (3) and (4) of this section are in the same terms as sub-rules (3) and (4) of Rule 11; if anything, sub-section (5) was more specific and emphatic. It made the provisions of Section 11-B exhaustive on the question of refund and excluded the jurisdic- tion of the civil court in respect of all refund claims. Sub-rule(3) of Rule 11 G or sub-section (3) of Section 11-B (prior to 1991) did not say that refund claims arising out of or as a result of the orders of a superior authority or court are outside the purview of Rule 11/Section 11-B. They only dispensed with the requirement of an application by the person concerned which conse- quently meant non-application of the rule of limitation; otherwise, in all other respects, even such refund claims had to be dealt with under Rule H

602 SUPREME COURT REPORTS[1996] SUPP.10 S.C.R.

A 11/Section 11-B alone. That is the plain meaning of sub-rule (3) of Rule 11 and sub-sections(3) and (4) of Section 11-B (prior to 1991 Amendment). There is no departure from that position under the amended Section 11-B. All claims for refund, arising in whatever situations (except where the provisions under which the duty is levied is declared as unconstitutional), has necessarily to be filed, considered and disposed of only under and in B accordance with the relevant provisions relating to refund, as they obtained from time to time. [702-B-G]

R.K. Garg v. Union of India, [1981] 4 S.C.C. 675; Keshavananda Bharati v. State of Kerala, [1973] Suppl. S.C.R. 1; Tamil Nadu Education C Department Ministerial and General Subordinate Service Association v. State of Tamil Nadu & Anr., [1980] 1 S.C..l.1026; Collector of Customs, Madras v. Nathella Sampathu Chetty & Anr., [1962] 3 S.C.R. 786; State of Rajasthan v. Union of India, [1978] 1 S.C.R. 1 and Commissioner, Hindu Religious Endowment, Madras v. Lakshmindra Thirtha Swamiar of Shirnr Mutt, [1954] D S.C.R. 1005, relied on.

8.1. The second proviso to Section 11-B (as amended in 1991) express- ly provides that "the limitation of six months shall not apply where any duty has been paid under protest". Now, where a person proposes to contest his liability by way of appeal or revision in the higher courts, he would naturally E pay the duty, whenever he does, under protest. It is difficult to imagine that a manufacturer would pay the duty without protest even when he contests the levy of duty, its rate, classification or any other aspect. If one reads the second proviso to sub-section (1) of Section 11-B along with the definition of "~elevant date", there is no room for any apprehension. [703-D-E] F 8.2. Rule 233B no doubt requires the assessee to mention the "grounds for payment of the duty under protest" but it does not empower the proper officer, to whom the letter of protest is given, to sit in judgment over the grounds. The assessee need not particularise the grounds of protest. It is open to him to say that according to him, the duty is not exigible according to law. All that the proper officer is empowered to do is to acknowledge the letter of protest when delivered to him - and that acknowledgement shall be the proof that the duty has been paid under protest. A reading of the rule shows that the procedure prescribed therein is evolved only with a view to keep a record of the payment of duty under protest. It is meant to obviate any dispute whether the payment is made

MAFATLALINDS.LTD.v. U.O.I. 603 under protest or not. Any person paying the duty under protest has to follow the procedure prescribed by the Rule and once he does so, it shall be taken that he has paid the duty under protest. The period of limitation of six months will then have no application to him. It is clarified at this stage that when the duty is paid under the orders of Court (whether by way of an order granting stay, suspension, injunction or otherwise) pend- B ing an appeal/reference/writ petition, it will certainly be a payment under protest; in such a case, it is obvioµs, it would not be necessary to lodge the protest as provided by Rule 233-B. [704-B-F]

9. Sub-sections (1) and (2) of Section 11-B apply to all proceedings . where the refund has not been made finally and unconditionally. Where the C duty has been refunded under the order of the court pending disposal of an appeal, writ or other proceedings, it would not be a case of refund finally and unconditionally. It is, of course, obvious that where the refund proceedings have finally terminated-in the sense that the period prescribed for filing the appeal against such order has also expired - before the commencement of the 1991 (Amendment) Act (September 19, 1991), D they cannot be re-opened and/or be governed by Section 11-B (3) (as amended by the 1991 (Amendment) Act). This, however, does not mean that the power of the appellate authorities to condone delay in appropriate cases is affected in any manner by this clarification. So far as _the ditliculty or impossibility of filing the documents referred to in Section 12-A is E concerned, it is obvious that the said requirement cannot be insisted upon in cases where the application is filed prior to the commencement of the act or for the period anterior to the commencement of the said Amendment Act, though the burden of proving that the burden of duty has not been passed on by him is -still upon the applicant. Sub-section (1) of Section F 11-B is of general application. It not merely governs the pending applica- tions but also provides for future applications. Reasonably construed and read together, the said provisions mean that in respect of pending applica- tions, the requirement is only to produce such documentary and other evidence as is sufficient to establish that the incidence of duty, refund of which is claimed, has not been passed on by the applicant to any other G person. The requirement of enclosing the documents referred to in Section 12-A is obligatory only where the claim of refund pertains to the period subsequent to the commencement of the 1991 (Amendment) Act. [705-E-H; 706-A-C] H

604 SUPREME COURT REPORTS(1996] SUPP. 10 S.C.R.

A Commissioner of Sales Tax, Uttar Pradesh v. Mis. Auriaya Chamber of . Commerce, Allahabad, [1986] 3 S.C.C. 50 and Patel India Private Limited v. Union of India & Ors., [1973] 3 S.C.R. 811, referred to.

10. Section 12-B does not create a new presumption unknown till then; it merely gives· statutory shape to an existing situation. At the most, it can be said that there were two views on the subject and Section 12-B affirms one of them. Even without Section 12-B, the true position is the same. The obligation to prove that duty has not been passed. on to another person is always there as a pre-condition to claim of refund. It cannot also be said that by giving retrospective effect to Section 11-B, any vested rights or substantive rights are being taken away. The deprivation, if at all, is not read. The manufacturer has already collected the duty from his purchaser and has thus reimbursed itself. By applying for refund yet, he is trying to reap a windfall; deprivation of that cannot be said to be real or substantial prejudice or loss. A manufacturer had no vested legal right to refund even when he had passed on the burden of duty to others. No Jaw conferred such a right in him· not Article 265, nor Section 11-B. It was only on account of an incorrect view of Jaw taken in Kanhaiyalal and that cannot be treated as a vested legal right. Correction of judicial error does not amount to deprivation of vested/substantive rights, even though a person may be deprived of an unwarranted advantage he had under the over-rnled decision. In cases, where the burden is not passed on, there is no prejudice; he can always get the refund. [706·D·G]

11. Section 12-C which creates the Consumer Welfare Fund and Section 12-D which provides for making the Rules specifying the manner in which the money credited to the Fund shall be utilised cannot be faulted on any ground. Now, coming to the Rules, it is true that these Rules by themselves do not contemplate refund of any amount credited to the Fund to the consumers who may have borne the burden; the Rules only provide for "grants" being made in favour of consumer organisations for being spent on welfare of consumers. But, this is perhaps for the reason that clause (e) of the proviso to sub-section (2) of Section ll·B does provide for the purchaser of goods applying for and the obtaining the refund where he can satisfy that the burden of the duty has been borne by him alone. Such a person can apply within six months of his purchase as provided in clause(e) of Explanation-B appended to Section llB. It is, therefore, not

MAFATLALINDS. LTD. v. U.0.1. 605

-..: correct to contend that the impunged provisions do not provide for refund- A ing the tax collected contrary to law to the person really entitled thereto. Certain practical difficulties. may arise as pointed out by the appellants- petitioners: (i) the manufacturer would have paid the duty at the place of "removal" or "clearance" of the said goods but the sale may have taken place elsewhere; if the purchaser wants to apply for refund, he has to go B to the place where the duty has been paid by the manufacturer and apply there; (ii) purchasers may be spread all over India and it is not convenient or practicable for all of them to go to the place of "removal" of goods and apply for refund. True it is that there is this practical inconvenience but it must also be remembered that such claims will be filed only by pur- C chasers of high priced goods where the duty component is large and not by all and sundry/small purchases. This practical inconvenience or hardship, as it is called, cannot be a ground for holding that the provisions introduced by the 1991 (Amendment) Act are a "device" or a "ruse" to retain the taxes collected illegally and to invalidate them on that ground - D assuming that such an argument is permissible in the case of a taxing · . enactment made by Parliament. [707-H; 708-A-F]

12. Ordinarily, no manufacturer will sell his products at less then the cost-price plus duty. He cannot survive in business if he does so. Only in case of distress sales, such a thing is understandable but distress sales are not a normal feature and cannot, therefore, constitute a basis for judging the validity or reasonableness of a provision. Similarly, no one will ordinarily pass on less excise duty then what is exigible and payable. A manufucture may dip into his profits but would not further dip into the excise duty component. He will do so only in the case of a distress sale again. Just because duty is not separately shown in the invoice price, it does not follow that the manufacturer is not passing on the duty. Nor does it follow therefrom that the manufacturer is absorbing the duty himself. The manner of preparing the invoice is not conclusive. Generally speaking, every manufacturer will sell his goods at something above the cost-price plus duty. There may be a loss-making concern but the loss occurs not because of the levy of the excise duty • which is uniformly levied on all manufacturers of similar goods - but for other reasons. No manufacturer can say with any reasonableness that he cannot survive in business unless he collects the duty from both ends. The requirement complained of H

