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

78Copy pinpoint78. While examining the validity and reasonableness of the provisions introduced by the. 1991 (Amendment) Act, it is necessary to bear in mind certain principles relevant in that behalf. In R.K Garg v. Union of India, [1981) 4 S.C.C. 675, this Court held that : D "laws relating to economic activities should be viewed with grater latitude than laws touching civil rights such as freedom of speech, religion etc. It has been said by no less a person than Holmes, J., that the legislature should be allowed some play in the joints, because it has to deal with complex problems E which do not admit of solution through any doctrinaire or straight jacket formula and this is particularly true in case of legislation dealing with economic matters, where, having regard to the nature of the problems required to be dealt with, greater play in the joints has to be allowed to the legislature. F The Court should feel more inclined to give judicial defence to legislative judgment in the field of economic regulation than in other areas where fundamental human rights are in- volved ....... The Court must always remember that "legislation is directed to practical problems, that the economic mechanism is highly sensitive and complex that many problems G are singular and contingent, that laws are not abstract proposi- tions and do not relate to abstract units and are not to be measure4 by abstract symmetry' that exact wisdom and nice adaptation of remedy are not always possible and that 'judg- ment is largely a prophecy based on meagre and uninterpreted H

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

A experience'. Every legislation particularly in economic matters is ,. essentially empiric and it is based on experimentation or what one may call trial and error method and therefore it cannot provide for all possible situations or anticipate all possible abuses. There may be crudities and inequities in complicated experimental economic legislation but on that account alone it cannot be struck B down as invalid. The Courts cannot, as pointed out by the United States Supreme Court in Secy. of Agriculture v. Central Roig. Refin- ing Co., (1950) 94 L.ed. 381, be converted into tribunals for relief from such crudities and inequities. There may even be pos- sibilities of abuse, but that too cannot of itself be a ground for c invalidating the legislation, because it is not possible for any legislature to anticipate as if by some divine prescience, distor- tions and abuses of its legislation which may be made by those subject to its provisions and to provide against such distortions and abuses. Indeed, howsoever great may be the care bestowed on its framing, it is difficult to conceive of a legislation which is not capable of being abused by perverted human ingenuity. The Court must therefore adjudge the constitutionality of such legislation by the generality of its provisions and not by its crudities or inequities or possibilities. of abuse of any of its provisions. If any crudities, inequities or possibilities of abuse come to light the legislature can always step in and enact suitable amendatory legislation. That is the essence of pragmatic approach which must guide and inspire the legislature in dealing with complex economic issues."

79Copy pinpoint79. To the same effect are the observations by Khanna, J. in Keshavananda Bharati v. State of Kera/a, [1973] Suppl. S.C.R. 1 at Page 755. The learned Judge said, "in exercising the power of judicial review the courts cannot be oblivious of the practical needs of the government. The door has to be left open for trial and error. Constitutional law like other mortal contrivances has to take some chances. Opportunity must be al- lowed for vindicating reasonable belief by experience". To the same effect are the observations in Tamil Nadu Education Department Ministerial and General Subordinate Service Association v. State of Tamil & Anr., (1980] 1 S.C.R. 1026 (Krishna Iyer, J.). It is equally well-settled that mere possibility of abuse of a provision by those in-charge of administering it cannot be a ground for holding the provision procedurally or substantively un-

MAFATLALINDS.LTD. v. U.O.I. '· ·•: ,

reasonable. In Collector of Customs, Madras v. Nathella Sampathu Chetty A & Anr., [1962] 3 S.C.R. 786, this Court observed : "The possibility of abuse of a statute otherwise valid does not impart to it any element of invalidity". It was said in State of Rajasthan v. Union of India, [1978) 1 S.C.R. 1 at 77, "it must be remembered that merely because power may sometimes be abused, it is no ground for denying the existence of power. The wisdom of B man has not yet been able to conceive of a government with power sufficient to answer all its legitimate needs and at the same time incapable of mischief'. (Also see Commissioner, Hindu Religious Endowment, Madras v. Lakshmindra Thirtha Swamiar of Shirur Mutt, [1954) S.C.R. 1005 at 1030.