606 SUPREME COURT REPORTS(l996) SUPP.10 S.C.R.

A (prescribed by Section 11-B) is thus beyond reproach· and so are Sections 12-A and 12-B. All that Section 12-A requires is that every person who is liable to pay duty of excise on any goods, shall, at the time of clearance of · the goods, prominently indicate in all the relevant documents the amount of such duty which will form part of the price at which the goods are to be sold, while Section 12- Braises a presumption oflaw that until the contrary is proved, every person who has paid the duty of excise on any goods shall be deemed to have passed on the full incidence of such duty to the buyer of such goods. Since the presumption created by Section 12-B is a rebut· table presumption of law-and not a conclusive presumption-there is no basis for impugning its validity on the ground of procedural unreasonable- ness or otherwise. This presumption is consistent with the general pattern of commercial life. It indeed gives effect to the very essence of an indirect tax like the excise duty/customs duty. A manufacturer who has not passed on the duty can always prove that fact and if it is found that duty was not leviable on the transaction, he will get back the duty paid. Ordinarily speaking, no manufacturer would take the risk of not passing on the burden of duty. It would not be an exaggeration to say that whenever a a manufacturer entertains doubt, he would pass on the duty rather than not passing it on. It must be remembered that manufacturers as a class are knowledgeable persons and more often than not have the benefit of legal advice. And until about 1992, at any rate, Indian market was by and large a sellers' market. [709-B-H; 710-A-B]

13. Any recoveries or refunds consequent upon the adjustment under sub-rule (5) of Rule 9-B will not be governed by Section 11-A or Section F 11-B, as the case may be. However, ifthe final order passed under sub-rule (5) are appealed against - or questioned in a writ petition or suit, as the case may be, assuming that such a writ or suit is entertained and is allowed/decreed - then any refund claim arising as a consequence of the decision in such appeal or such other proceedings, as the case may be, would be governed by Section 11-B. It is also made clear that if an independent refund claim is filed after the final decision under Rule 9-B(5) re-agitating the issues already decided under Rule 9-B - assuming that such a refund claim lies - and is allowed, it would obviously be governed by Section 11-B. It follows logically that the position would be the same in the converse situation. [712-C-E]

MAFATLAL INDS. LTD. v. U.O.I. 607

14. Section 11-B of the Central Excises and Salt Act and Section 27 A of the Contract Act, whether before or after 1991 Amendment - as inter- preted now - make every refund claim subject to proof of not passing-on the burden of duty to others. Even if a suit is filed, the very same condition · operates. Similarly, the High Court while examining its jurisdiction under Article 226 - and this Court while acting under Article 32 - would insist upon the said condition being satisfied before ordering refund. Unless the claimant for refund establishes that he has not passed on the burden of duty to another, he would not be entitled to refund, whatever be the proceeding and whichever be the forum. Section 11-B/Section 27 are con- stitutionally valid and they have to be applied and followed implicitly wherever they are applicable. [712-H; 713-A]

15. There are no words in Section 11-D which provide for payment of duty twice over. All that the section says is this : the amount collected by a person/manufacturer from the buyer of goods as representing duty of excise shall be paid over to the state; even if the tax collected by the manufacturer from his purchaser is more than the duty due according to law, the whole amount collected as duty has to be paid over to the State; if on the assessment being made it is found that the duty collected and paid over by the manufacturer is more than the duty due according to law, such surplus amount shall either be credited to the Fund or be paid over to the person who has borne the incidence of such amount in accordance with the provisions of Section 11-B. It is obvious that if in a given cases, the manufacturer has collected less amount as representing the duty of excise then what is due according to law, he is not relieved of the obligation to pay the full duty according to law. This is the general purport and meaning of Section 11-D. There may be cases where goods are removed/cleared without effecting their sale. In such a case, Section 11-D is not attracted. It is attracted only when goods are sold. The purport of this section is in accord with Section 11-B and cannot be faulted. However, the situation in the case of captive consumption has not been dealt with now and that question is left open. [713-B-F] G Per Ahmadi, CJI (Broadly in agreement with the conclusions recorded in the Judgment delivered by Jeevan Reddy, J. except

(i) in regard to the extent to which the jurisdiction of ordinary courts is ousted in respect of claims for refund of taxes illegally levied and H

608 SUPREME COURTREPORTS[l996] SUPP.10 S.C.R.

A collected, and (ii) on the issue of retrospective application of the amended provisions of the Excise Act) :

1.1. Actions by way of suit or petitions under Article 226 of the B Constitution cannot be completely eliminated. The claims for refund can arise under three broad classes and the issue of ouster of jurisdiction of civil courts can be under-stood by focussing on the parameters of these classes which are as a follows : [721-E]

C (i) Unconstitutional levy" - where claims for refund are founded on the ground that the provision of the Excise Act under which the tax was levied is unconstitutional. Cases falling within this class are clearly outside the ambit of the Excise Act. In such cases assessees can either file a suit under Section 72 of the Contract Act, 1872 or invoke the writ jurisdiction D of the High ~ourt under Article 226 of the Constitution. [721-F-G]

(ii) "Illegal levy" -- where claims for refund are founded on the ground that there is misinterpretation/misapplication/erroneous inter- pretation of the Excise Act and the Rules framed thereunder. Ordinarily, ,, all such claims must be preferred under the provisions of the Excise Act E and the Rules framed thereunder by strictly adhering to the stipulated procedure. However, in cases where the authorities under the Excise Act arrogate to themselves jurisdiction even in cases where there is clear want of jurisdiction, the situation poses some difficulty. In cases where the authorities under the Excise Act initiate action though lacking in inherent p jurisdiction, the remedy by way of a suit under Section 72 of the Contract Act or a writ under Article 226 of the Constitution, will lie. Such a conclusion will not frustrate the exclusion of jurisdiction of civil courts by the Excise Act because the areas where an authority acting under a statute is said to lack inherent jurisdiction have been clearly demarcated by service decisions of this Court. [721-H; 722-A-E]

(iii) "Mistake of Law" - where claims for refund are initiated on the basis of a decision rendered in favour of another assessee holding the levy to be : (1) unconstitutional; or (2) without inherent jurisdiction. Ordinari- ly, no assessee can be allowed to reopen proceeding that have been finally concluded against him on the basis of a favourable decision in the case of

MAFATLALINDS.LTD.v. U.O.I. 609 another assessee. This is becanse an order which has become final in the case of an assessee will continue to stand until it is specifically recalled or set aside in his own case. In cases where the levy of a tax has been held to be (1) unconstitutional; or (2) void for want to inherent jurisdiction, it is open for the assessees to take advantage of the declaration of the law so made and claim refunds on the ground that they paid the tax under a B mistake of law. This is because such claims are outside the ambit of the Excise Act. In such cases, the limitation period applicable will be that specified in Section 17(1)(c) of the Limitation Act. [722-E-H; 723-A]

1.2. Since the levy of tax has been held to be unconstitutional (which would lead to the conclusion that it should never have been levied in the C first place) such an interpretation would be unfair to an assessee who had the foresight to discern the unconstitutionality of the provision (albeit on a different ground) but was unfortunate in not being able to convince the concerned court of the unconstitutionality of the provision. Considering the gravity of the case, it should be left open to such an assessee to use D· such legal remedy as may be available to him to have the earlier order reviewed or recalled on the basis of the order made in the subsequent case. If he succeeds, well and good; if he fails, he must take the consequence, of an adverse order against him. [723-C-E] E Dhuiabhai and others v. State of Madhya Pradesh and another,.[1968] 3 S.C.R. 662, relied on.

2. The decrees and orders which have become final but have not been executed the procedure and conditions prescribed in Section llB will have to be complied with. However, under the scheme of the amended Excise F Act, the application for refund which is a pre-requisite for invoking Section 11B(2), is required to be made within six months from the payment of duty. It is obvious that this requirement cannot be complied with in respect of pending decrees and orders. But_ it must at the same time be realised that in such a case, the assessee was protesting against the recovery of the G excise duty from him for which he had even initiated legal proceedings. It ' ... would therefore be in order to assume that he had paid the duty even though he was protesting its recovery. To ensure that such orders and decrees are not frustrated, it must be deemed that the duties of excise in such cases were paid "under protest"· within the meaning of the second H

610 SUPREME COURT REPORTS[1996) SUPP. 10 S.C.R.

A proviso to clause (1) of Section llB. This would enable the assessees in such cases to file fresh applications under Section 11B(2), thereby comply· ing with the scheme of the amended Excise Act. [723-H; 724·A·CJ

Per paripoornan, J. (for himself and Hansaria, J.) partly concur- B ring with the majority judgment delivered by Jeevan Reddy, J. but on different reasoning and giving his own views and conclusions on the other issues):

1.1. The High Court was justified in law in holding that since the excise duty paid by the appellant was ultimately passed on to the buyers of the fabric, and that the appellant has suffered no loss or injury, the action for restitution based on Section 72 of the Contract Act, was unsus· tainable. [732-E-F]

1.2. A person who seeks restitution, has a duty to disclose or account for what he has received in the transaction. An accounting is a condit.ion precedent in an action for restitution. By way of analogy, it can be stated that in cases where restitution is claimed under Section 72 of the Contract Act, on the ground of payment due to mistake of law, the person claiming restitution, should plea and prove that "he has not passed on" the liability to another. That is the nature of "accounting" in cases falling under Section E 72 of the Contract Act. [730-F-G]

Mulamchand v. State of Madhya Pradesh, AIR (1968) S.C. 1218, relied on.

p Nelson v. Larhold, (1948) 1 KB 339, referred to.

Pollock & Mulla Indian Contract and Specific Relief Acts (10th Edi· tion) page 598; Lord Goff of Chieveley and Gareth Jones: "The Law of Restitution" (3rd Edn.) 1986, Cheshire Fifoot & Funnston's "Law of Contract" (12th Edn.) 1991, page 649; Peter Birks (Professor of Civil Law, University G of Edinburgh) : "Introduction to the Law of Restitution"; Endrew Bwrows : The Law of Restitution (1993), Restatement of the Law of Restitution', American Law Institute, 1937 Edn., P.634, referred to.

2.1. It is apparent that in Kanhaiya Lat's case there was no plea by H the Revenue that since the assessee has passed on the tax, the claim for

MAFATLALINDS.LTD.v. U.0.1. 611 refund is unsustainable. Such a question was not posed before this Court A for consideration. One of the main aspects to be proved in a claim for restitution, that the person claiming restitution should have suffered a loss or injury in order to sustain an action, was not urged and was not considered. [737-A-B]

State of Orissa v. Sudhansu Sekhar Misra, [1968) 2 SCR 154 and B 01ie11t Paper and Industries Ltd. and Another v. State of 01issa & Othe1~·, [1991) Supp. 1 SCC 81, relied on.

Tilokchand Motichand & Ors. v. H.B. Munshi & Anr., [1969) 2 SCR 824; D. Cawasji & Co. Etc. Etc. v. 1he State of Mysore & Am:, [1975) 2 SCR C 511; Dhanvalakshmi Rice Mills Etc. v. The Commissioner of Civil Supplies and Another, [1976] 3 SCR 387; Shiv Shanker Dal Mills Etc. Etc. v. State of Haryana & Ors. Etc., [1980) 1SCR1170, 1173; State of Madhya Pradesh v. Vyankatlal &Anr., [1985) 3 SCR 561, 566, 568; M/s. Amar Nath Om Prakash and Ors. Etc. v. State of Punjab and Ors. Etc., [1985) 2 SCR 72; llldian D Aluminium Company Limited v. Thane Municipal Corporation, [1992) Supp. 1 SCC 480; State of Rajasthan & Others v. Novelty Stores Etc., AIR (1955) SC 1132 and Messrs Budh Prakash Jai Prakash v. Sales Tax Office1; Kanpur & Ors., (1952) A.L.J. 332, referred to.

2.2. The persons claiming refund who were only middle-men, should not be unjustly enriched and allowed to make a "fortune" as it were, at the expense of innumerable unidentifiable innocent consumers and that "public interest" requires that such persons claiming refund should not be unduly or unjustly benefited; and, public interest is better. served, if the G State is allowed to retain the collection of tax, which could be made/spent, for the benefit of the "public". [740-A·B]

State of Kamataka and Anr. Etc. v. Shri Ranganatha Reddy & Anr. Etc., [1978) 1 SCR 641; Sanjeev Coke Mfg. Co. v. Bharat Coking Coal Ltd. & Anr., H

612 SUPREME COURT REPORTS[1996) SUPP. 10 S.C.R.

A [1983] 1 SCR 1000; State of Tamil Nadu Etc. Etc. v. L. Abu Kavur Bai & Ors., AIR (1984) SC 326, 343 = [1984] 1 SCR 725; Mis. Amar Nath Om Prakash and Ors. Etc. v. State of Punjab and Ors. Etc., [1985] 2 SCR 72; Shiv Shanker Dal Mills Etc. v. State of Haryana & Ors. Etc., [1980] 1 SCR 1173 and Walaiti Ram Mahabir Prasad v. State of Punjab & Ors., AIR (1984) B P & H 120, relied on.

Rayalaseema Constmctions v. Dy. Commercial Tax Officer, 10 STC 345; Dy. Commercial Tax OffiCCI; Madras v. Rayalaseema Constmctions, 17 STC 505; R.C. !all v. Union of India, [1962] Snppl. 3 SCR 436 and The Province of Madras v. Mis. Boddu Paidanna and Sons, (1942) F.C.R. 90, C referred to.

2.3. It is open to the Court to deny the equitable remedy of refund (restitution) in such cases. The attempt of persons who have passed on the liability in claiming refund is only to strike at a bargain -- to make a D fortune at the expense of innumerable unidentifiable consumers. Such 1 persons have suffered no loss. On the other hand, if the State is allowed to retain the amount, it will be available to the community at large and could be made use of for public purposes. On this basis as well, the denial of refund or restitution is valid. There is nothing abhorent or against E public policy if refund or restitution is withheld in such a situation. It should also be stated that in cases of indirect levy of tax which was passed on, this Court has negatived the claim for refund in a few cases. [742-C-D]

Orissa Cement Ltd. v. State of Orissa, [1991 Supp. 1 SCC 430, relied on. F Shiv Shanker Dal Mills v. State of Haryana, [1980] 1SCR1170; State of Madhya Pradesh v. Vyankatlal &Anr, [1985] 3 SCR 561; Mis. Amar Nath Om Prakash and Ors. v. State of Punjab and Ors., [1985) 2 SCR 72; Indian Aluminium Company Limited v. Thane Municipal Corporation, [1992] Supp. 1 SCC 480 and State of Rajasthan & Ors. v. Novelty Stores Etc., AIR G (1995) SC 1132, referred to.

2.4. Ordinarily, the presumption is that the taxpayer has passed on the liability to the consumer (or third party). It is open to him to rebut the presumption. The matter is exclusively within the knowledge of the taxpayer, whether the price of the goods included the 'duty' element also

MAFATIALINDS. LTD. v. U.O.I. 613 and/or also as to whether he has passed on the liability since he is in possession of all relevant details. Revenue will not be in a position to have an in·depth analysis in the innumerable cases to ascertain and find out whether the taxpayer has passed on the liability. The matter being within the exclusive knowledge of the taxpayer, the burden of proving that the liability has not been passed on should lie on him. [747-C-E] B

D. Cawasji & Co. v. State of Mysore, [1975) 2 SCR 511, referred to.

Peter Birks, Public Law (1992) page 580; J. Beatson : Law Quarterly Review, Vol. 109 (1993) page 401; "Restitution of Overpaid Tax, Discretion and Passing-on" - by J. Beatson, Law Quarterly Review, Vol. 111 (1995) page C 375 Notes; "Unjust Enrichment" - by Steve Hedley. (Cambridge Law Journal 1995 (578- 599)" Unjust Enrichment Claims: A Comparative Overview" - by Brice Dickson Cambridge Law Jouma~ (1995) (100-126); "The Law of Taxa- tion is not an Island - Overpaid Taxes and the Law of Restitution:" by Graham Virgo; British Tax Review, (1993) (442-467); "Payments of Money D under Mistake of Law; A Comparative View" - by Gareth Jones, Cambridge. Law Jouma~ (1993) Comment (225); "Restitution, Misdirected Funds and Change of Position" - by Ewan McKendrick, Modem Law Review, (1992) Vol. 55 (377-385); "The Law of Taxation is not an Island - Overpaid taxes and the Law of Restitution'~ pages 462 and 463; Article by J. Beatson, (1993) 109 E L.Q.R. 401 and Law Commission's Report in England, Law Consultation Paper No. 120 "Restitution of Payments made Under a mistake of law" - & Graham Virgo; article in British Tax Review, (1993) pages 458-459, referred to.

F 3.1. It is settled law that exclusion of the jurisdiction of the civil courts is not to be readily inferred, but that sucb exclusion must either be explicitly expressed or clearly implied. [756"F]

3.2. It is not possible to conclude that any and every claim for refund of illegal/unauthorised levy of tax, can be made only in accordance with the G provisions of the Act (Rule 11, Section 118 Etc. as the case may be), and an -''>. action by way of suit or writ petition under Article 226 will not be maintainable under any circumstances. An action by way of suit or a petition .under Article 226 of the Constitution is maintainable to assail the levy or order which is illegal, void or unauthorised or without jurisdiction and/or claim refund, H

614 SUPREME COURT REPORTS(l996) SUPP. 10 S.C.R.

A in cases covered by propositions No. (1), (3), (4) and (5) inDulabhai's case, as one passed outside the Act and ultra vires. Such action will be governed by the general law and the procedure and period of limitation provided by the specific statute will have no application. [764-A-C]

B Dulabahi Etc. v. State of Madhya Pradesh & Anr., AIR (1969) SC 78; Kamala Mills Ltd. v. State of Bombay, AIR (1965) SC 1942; Ram Swarup v. Shikar Chand, AIR (1966) SC 893; Raja Kandregula Srinivasa Jagannad- harao Panthulu Bahadur Guru v. The State of Andhra Pradesh and Others, AIR (1971) SC 71; Collector of Central Excise, Chandigarh v. Mis. Doaba Co-operative Sugar Mills Ltd., Jalandhar, [1988] Supp. SCC 683 andEscorts C Ltd. v. Union of India & Ors., [1994] Supp. 3 SCC 86, relied on. Secretary of State v. Mask & Co., AIR (1940) P.C. 105; Finn of llluri Subbayya Chetty and Sons v. State of Andhra Pradesh, AIR (1964) SC 322 and Secretary of State v. Jatindra Nath Choudhry, AIR (1924) PC 175, D referred to. 4.1. Where the levy is unconstitutional • outside the provisions of the Act or not contemplated by the Act, the jurisdiction of the civil courts is not barred. The aggrieved party can invoke. Section 72 of the Contract Act, file a suit or a petition under Article 226 of the Constitution, and pray for E appropriate relief inclusive of refund within the period of limitation provided by the appropriate law. [764-E]

4.2. Where the levy is based on misconstruction or wrong or er· roneous interpretation of the relevant provisions of the Act, Rules or F Notifications; or by failure to follow the vital or fundamental provisions of the Act or by acting in violation of the Fundamental principles of judicial procedure, every error or fact or law committed by the statutory authority or Tribunal, irrespective of its gravity, or nature of infirmity will not be covered. It is confined to exceptional cases, ''where the provisions of a particular Act have not been complied with or the statutory tribunal has not acted in conformity with fundamental principles of judicial proce· dure". [764-F-H]

4.3. Where the levy or imposition was unconstitutional or illegal or not exigible in law (i.e. without jurisdiction) and, so found in a proceeding initiated not by the particular assessee, but in a proceeding initiated by