80Copy pinpoint80. Section 11-B, as amended in 1991, has been set out in Para 10 C hereinabove. Sub-section (1) of Section 11-B says that every claim for refund shall be inade before the Assistant Commissioner of Central Excise within six months of the relevant date. The application shall have to be in the prescribed form and manner and shall be accompanied by documentary and other evidence including those referred to in Section 12-A to establish that the duty claimed by way of refund has not been passed on by him to any other person. The proviso to sub-section (1) expressly states that pending applications for refund made before the commencement of the 1991 (Amendment) Act shall be deemed to have been made under sub- section (1) of Section 11-B as amended in 1991 and that the same shall be dealt with in accordance with sub-section (2). Sub- section (2) provides that only in situations specified in clauses (a) to (f) therein will the refund be granted to the applicant; in all other cases, the amount will be credited to the Fund established under Section 12-C. Sub-section (3) declares that notwithstanding anything to the contrary contained in (a) any judgment, decree, order, or direction of the Appellate Tribunal or any Court or (b) any other provision of this Act or the rules made thereunder or (c) any other law for the time being in force, not refund shall be made except as provided in sub-section (2). Sub-section (1) of Section fl-D too opens with a non-obstante clause. It provides for making over of excise duty, realised by a person from his buyer, to the Central Government forthwith. Sub-sec- G tion (2) says that duty so paid shall be adjusted against the duty payable by him O!l finalisation of assessment. The sub-section further says that if on such adjustment, any surplus duty is left, it shall be dealt with in ~ accordance with Section 11-B. Section 12-A req•Jires every person liable to pay duty to indicate prominently in sales invoices, documents of assessment H

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

A and other similar documents, the amount of duty forming part of the price at which the goods are sold Section 12-B creates a rebuttable presumption of law that everyperson paying the duty shall be deemed to have passed on the full incidence of duty to the buyer of such goods. Section 12-C provides for the establishment of the Consumer Welfare Fund (Fund) while Section B 12-D provides for rules being made to specify the manner in which the monies in the Fund shall be utilised. Rules have indeed been made under Section 12-D, which provide for grants being made to Consumer's Welfare Organisations for being spent on welfare of consumers.

81Copy pinpoint81. 'The challenge to the validity of the provisions introduced by the C 1991 (Amendment) Act has been presented under various heads which we now proceed to deal with separately.

MEANING AND SCOPE OF SUB-SECTION (3) OF SECTION 11-B :

82Copy pinpoint82. A good amount of debate took place before us on the question whether sub-section (3) makes Section 11-B exhaustive of all kinds of refund claims including those which are refundable as a consequence of appellate/revisional order and/or as as consequence of orders made by the High Court/Supreme Court. Sri Nariman pointed out that in Rule 11 (as it was in force during the period August 6, 1977 to November 17, 1980), sub-rule (3) expressly provided that "where as a result of any order passed in appeal or revision under the Act, refund of any duty becomes due to any person, the proper officer may refund the amount to such person without his having to make any claim in that behalf' and that sub-section (3) of Section 11-B, before its amendment in 1991, was also in identical terms. But, Sri Nariman says, sub-section (J) of Section 11-B has now been dropped; there is no corresponding provision in Section 11-B as it now stands, which means, says the counsel, that even a refund claim arising as a result of an appellate order or an order of a court has also got to be made under and in accordance with sub-sections (1) and (2) of Section G 11-B and will be disposed of in terms of sub-section (2) of the said section, as amended in 1991. This consequence, learned counsel says, is unjust, unreasonable and arbitrary. There is no reason why a period wh~ becomes entitled to refund of duty as a result of appellate or court order should · also be made to apply and satisfy all the requirements of sub-sections (1) H and (2) of Section 11-B (amended) when he is entitled to such refund as

MAFATLAL INDS. LTD. v. U.0.1. 701

a matter of right. Sri Nariman submits that if a manufacturer/assessee, who succeeds in vindicating his claim after a long fight - may be, upto this Court - and applies for refund is asked to satisfy that he has not passed on the burden of tax to another, he would rather keep quite than fighting the levy. There would be no incentive for him to file the appeal/appeals or approach the higher courts which also involves substantial expense. If after all this fight and expense, he is to be denied the refund on the ground that he has passed on the burden of duty to third parties, why should he fight and spend money for fighting the litigation, says the counsel. Sri Sorabjee and Sri Salve too emphasised this aspect and said that this situation would lead to many an undesirable consequence. The assessing/approving officer C (original authority) would become the monarch; whatever he says would be the law since there would be nobody interested in challenging his order. Illegal levies would become the order of the day. Such a situation, the learned counsel point out, is neither in the interest of law nor in the interest of consumer or the larger public interest. It is accordingly submitted 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. We do not think it is possible to agree. Such a holding would run against the very gain of the entire philosophy underlying the 1991 Amendment. The idea underlying in the said provisions· is that no refund shall be ordered unless the claimant establishes that he has not passed on the burden to others. Sub-section (3) of the amended Section 11-B is emphatic. It leaves no room for making any exception in the case of refund claims arising as a result of the decision in appeal/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 substantial degree. So far as "lack of incentive" argument is concerned, it has no doubt given us 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 we have embarkeq 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 clas- sification, valuation and claims for exemptions are fought only for refund; H

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

A 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, approval of price lists or the benefit of exemption notifications. The dis-incentive, if any, would not be significant. In this context, it would be relevant to point out that 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 between August 6, 1977 and November 17, 1980) read together indicate that even a claim for refund arising as a result of an appellate or other order of a superior court/authority was within the purview of the said rule though treated differently. The same position continued under Section 11-B, prior to its amendment in 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 ex- cluded the jurisdiction of the civil court in respect of all refund claims. Sub-rule (3) of Rule 11 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 or Rule 11/Section E 11-B. They only' dispensed with the requirement of an application by the person concerned which consequentially meant non-application of the rule of limitation; otherwise, in all other respects, even such refund claims had to be dealt with under Rule 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 F under the amended Section 11-B. All claims for refund, arising in whatever situations (except where the provision under which the duty is levied is declared as unconstitutional), has necessarily to be filed, considered and disposed of only under and in accordance with the relevant provisions relating to refund, as they obtained from time to time. We see no un- G reasonableness in saying so.