MAFATLALINDS. LTD. v. U.O.I. 615 some other assessee, either by the High Court or the Supreme Court, and as soon as the assessee came to know of the judgment, (within the period of limitation) he initiated action for refund of the tax paid by him, due to mistake of law, the assessees who initiated proceedings and impugned the assessments/claimed refund,/or any reason, either by way of suit or petition under Article 226 of the Constitution, and the action was dismissed on merits, they cannot maintain an action over again. If the levy or imposition was held to be unconstitutional or illegal or not exigible in law, in a similar case filed by some other person, the assessee who had already lost the battle in a proceeding initiated by him or has otherwise abandoned the claim cannot, take advantage of the subsequent declaration rendered in another case whether the levy is held to be unconstitutional, illegal or not exigible in law. The claim will be unsustainable and barred by res judicata. (765-H; 766-AJ

Tilokchand Motichand and Ors. v. H.B. Munshi, Commissioner of Sales Tax, Bombay & Anr., AIR (1970) SC 898, relied on. D

4.4. Subject to the above, if a levy or imposition of tax is held to be unconstitutional or illegal or not exigible in law i.e. without jurisdiction, it. is open to the assessee to take advantage of the declaration· of the law so made, and pray for appropriate relief inclusive of refund on the ground that tax was paid due to mistake of law, provided he initiates action within the period oflimitation prescribed under the Limitation Act. Such assessee should prove the necessary ingredients to enable him to claim the benefit under Section 72 of the Contract Act read with Section 17 of the Limitation Act. (766-C) F 4.5. It should be borne in mind, that in all the three categories of cases, the assessee should prove the fundamental factor that he has not" "passed on" the tax to the consumer or third party and that he suffered a loss or injury. This aspect should not be lost sight of, in whatever manner, the proceeding is initiated •• suit, Article 226, etc. (766-E) G

5. Jurisdiction of civil courts is not barred in entirety regarding the attack against the levy and/or claim for refund; in those cases, coming within the three categories as above mentioned, the jurisdiction of the ordinary courts will not be ousted. [775-F] H "I ,...j I

616 SUPREME COURT REPORTS[1996] SUPP. 10 S.C.R.

A Union of India v. Tarachand Gupta & Bros, AIR (1971) SC 1658; A.R. Antulay v. R.S. Nayak and another, [1988] 2 SCC 602; M/s. R.R. Shreeram Durga Prasad and Fatehchand Nursing Das v. Settlement Commission, (IT & WT) and Another, [1989] 1 SCC 628; N. Parthasarathy Etc. Etc. v. Controller of Capital Issues & Am: Etc. Etc., [1991] 3 SCC 153; Associated B Engineering Co. v. Govf!mment ofAndhra Pradesh and Anr., AIR (1992) SC 232; Shiv Kumar Chadha v. Municipal Corpn. of Delhi & Ors., [1993] 3 SCC 161; Shri M.L Sethi v.Shri R. P. Kapur,AIR (1972) SC 2379 andHari Prasad Mulshankar Trivedi v. V.B. Raju and Ors., AIR (1973) SC 2602, referred to.

Anisminic Ltd. v. Foreign Compensation Commission, (1969) 2 AC 147 C = (1969) 1 All ER 208 (H.L.); In Re: Racal Communications Ltd., (1981) AC 374; O'Reilly & Ors. v. Mackman & Ors., (1983) 2 AC 237; Regina v. Hull University Visitor, (1993) AC 682 and Council for Civil Service Unions & Ors. v. Minister for the Civil Service, (1985) 1 AC 374, referred to.

D De Smith, Woolf and Jowell - Judicial Review ofAdministrative Action, (1995 Edn.) p. 263; Halsburry's Laws of England, (4th Edn.) P. 114 - para 67 - foot note (9); Sir William Wade: Administrative Law, (7th Edn), 1994 p. 299, De Smith on ''Judicial Review of Administrative Action" - edited by Lord Woolf and Jowell, Q.C. (Professor of Public Law) (Fifth edition) - E (1995), Chapter, 5; Halsbury Laws of England 4th edition (Reissue), 1989, volume 1 (1) p. 113; H.W.R.Wade and Co. F.Forsyth in their book -Ad- ministrative Law, Seventh Edition, (1994) "Principles of Statutory Interpreta- tion", 6th edition, (1996) at page 475, referred to.

6.1. Section 118(2) and Section 118 (3) go together. The applications for refund made before the commencement of the Amendment Act, 1991, shall be deemed to have been made under Section 118(1) of the Act as amended and it shall be dealt with in accordance mth 'Section 118(2) of the Act. The Section contemplates disposal of the applications pending on the date of the Amendment Act as also fresh applications filed after the G Amendment Act, 1991, as per the amended provisions. [777-E]

6.2. It is obvious that in cases where

(i) 'Refund' made or due as per orders passed by Courts, in a suit or in a petition under Article 226 of the Constitution of India, which have become final;

MAFATLAL INDS. LTD. v. U.O.I. 611

Union of India and Others v. Jain Spinners Limited and another, F [1992) 4 SCC 389 and Union of India and others v. ITC Ltd., [1993) Supp. 4 sec 326, distinguished,

6.3. Alternatively, it may be stated that duty paid in cases, which finally ended in orders or decrees or judgments of courts, must be deemed G to have been paid under protest and the procedure and limitation Etc. stated in Section 118(2) read with Section 118(3) will not apply to such cases. It need hardly be stated, that Section 118(1), the proviso thereto, Section 118(2) and Section 118(3) read together will apply only to (1) refund applications made before the Amendment of the Act and still pending on the date of commencement of amendment Act, 1991 and (2) H

618 SUPREME COURT REPORTS(1996] SUPP.10 S.C.R.

A applications contemplated under law to obtain refund and filed after the commencement of the Amendment Act, 1991. [778-E]

7. In the matter of taxation laws, the court permits a greater latitude to the discretion of the legislature. The State is allowed to pick and choose districts, objects, persons, methods and even rates for taxation, if it does B so reasonably. The courts view the laws relating to economic activities with greater latitude than other matters. [779-C]

8. It is clarified that due to paucity of details, the case or captive D consumption has not been dealt with. It is made clear that whatever is stated in this judgment will not apply in the cases of goods which are captively consumed. [779-E-F]

9. Chapter II-A of the Act was inserted by way of amendment in 1991. E The establishment, working, administration and utilisation to the Con- sumer Welfare fund is in its stage of infancy. The scheme or set-up envisaged by Sections 12C and 12D and its working will require an indepth evaluation by the appropriate authorities in order to vouchsafe that the scheme is not rendered a mere ritual or illusory, but is meaningful and effective. However, for the present, this is not dealt with in detail. [779-G] F Per Sen (Partly concurring with the reasoning and conclusion ar- rived at by Paripoornan, J. and giving his own views and conclusions on the other issues) :

G 1.1. The scope and effect of Article 265 cannot be whittled down in any manner in order to enable the government to retain unlawfully gathered tax on the pretext that a refund will unduly enrich the taxpayers. Whatever the consequence may be, the provisions of the Constitution must be upheld as they stand. Article 265 does not permit the State to levy or collect any tax without the authority of law. This is a protection afforded H to the citizens by the Constitution from State oppression in financial

MAFATLALINDS. LTD. v. U.O.I. 619 matters. This protection given to the citizens must be jealously guarded by ·A the Courts. If any tax has been gathered unlawfully by the State, it cannot be retained by the State. If any law has been passed for retention of the illegal levy, it must be struck down. [806-G-H; 807-A]

1.2. It cannot be said that guarantee contained in Article 265 of the B Constitution must be restricted to direct taxes only. Article 265 must be implemented in letter and spirit as it stands and all the tax laws and all Government actions to realise and retain tax must be tested on the anvil of this guarantee. The courts should jealously guard against any attempt to whittle down or do away with any of the guarantees given under the Constitution to the citizens. Article 265 will have to be given full effect in C cases of direct as well as indirect taxation. If any tax has been levied and collected without authority of law, then the State bas committed a wrong and that wrong must be undone by the State by returning the tax unlaw- fully collected to the person from whom it was collected. [786-E-F]

D 1.3. The Court has a duty to uphold the constitution in letter and spirit. If the Court comes to the conclusion that a levy of tax is unlawful, the Court will direct the government to return the tax. It is not for the Court to enquire how the tax- payer has managed his affairs after payment of the unlawful levy. It is but natural that the tax-payer will try to raise funds by raising price or cutting down costs or forgoing profits to get over the loss caused by the unlawful exaction of tax. There is usually consider- able time gap from payment of any illegal levy and obtaining an order of refund. In most of the cases several years pass before refund of duty paid can be obtained. In such a situation, it is impossible for the taxpayer company not to do something to raise money somehow to carry on its business. Merely because a manufacturer has raised its price after paying the illegal levy cannot be a ground for denying him the consiitutional guarantee contained in Article 265. The constitutional guarantee is uncon- ditional and unequivocal and must be enforced regardless of what the manufacturer does after payment of tax. If the manufacturer has done something unlawfui, steps must be taken against him. If this Court holds that constitutional guarantees ought to be enforced depending upon the conduct of the manufacturer after payment of the illegal levy, then the Court would he adding a rider to Article 265 which is not permissible. By this forced interpretation the Court will not be upholding the Constitution, but will be undermining it. [786-G-H; 787-A-C] H

620 SUPREME COURT REPORTS(1996] SUPP. 10 S.C.R.

A 1.4. A manufacturer may have been compelled to raise the price. because of the imposition of an illegal levy. But that is no reason to dilute the mandate contained in Article 265 of the Constitution. Article 265 forbids the State from making an unlawful levy or collecting taxes unlaw- fully. The bar is absolute. It protects the citizens from any unlawful B exaction of tax. So long as Article 265 is there, the State cannot be permitted to levy any tax without authority of law and if any tax has been collected unlawfully that must be restored to the person from whom it was collected. If the tax has been collected from any person unlawfully, it is the taxpayer's money which is in unlawful possession of the State. The State has a constitutional obligation to give back the money to the tax-payer. An C act done in violation of constitutional mandate is void and no right flows out of that void act to the State. The State is in unlawful possession of the taxpayer's property. The State cannot retain it on any equitable ground nor can it give it to any other person out of any supposed equitable consideration. The constitutional mandate cannot be ignored on the ·-D pretext of any rule of equity or on the ground of what is perceived as substantive justice. Every word of the Constitution has to be treated as , sacrosanct and respected and obeyed by the State and the Legislature and enforced by the Court. (787-D-G]

1.5. The levy and collection of excise duty has been found to be niegal. E It has been levied and collected in violation of the Central Excise Act and also the guarantee contained in the Constitution. The levy is void. It has denied the taxpayer the protection given by the Constitution. If illegally collected tax is not immediately restored to the taxpayer, the guarantee given by the Constitution will be a mockery. The constitutional guarantee is not hedged by any clause. A trader may trade with his goods as he likes. The terms and conditions under which he sells his goods is a matter between him and the purchaser. He may raise his price high enough to include costs and taxes. If he does so with the agreement of the buyer, he does not lose his right to get back what had been collectf:I from him illegally or the protection of Article 265 of the Constitution. That will be putting a rider on the Constitution. The Court is not permitted to write the Constitution but is duty bound to enforce it. (790-E-G]

1.6. The debate whether a taxpayer is entitled to get refund when the levy is found illegal is concluded by Article 265 of the Constitution in our country. The protection afforded to the taxpayer is total and complete. It

MAFATLALINDS. LTD. v. U.0.1. 621 cannot be taken away under any circumstances or by any legislative action. A The Constitution being sacrosanct and overriding, any tax collected un- lawfully, must be returned to the taxpayer. Whether the taxpayer has passed on the burden of the tax to the consumers or not is a matter of no consequence. [804-C-D]

1.7. The constitutional embargo is on both the levy and collection of tax without authority of law. It has a been repeatedly asserted by the Courts that every taxing law has three parts. First is charge, the second is computation which results in a demand of tax and the third is recovery of the tax so computed. The Constitution has enjoined that there must be a valid levy. The word 'levy' has also been understood in a broad sense in various cases to include not only the imposition of the charge but also the whole process upto raising of the demand. The Constitution guarantees that not cnly the levy should be lawful but also collection of tax must also be done with the authority of law. The State is not permitted to exact any tax from a citizen without the authority of law and without following the procedure laid down by law. This guarantee has to be strictly enforced not only in the matter of levy but also in the matter of collection. [804-E-G]

1.8. Article 39 of the Constitution has directed the State to formulate its policy towards securing that the ownership and control of the material resources of the community are so distributed as best to subserve the common good and that the operation of the economic system does not result in the concentration of wealth and means of production to the com- mon detriment. These provisions do not in any way curtail the scope and effect of Article 265. Section 39 does not enjoin that unlawfully collected properties should be used by the State for the common good. Nor does it say that the operation of the economic system should be so moulded as to prevent concentration of wealth, by unlawful means. Article 39 cannot be a basis for retaining whatever has been gathered unlawfully by the Govern- ment for common good. Simply stated the Directive Principles of State Policy do not licence the Government to rob Peter to pay Paul. [805-B-D] G Municipal Council, Khurai and another v. Kamal Kumar & another, [1965) 2 SCR 653, relied on.

Commissioner of Inland Revenue v. Rossminister Ltd., (1980) AC 952, 1018; Commissioner for Motor Transport v. Antill Ranger & Co. Pvt. Ltd., (1966) 3 ALL. E.R; United States v. Jefferson Electric Manufacturing Com- H

622 SUPREME COURTREPORTS(1996] SUPP.10 S.C.R.

A pany, 78 L.Ed. 859; Air Canada v. British Columbia, (1989) 59 D.L.R. (4th) 161; Allied Air Conditioning Inc. v. British Columbia, 76 B.C.L.R. 2(d) 218; Air.Canada v. British Columbia, "C.P. Air" (1989), 36 B.C.L.R. (2d) 185; Woolwich Building Society v. Inland Revenue Commissioners, No. 2 (1992) 3 All E.R. 737, 763; Commissioner of State Revenue v. Royal Insurance B Australia Ltd. (182) C.L.R. 51; Boyd v. United States, 116 US 616 (1886); Olmstead v. United States, 277, US 438 (1928) & Mapp v. Ohio, 367 US 643 (1961), referred to.

2.1. when a statute like the Central Excises and Salt Act, 1944 which is a consolidating Act is passed, the Court should not presume that the C Legislature was unawari: of the scheme of the earlier statutes and _how the law was understood and administered. The Legislature avowedly did not bring about any fundamental change in the structure of these existing laws in passing the consolidating Act. Tax was to be paid on manufacture of the excisable goods. Thei:e were provisions for assessment and computation of tax. Provisions were also made for appeals, recovery of tax in cases of short levy and refund of tax in cases of excess realisation. The duty of the Court is not to legislate but to find out the intention of the Legislature. The legislative intent was to consolidate and continue the laws that were existing in one comprehensive statute and even when the new statute was in force the Legislature did not think fit to stop refund of a wrong levy of tax to the manufacturer and thereby confer a right to the consumers to get refund before the amendment made in 1991. Before that the Central Excise Act did not recognised any right of the consumer of excisable goods to get a refund of duty. (810-E-H] p 2.2. Refund of tax whether under Income Tax Act, Wealth Tax Act, Gift Tax Act, Estate Duty Act, Sales Tax Act, Customs Act or the Central Excise Act has to be given under the Statutory provisions containe~ in the Act Refund in a taxing statute is to be made not on the ground of compensa~ tion for loss or damage sustained by a tax-payer but on the principle of restoration to the tax-payer of what had been collected from him without G justification of law. When a taxing statute provides for refund, it is not to be understood as a section providing for compensation for loss or damage. Refund of tax means returning to the assessee what had been taken or received from him unlawfully. (811-B-D]

H 2.3. Under the Central Excise Act, there is only one tax which is levied

MAFATLALINDS. LTD. v. U.O.I. 623 by Section 3 and the tax-payer is the person who pays the charge levied by A Section 3. The taxable event under the charging section is manufacture. This is the duty which a manufacturer has to pay before he can remove the manufactured goods from his factory. Whatthe buyer of the goods pays to the manufacturer is the price of the goods. No duty is levied by the Central Excise Act upon the buyer. What the buyer pays to the manufac· B turer is not under any charge imposed by any statute. What he pays is the price of the goods. The price is a matter of contract between the buyer and the seller. Whatever the buyer pays and the seller gets is the price of the goods, even though the tax element is included in the price. [811-E-G]

3.1. The changing provisions have undergone minor alterations from time to time, but there is not the slightest doubt that the levy of excise duty is on manufacture of goods. The taxable event is the manufacture. The duty will have to be paid regardless of the destination of the goods. Even if the goods are lost before clearance, duty will have to be paid. Whether the manufacturer after removal of the goods, is able to sell the goods or not is a matter of no consequence. Once the taxable event has happened the duty has to be paid. There is no escape from it. This is a strict liability foisted on manufacture by Section 3. But nothing in excess of this strict liability can be collected by the Excise Officers. If something is levied or collected which is beyond the charging section, then that has to be paid back to the tax-payer. Whatever tax has been levied or collected in violation of law bas to be restored to the person from whom such illegal levy has been extracted. Otherwise the guarantee under Article 265 becomes mean- ingless. [815-B-D]

3.2. If a man is able to pass on the burden or not is something with which the Excise Act is not concerned. If as a result of high excise tariff the price becomes too high and the goods become unsaleable, the manufac- turer may go out of business but will not be absolved from payment of duty. Hardships suffered by the manufacturers may be redressed by the Government for which power has been retained in the Central Excise Act (Section SA). But a manufacturer cannot declined to pay excise duty on the ground of inability to sell his products and failure to pass. on the burden of the duty. [815-F-G]

3.3. If the Central Excise Officer-discovers that the duty of excise has not been levied or paid or has been short levied or short paid, he has a H

624 SUPREME COURT REPORTS(1996] SUPP.10 S.C.R.

A right to recover the duty from the manufacturer (Section llA). The short· levy may have been due to an oversight or mistake committed by the Excise Officer. It may be that the goods manufactured have already been sold off and it will not be possible for the manufacturer to recover the amount of duty from his customers. That is a post-duty situation with which the B Excise Act is not concerned. The Central Excise Act is only concerned about collection of the duty levied by Section 3 on the manufacture of goods. In the scheme of the Act, the consumer who purchases the goods from the manufacturer and pays cum-duty price does not pay any tax either directly or through the manufacturer. If a manufacturing company goes into liquidation after selling off all its products, the Excise Officer · can in no way realise any sh'Jrt levy or under levy from the consumer. A tax is a compulsory levy imposed by the statute which is something quite diffe.rent from purchase-price. If a person having paid the tax increases the price of the goods, what the purchaser pays the tax-payer is not the tax but the price of the goods. The price usually comprises of costs, taxes and profits. But there is only ont: tax and one tax-payer who pays the tax. If there is short levy or under levy of excise duty due to any reason, the excise authority has no right to chase the consumers for the arrears of tax. In no sense of the term the consumer can be treated as the tax-payer under the Central Excise Act. Moreover, if the consumer is a· businessman, the cum-duty price will be deductible from his income under the Income Tax Act. [815-H; 816-A·D]

3.4. Rules lOA and lOB were in force till 1980. These two rules were substantially adopted in Sections llA and UB of the Central Excise and Salt Act, 1944 by the Customs Central Excises and Salt Act and Central F Boards of Revenue (Amendment) Act, 1978. The two sections came into force on 17.11.1980. It is well- settled that these two rules (Rules lOA and lOB) are complementary. Rule lOA invests the Government with the power to recover duty where any duty had not been levied or paid or had been short-levied or erroneously refunded or any duty assessed had not been paid in full. In such a case, the proper officer, within six months could serve a notice on a person chargeable with the duty requiring him to show cause why he should not pay the amount specified in the notice. [818-E·F]

3.5. Rule lOB enabled a person to claim "refund of any duty paid by him". This could be done by an application for refund of such duty to the

MAFATLALINDS. LTD. v. U.O.I. 625

Assistant Collector of Central Excise before expiry of six months from the date of payment of duty. Where any duty was paid provisionally under Rule 9B, the period of six months was to be computed from the date ou which the duty was adjusted after final determination of the value. If as a result of any appellate or revisional order refund of duty is due to any person, the proper officer had to refund the amount to such person even without any application. [818-G-H]

3.6. The Central Excise Act has not made the manufacturer an agent of the State for collection of tax from the consumers. If an illegal levy has been made on the manufacturer and any tax has been collected unlawfully from him by the State, the State cannot refuse to return the unlawfully collected amount. The amount which has been unlawfully collected is the property of the tax-payer. If the law has been broken by the State and an unlawful levy has been made the State is not at liberty to distribute the amount so collected on any supposed equitable principle to somebody other than the actual tax-payer without a specific provisions of law to that effect. If this is allowed, the legal wrong done to the tax-payers will remain unredressed. [820-C-D]

3.7. Like all other taxing statutes the Central Excise Act has a charging section, provisions for computation and quantification of the charge and also collection of the charge (Sections 11 and llA) and also for refund of duty (section llB). The court cannot ignore these provisions and hold without any specific charge levied to that effect in the Act that the ultimate consumer is a real tax-payer. The refund must be made of excess realisation of the duty of excise to the manufacturer. The Government has not imposed nor realised any duty from the ultimate consumer. [821-E-F] F

3.8. The structure of the Excise Act has to be borne in mind. Duty is levied on manufacture and collected from the manufacturer according to the rules. The well-known distinction between levy and assessment and between levy and collection will have to be borne in mind in this connection. [821-G] G 3.9. There is no reason why a person who has been subjected to levy of excise duty and from whom, the duty has been collected cannot get the refund of the duty but only a person who has neither been charged any duty nor paid any duty under the Act can claim refund of the duty. This Will be clearly against Article 265 of the Constitution. [822-H] H

626 SUPREME COURT REPORTS[1996) SUPP. 10 S.C.R.

A Baidyanath Aywved Bhawan (P) Ltd. v. Excise Commissioner, U.P. & Ors., [1971] 2 SCR 590; R.C. Parsi v. Union of India, AIR (1962) SC 1281; Bharat Kala Bhandar (Private) Ltd. v. Municipal Committee, Dhamangaon, 59 ITR 73 and Assistant Collector of Central Excise, Calcutta Division v. National Tobacco Co. of India Ltd., [1972] 2 SCC 560, relied on. B The Judicial Committee, in Govemor General in Council v. Province of Madras, AIR (1945) PC 98, 101, referred to.

Cape Brandy Syndicate v. Commissioners of Inland Revenue, (1921) 1 K.B. 64, referred to. c 4.1. In order to claim refund, a person has to establish that he has paid the duty. The. duty is what is paid pursuant to the charge levied by Section 3 and quantified in the manner laid down in the rules. Rule 3(v) of the Central Excise Rules also says that "duty" means the duty payable under Section 3 of the Act. The time and manner of payment of duty will have to be in accordance with the provisions of Rules 9 and 9A(4). There is no other duty charged under the Central Excise Act and there is no other way a duty can be paid under the Central Excise Act. It is the person who has paid the duty of central excise under the charge imposed by the Act and within the time and in the manner laid down by the Act, who can claim the refund of duty under Section llB. "Any person claiming refund of any duty of excise" must be the person who has paid the aforesaid duty in the aforesaid manner. A consumer or buyer cannot say th~t he has paid any duty of excise.. The duty is only on the manufacturer and not on the consumer. Under sub-section (2), the Excise Officer has to be satisfied that whole or any part of the duty of excise should be refunded to the person who has paid the duty. This is the law in respect of payment of duty and obtaining refund of duty paid in excess. The buyer or the consumer does not pay any "duty" and, therefore, he is precluded from making any applica- tion for refund under Section llB. A person who has not paid any duty in law cannot claim a refund on the ground that he has borne the burden or duty. [827-A-E]

4.2. The Excise Officer is a creature of the statute. His powers and functions are circumscribed by the statute. He can realise tax strictly in accordance with the statute. He cannot realise tax beyond the charge imposed by Section 3 out of any extra-statutory considerations. If more tax

MAFATLAL INDS. LTD. v. U.O.I. 627 than permissible under the charge imposed by Section 3 has been collected, it must be returned to the taxpayer. There is nothing in the Act which enables the Excise Officer to embark upon an inquiry to find out whether after payment of the duty, the manufacturer has sold his goods and if so, has included this amount in his price. It is not a ground on which the Excise Officer can refuse to refund the excess amount of duty paid by the manufacturer in the mode and manner laid down by the Act. A taxation statute has to be construed strictly. The Excise Officer cannot insert a proviso to the Section and say that even if the levy is illegal and the manufacturer is otherwise entitled to refund of duty under Section 118, he will not be given this refund if he has included the duty element in the price of the goods manufacturer by him. The Excise Officer has no discretionary power to refuse to pay refund even when he was satisfied that excess payment of duty contrary to law has been collected or paid. Though ,' sub-section (2) of Section 118 or earlier Rule UA used the language that the Central Excise Officer "may make an order of refund", the word "may", in this context, has to be construed as 'must'. The section does not give the D Central Excise Officer any discretion once he was satisfied that excess payment had been made. He cannot withold payment on some extraneous reasons. [827-F-H; 828-A-B]

4.3. In fact, this principle is very important to understand the problem raised in this Court. The Central Excise Act provides for every situation for levy, collection and refund of tax. If an overpayment has been made for whatever reason, the amount has to be refunded. The Excise Officer, who deals with an application for refund, has to find out whether an overpayment has been made under the Act. He may, for any reason to be found in the Act, decline to give refund. He cannot travel beyond the Ai:t to find other considerations for withholding the refund. [830-A-B]

4.4. The Excise Act before its amendment in 1991, in particular Rule 108 and later Section 118, did not confer any power on the Excise Officer to withhold refund on any ground of "unjust enrichment", after being satisfied that overpayment of tax has been made. Moreover, refund is to be claimed within six months from the date of payment of tax which means within six months from removal of the goods from the factory. A company may take a very long time to dispose of its goods after clearance. But a claim for refund has to be made within the short time permitted by the H

628 SUPREME COURT REPORTS(1996] SUPP.10 S.C.R.

A Act. These provisions are indicative of the fact that refund claim has· to be made regardless of the sale of the goods. [830-F-G]

4.5. That passing on of the incidence of tax was not relevant con- sideration is also borne out by sub-section (3) of Section llB as well as sub-rule (3) of Rule lOB, e.g., if there is dispute as to classification of the goods and the assessee takes resort to filing of an appeal which ends in favour of the assessee, refund will have to be made of the excess amount of tax realised to the assessee without his having to make any claim in that regard. In such a situation, the Assistant Collector of Central Excise is not empowered, before refunding the money, to make an enquiry as to whether the duty has been passed on to the consumers. The concept of "passing on . of the duty" cannot be fitted in the provisions of the Excise Duty Act before · its amendment in 1991. As has been repeatedly asserted in a number of cases that in a taxing statute, there is nothing to be added and there is nothing to be taken out and the words must be interpreted as they stand. D There is no equity about taxation. To introduce the concept of "unjust enrichment "in the Act even before its amendment in 1991 is not permissible by any canon of construction. Attention of this Court has not been drawn to any provision of the Act which is concerned about the consumers of the product after they pass out of the factory gate. The rule and the section dealing with the refund do not contain any provision that the Excise Officer E will be entitled to withhold refund ifit is found that the duty has been passed on to the consumers. The powers and functions of the Excise officer are circumscribed by the Act. He cannot take into consideration anything which is not specifically contained in the Act. [830-H; 831-A-E]

F 4.6. Under the Central Excise Act, 1944, there is only one duty and that has been imposed on manufacture. This duty has to be paid before clearance. This duty has to be paid in the manner and mode laid down by the Act. The Act does not impose any other duty. The Act is not concerned with what happens after the goods have been cleared. If the duty has been erroneously imposed, the refund of the duty must be made to the person G on whom it is imposed. Refund of tax must not be confused with restitution or compensation. There is only one taxpayer and it is the person who pays the tax at the time of clearance of goods. there is no other tax imposed by the Central Excise Act. How the burden of tax is borne or its economic impact on the manufacturer are not matters within the purview of the H Central Excise Act. No notice of these considerations can be taken in

MAFATLAL INDS. LTD. v. U.O.I. 629 deciding the application for refund by the Excise Officer. Article 265 of A the Constitution enjoins that no duty shall be levied and collected except in accordance with law. If it is found that a manufacturer has been asked to pay more than what he is liable to pay under the Central Excise Act, he is immediately entitled to get the refund of the wrongfully collected duty. This constitutional guarantee cannot be side-tracked in any manner. B

(831-H; 832·A·C]

Commissioner of State Revenue v. Royal Insurance, (1995) 69 Australian Law Journal 51, referred to. c 5.1. It is wrong to presume that if taxes are raised, the manufacturer has merely to pass on the burden to the consumers by raising the price. It should always be borne in mind that a manufacturer has to generate • sufficient income to pay for the prices of inputs, wages to the employees, rents, fuel charges, overheads and many other charges, including direct D and indirect taxes. Every type of tax, except only those which are levied on the profits like Income Tax and Surtax on company's profits, will have to be included in the price. The price must be high enough to fetch sufficient income to the manufacturer to pay for all these things and stay in business. If the manufacturer is a company, as the appellant herein is, out of the profits, specific and general reserves will have to be created. Provisions E have to be made for known liabilities like provident fund and gratuity for workers etc. Debenture holders and preferential shareholders will have to be paid. Dividends will also have to be paid to the share-holders who have invested their money in the company. All those things will have to be paid out of the profits made by a company after paying all the expenses including excise and other duties. A manufacturer has also to take into account that all the goods produced by him may not be sold in the year of production itself. That means a large amount of circulating capital will remain blocked. This will also lead to higher interest charges. In fact, there is hardly a company which does not have to carry inventories of tax-paid finished goods year after year. Goods distributed for sale to various outlets may not be sold for months or even years. Such goods may ultimately have to be sold at large discounts or even at a loss. Many products after some time cannot be sold at all for various reasons. A substantial quantity of tax-paid products cannot be disposed of as a matter of course and the manufacturer has to get rid of the unsold products by organising first sale H

630 SUPREME COURT REPORTS[1996) SUPP. ln S.C.R.

A . at a discount thereafter at even lower prices. This is a problem with every manufacturer and to assume that the excise duty can be passed on to the consumer without any corresponding loss to the manufacturer is to ignore reality. [832-F-H; 833-A-H]

B 5.2. The wages of labourers, their provident fund, gratuity, bonus, the costs of raw-material, the fuel charges, the overheads; all these things have to be paid out of the money generated by the company. This can only be done through price obtained by the sale of goods. A suit for short sale by a manufacturing company of recovery of money for over charging can be defeated by saying that all these things have been passed on to the C consumer. An electricity supply company or a coal supplier can also take the plea, faced with an allegation of excessive charge, that in any event the charges have been passed on to the consumers. It is not possible to split up the price of a commodity and find out how much is attributable to labour, how much to cost of production and how much to the overheads. D That the buyer pays nothing but the price, has been made clear by Section 2(10) and also Section 4 of the Sale of Goods Act. Section 64A permits the seller to add an amount equal to any new tax imposed or any tax increased if such imposition or increment has taken place after the contract was . entered into and if a different intention does not appeal from t.he terms of the contract. [834-E-H; 835-A] E 5.3. If the seller passes on his tax liability to the buyer, the amount equivalent to the tax received by the seller is part of the entire sale consideration. It is not collection of tax, because levy and collection of tax is regulated by law and not by contract. Whatever may have been collected F by a seller from his customer on account of tax, the same can only be considered as valuable consideration for the 'price' of the goods sold. What the buyer pays is the price of the goods and not the components of the price. Production costs, selling costs, overheads, taxes, everything goes into fixation of the price. Moreover, the market conditions will have to be taken G .into account. If the price is too high for the market to bear, the goods will not sell. In order to absorb the excise duty, the manufacturer may have to cut various types of costs. It may have to reduce its profit, pay lesser dividends to shareholders, he may not readily agree to any increment in pay or payment of bonus or other benefits to the workers. It has not been explained how it can be readily assumed that all that the seller h11s to do

MAFATLALINDS.LTD.v. U.0.1. 631 to absorb higher duty is to include it in its price and pass it on to the consumers. If the labour is given just reward for the work done by him, no surplus value will be left. It is this surplus value extracted from the labour through the pricing mechanism that becomes the manufacturer's profit. To prevent "unjust enrichment", the entire surplus should go back to the labour. But in the present case, one has to take the Central Excise B Act as it stands. One may or may not like the law. But for that reason one cannot discard it or its language to bring out an abnormal meaning. If the meaning of 'price' as given in the Sale of Goods Act is borne in mind and its implications as are kept in view, then it can never be said that the seller has charge anything but the price of the goods from his buyer. He cannot C by a contract call upon the buyer to pay any tax which is the prerogative of a taxing statute. Even if he quotes the price as X (Costs) + Z (Profit), what the buyer will pay is the price of the goods and nothing else. Neither the costs nor the taxes are passed on to the buyer. [838-E-H; 839-A-F]

British Paints India Limited v. Commissioner of Income Tax, West D Bengal, (1978) 111 ITR 53 and Delhi Cloth and General Mills Co. Ltd. v. The Commissioner of Sales Tax, Indore, [1971] 2 SCC 559, relied on.

BSC Footwear Limited v. Ridgway, (1972) A.C. 544, Paprika v. Board of Trade, (1944) 1 KB 327; Love v. Nonnan Wright (Builders) Ltd., [1944] E 1 All England Law Reports 618, and Tata Iron and Steel Co. Ltd. v. State of Bihar, [1958] SCR 1355, referred to.

6.1. There is no basis to deny the refund to a manufacturer on the facile assumption that burden of duty has been passed on to the consumers without any loss or detriment to the manufacturer. [842-H) F 6.2. It will be wrong to assume that the duty element can be included in the price and that no prejudice will be caused to the manufacturer by the levy or enhancement of the duty. To take this position is to ignore the economic realities. [846-B] G 6.3. There may also be a situation when a manufacturer will not be able to certify that he has not passed on the duty even though he has borne it. The manufacturer in a case like this will not be in a position to certify that the burden of duty has not been included in the price of the goods but the fact remains that in order to maintain the price of goods at the H

632 SUPREME COURT REPORTS(1996] SUPP. 10 S.C.R.

A optimum level the manufacturer had to suffer loss of profit. The Central Government has been empowered to exempt, generally or absolutely by notification, excisable goods from the whole or any part of the duty imposed thereon. Judicial notice must be taken that in very many cases, having regard to the hardship suffered by the industry and representations B made by the industry, duties have been reduced or exempted by issuing appropriate notifications or even by legislation. [846-C-G]

Hanover Shoe Inc. v. United Shoe Machinery Corp., [1968] 392 US 481 and Amministrazione de/le Finanze dello Stato v. San Giorgio Spa, [1985] 2 CMLR 658, referred to. c 7.1. The provisions contained in Sections 11-B, ll·D, 12- A, 12-B, 12-C, 12-D of the Central Excise Act are not in consonance with the charging provisions of the Excise Act and the rules. The well-known - principle of fiscal legislation is that the charge lies where it falls. It cannot be shifted by a contract. Acts relating to income Tax, Wealth Tax, Sales Tax as well as ·Excise duty have charging sections. A man may contract with somebody to pay his Income Tax, a seller may contract with somebody else to pay his Sales Tax and a manufacturer may contract with a third party to pay the duty of excise. These contracts are not enforceable by or against the Revenue. The Central Excise Act imposes a tax on manufac- ture. This tax has to be paid before the goods are cleared in the manner laid down by the Act and the Rules. There is no other dnty of excise payable under the Act. The question of passing on can only arises after the duty has been fully paid. The duty of excise is never borne by the buyer. The F buyer may pay a sum equivalent to the duty of excise pursuant to a contract with the manufacturer, but that is a matter of contract. [852-E-H]

7.2. The duty imposed on and collected from manufacturer, if it is found to be in excess of the charge imposed by Section 3, has to be returned to manufacturer and nobody else; otherwise charging provision rules for G computation of charge and imposition and collection of duty will become meaningless. If any amount has been realised by the Excise Officerin excess of the charge imposed by the charging section, then such· collection is beyond the competence of the Act and also violates Article 265 of the Constitution. Levy may include both imposition of a tax as well as assess· H ment. 'Collection' will be recovery of tax. If it is found that a tax-payer has

MAFATLAL INDS. LTD. v. U.0.1. 633 been levied more than the permissible limit imposed by the charging section read with Excise Tariff Act and the Rules, the levy is bad. The collection pursuant to this levy is equally bad. Such levy and collection are dehors the provisions of the Excise Act. There is no way that the Central Excise Authority can retain the amount or use the amount. In any way it has to refund the amount to the person from whom it has been unlawfully collected by the Excise Officer. No portion of the cum-duty price in law can be treated as the duty of excise. Nothing which is not imposed by Section 3 and collected under the provisions of the Excise Act and Rules, can be called "duty of excise". This is the basic principle of any tax law. If by any device any amount which is not Ieviable in law has been levied and collected from a tax-payer, then retention of such amount will be unlawful. [853-A-F] c 7.3. If the realisation of tax is in excess of the charge imposed by the Excise act read with Excise tariff Act and Rules, then such levy of tax is not authorised by law. The collection of such excess unlawful levy is also invalid. As the Judicial Committee pointed out if the levy is invalid as an offence against Section 92, it is equally an offence to deny the right to recover it after it has been unlawfully exacted. Therefore, once it is estab- lished that more than what is payable under the statute has been collected from the tax-payer, the tax-payer automatically gets a right to get back the whole amount. If the right is sought to be effectively taken away by imposing conditions, then the law imposing .these conditions must be declared to be bad and ultra vires the Constitution. [853-H; 854-A]

7.4. 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. If the money has to be utilised by the State, the State has to find out some legitimacy for ha~ing possession of the money. In the instant case, there has been no attempt to give legitimacy to the holding of the amount or utilisation of the amount by the Government. The. entire amount was collected unlawfully. [854-B-D]

7.5. When. a case has been finally heard and disposed of and no application for refund need be made, sub-section (3) of S.llB cannot H

634 SUPREME COURT REPORTS[1996} SUPP.10 S.C.R.

A apply. If there is a judgment, decree or order which has to be carried out, the Legislature cannot take away the force and effect of that judgment, decree or order, except by amending the law retrospectively on the basis of which the judgment was pronounced. [854-H]

7.6. It is practically impossible for an ultimate consumer to make an application for refund under Section llB. He has to know that there is a dispute about levy of excess duty which is going on between the manufacturer and the excise authority. He has to know the outcome of that dispute. He has also to find out what is the amount of duty he has borne. This is a difficult process because the ultimate consumer may have a cash-memo from his retail-seller. Retail-seller usually does not have the break up of duty in the price he charges. The new law requires a manufacturer at the time of clearance of the goods to prominently indicate in the invoice and other documents the amount of such duty which will form part of the price. There is no such requirement for the dealers down the line. It is incomprehensible how a person who buys cake of soap will know the duty content in the price and whether the excise duty levied was valid or not and how will he find out which is the proper office, to whom to make an application in the prescribed form for refund of duty and what sort of evidence will he be having in his possession to authenticate his claim. [855-A·B; DJ

7.7. Section UD is a curious piece of legislation. Even after the full amount of duty has been paid and goods have been cleared, the manufac· turer is being called upon to deposit with the Central Government any p amount collected from the buyer representing duty of excise. In other words, having paid the full amount of duty of excise, the manufacturer is being called upon to deposit the duty element in the price of his goods to be deposited to the credit of the Central Government. The only justification for this appears to be that the entire amount will be held till finalisation of the assessment. But the Section provides that if there is any surplus left after such adjustment, the surplus shall not come back to the seller but will be credited to the Fund or paid to the person who has borne the incidence of the duty in accordance with the provisions of Section 118 ·· which means the ultimate consumer. There cannot be a blanket statutory direction to pay everything collected from a buyer on account of excise duty to be paid over to the Excise Officer. If it is in the nature of advance tax,

MAFATLAL u:ms. LTD. v. U.O.I. 635 there has to be some attempt to fix a percentage which needs to be handed over. Otherwise, it will be unreasonable restriction on trade. The sale price is a part of the circulating capital. Goods are converted into money and money is again utilised to manufacture goods. If a substantial portion of this money is taken away without having regard to the actual or probable necessity for the collection, it will be unreasonable restraint on the right of a person to carry on business. Moreover, the amount may be kept till finalisation of assessment. The assessment may not be finalised till the dispute has been decided finally by CEGAT or even by this Court. This provision has to be contrasted with the advance tax collected under the Income Tax Act. Such collection is authorised by the charging Section of the Act Section 4(2) because otherwise, the collection would have gone beyond the scope of the charge. The rate on which the tax is to be collected and the basis is clearly stated. High rates of interest is payable both by the assessee and the Government in appropriate cases. But if an amount is taken in advance, then the residue after adjustment of tax must go back to the tax payer. That is not the scheme here. So, this cannot be treated as something in the nature of advance collection of tax where duty has not at all been paid on the goods. [856-E-H; 857-A-E]

· 7.8. Excise duty is a duty on the mannfacture of goods. Once full amount of duty has been collected, the excise a"uthority cannot control any contract between the purchaser and the seller. The Excise Act imposes a E charge on manufacturer. There is no charge of duty levied by the Excise Act on excess collection by the manufacturer from the buyer. Any question of excess collection by the manufacturer from the buyer is entirely out of the purview of the charging section. If the assessee has collected on account of excise duty from the purchaser more than what he has paid, perhaps, a purchaser can bring an action against the seller. In the event of a contrac-" F tual dispute between the purchaser and the seller, the relevant statutes will be the contract Act, the Sale of goods Act and similar other statutes. But the Central Excise Officer cannot under any circumstances, lay his hands on anything more than what is actually levied by the Act. He cannot collect something which is. not payable under the charging section even for the G purpose of directing it to the Fund or to the actual consumer. The entire Section 110 is ultra vires the charge levied by the Excise Act itself. [857-F-H; 858-A]

7.9. Unlike the Income Tax Act, the assessee under Central Excise Act has not been given any option to show that he is not liable to pay the H

636 SUPREME COURT REPORTS(1996] SUPP. 10 S.C.R.

A amount which is being taken away from his proceeds. He has no oppor- tunity of getting a hearing on this issue. The Income tax Act enables the assessee, in such circumstances, to dispute the estimation of advance tax made by the Income Tax Officer and file his own estimate (of course at his own peril). H_ere he has no option but to pay without any hearing. [858-D] B 7.10. A manufacturer cannot be called upon to pay anything except the duty imposed by the charging provisions. Even if the final assessment has not been made, goods may be allowed to be cleared by paying the admitted amount of duty and furnishing the security for the disputed amount. The security may be keeping sufficient money in the Account C Current with the Excise Department or even by furnishing a bond or a bank guarantee. This is provided by the Rules. There is no legal or rational basis for a blanket provision to deposit whatever is included on account of excise duty in the price of the goods sold. The position gets curiouser after the deposit. After adjustment of the tax against the deposit, the surplus amount is not returned to the manufacturer. It has to be credited to the Fund or paid to the pr.rson who has borne the incidence of tax, i.e., the ultimate consumer. In other words, the manufacturer will be robbed of a portion of his sale price for no rhyme or reason. This may also have the effect of nullifying the sale contract entered into by the manufacturer with the buyer. The buyer had agreed to pay an agreed price which may include the duty element. The seller agreed to sell the goods to the buyer at that price. Section 64A of the Sale of Goods Act protects the interest of both. The only effect of Section UD is to rob the manufacturer of a portion of his legitimate dues. These provisions are not in aid of the charge on manufacture levied by the Central Excise Act, but are in excess of the charge and are confiscatory in nature and have to be struck down. [858-E-H; 859-A-BJ

7.11. So far as sections 12A and 128 are concerned, only thing that has to be pointed out is that these two sections do not change the character of the price of the goods. [859-G]

7.12. The Central Excise Act imposes a duty on manufacture of goods. Various provisions have been made for computation and collection of that duty. Anything collected in excess of that charge is unlawful. If any provision is made for retention of duties collected without any authority of

MAFATLAL INDS. LTD. v. U.0.1. 637 law, then such provision will be beyond the scope of the charge. It will amount to collecting and retaining something which is not at all duty payable under Section 3. The Legislature has now authorised the Excise Department to retain the illegal levy. These provisions are ultra vires the charge levied by Section 3 and cannot be sustained in any way. [860-A-C]

7.13. The scope of charge in a taxing Act is of the highest importance. B Nothing can be realised under a taxing Act beyond that. The new provisions of the Excise Act are not in aid of the charge imposed by Section 3. These sections are designed to enable the excise department to retain what was collected over and above the charge. The amounts collected in excess of what is actually payable under the charging section is not excise duty at all. C Nothing can be collected under a taxing Act which is not authorised by the charging section with the machinery provisions. [860-D-E]

7.14. The new provisions not only effectively bar recovery of unlawful levies by the tax-payer but have also taken away from him a portion of the price at which he has contracted to sell the goods to the purchasers. A D portion of the sale price cannot be taken away and retained by the Excise Officer or returned to the buyer in derogation of a contract of sale. The amended provisions must be struck down as violative of Article 265 and the gnarantee contained in Article 19(1) (g) of the Constitution oflndia. [860-F-H] E 7.15. The Legislature has merely adopted a device and a cloak to confiscate the property of the tax-payer by not only withholding repayment of unlawfully gathered tax but also taking away a portion of the sale price collected from the buyer without any lawful demand· or excuse. Every person has a right to contract and bargain for the price. Section llD places un- reasonable fetter to the freedom to carry on trade and commerce and violates F the gnarantee given by Article 19(l)(g) of the Constitution. (861-A-B]

8. An action by way of a suit or writ petition will be maintainable, depending upon the facts and circumstances of the case. [861-C] H

638 SUPREME COURT REPORTS[1996] SUPP.10 S.C.R.

A CIVIL APPELLATE JURISDICTION : Civil Appeal No. 3255 of 1984 Etc. Etc.

From the Judgment and Order dated 6.4.84 of the Gujarat High Court in P.A. No. 1681 of 1980.

B M. Chandrashekharan, Additional Solicitor General, F.S. Nariman, Harish N. Salve, R.F. Nariman, D.A. Dave, P.K. Parasaran, Jayant Das, Soli J. Sorabjee, Sr. Advs., Raju Ramachandran, P.H. Parekh, Krishan Mahajan. E.R. Kumar, Sameer Parekh, Devan Parekh, R.N. Banerjee, Vikram Nankani, R.N. Karanjawala, Bhaskar Raj Pradhan, (Ms. Ruby C Ahuja) Adv. for Ms. Manik Karanjawala, Ms. Indira Sawhney (Ravinder Narain, S. Ganesh, Amrita Mitra, S.C. Sharma, Rajan Narain, Mohit Kapoor, Sajan Narain,) Advs. for JBD & Co., K.R. Nagaraja, Krisha~ Tyagi, Rajesh Kumar, N.K. Bajpai, V.K. Verma, M. Gaurishankar Murthy, A. Sabba Rao, K. Swamy, Dalip Tandon, Ms. Savita Sharma, P. Narasim- han, G. Prakash, P.R. Tiwari, A. Raghunath, Ms. Sushma Suri, S.N. Terdol, D P. Parmeswaran, C.V.S. Rao, G.S. Chatterjee, Ms. Aruna Benerjee, B.V. Desai, P.J. Mehta, U.A. Rana, Rajiv Tyagi, M.K. Mohan, Ms. Aparna Jha for Gagrat & Co., Mukul Mudgal, Biraj Tiwari, Sarva Mitter for Mitter & Mitter Co., V. Lakshmikumaran, V. Sridharan, V. Balachandran, Ashok K. Gupta, J.K. Das, Ms. Meenakshi Arora and P. Mahale for the appearing E parties.