83Copy pinpoint83. It is then pointed out by the learned counsel for the petitioners- appellants that if the above interpretation is placed upon amended Section 11-B, a curious consequence will follow. It is submitted that a claim for · H refund has to be filed within six months from the relevant date according

MAFATLALINDS. LID. v. U.0.1. 703

to Section 11-B and the expression "relevant date" has been defined in clause (B) of the Explanation appended to sub-section (1) of Section 11-B to mean the date of payment of duty in case other than these falling under clauses (a), (b), (c), (d) and (e) of the said Explanation. It is submitted that clauses (a) to (e) deal with certain specific situations whereas the one applicable in most cases is the date of payment. It is submitted that the appellate/revision proceedings, or for that matter proceedings in High Court/Supreme Court, take a number of years and by the time the claimant succeeds and asks for refund, his claim will be barred; it will be thrown out on the ground that it has not been filed within six months from the date of payment of duty. We think that the entire edifice of this argument is erected upon an incomplete reading of Section 11-B. The second proviso to Section 11-B (as amended in 1991) expressly 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, revision or in the higher courts, he would naturally 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 "relevant date", there is no room for any apprehension of the kind expressed by the learned counsel. E

84Copy pinpoint84. It was then submitted that Rule 2338 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 ground of protest. In our opinion, the said apprehension is not well-founded. Sub- rules (1), (2) and (3) of Rule 233-B read as follows :

"RULE 233B. Procedure to be followed in cases where duty is paid under protest. - (1) Where an assessee desires to pay duty under protest he shall deliver to the proper officer a letter to this effect and give grounds for payment of the duty under protest.

(2) On receipt of the said letter, the proper officer shall give an acknowledgement to it. H

704 SUPREME COURT REPORTS[l996] SUPP.10 S.C.R.

A (3) The acknowledgement so given shall, subject to the provisions of the sub-rule (4), be the proof that the assessee has paid the duty under protest from the day on which the letter of protest was delivered to the proper officer."

85, The rule 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 latter of protest is given, to sit in judgment over the grounds. The assessee need not particularise the grounds of protests. 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 t'ie payment of duty under protest. It is meant to obviate any dispute whether the payment is made under protest or not. D 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 paid the duty under protest. The period of limitation of six months will then have no application to him.

86Copy pinpoint86. We may clarify at this stage that when the duty is paid under the E orders of Court (whether by way of an order granting stay, suspension, injunction or otherwise) pending an appeaVreference/writ petition, it will ) certainly be a payment under protest; in such a case, it is obvious, it would not be necessary to lodge the protest as provided by Rule 233-B.

F WHETHER SECTION 11-B IS RETROSPECTWE?

87Copy pinpoint87. It is submitted by the learned counsel for the petitioners- appel- lants that the amended Section 11-B is prospective in operation and cannot apply to pending proceedings. In support of this contention, it is submitted that according to sub-section (1), the application for refund has to be accompanied by "documentary or other .evidence including the documents referred to in Section 12-A" to prove that the incidence of duty has not been passed on by the applicant to any other person. It is submitted that Section 12-A was also inserted by the very same 1991 (Amendment) Act and, therefore, it is not expected of any manufacturer/assessee to maintain the records required by Section 12-A, prior to its coming into force. It is

MAFA1LALINDS. LID.°v. U.0.1. 705

submitted that in respect of an application filed before the commencement of the said Act, it is not possible to comply with the requirement of sub-section (1) insofar as it requires the filing of documents referred to in Section 12-A. This circumstance is pointed out as a ground for holding that the amended Section 11-B applies on to refund applications filed after coming into force of the 1991 (Amendment) Act. It is further submitted that the right to recover excess duty paid is both a constitutional and a a statutory right. It is also substantive right, it is submitted, as held in 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. All these factors, it is submitted, militate against giving retrospective effect to Section 11-B. It is difficult to agree with the propositions in the light of the specific and clear language of the first proviso to the sub- Section (1). The first proviso expressly declares that "where an application for refund has been made before the commencement of the Central Excises and Customs (Amend- ment) Act, 1991, such application shall be deemed to have been made under this sub- section as amended by the said Act and the same shall be dealt with in accordance with the provisions of sub-section (2) substituted by that Act". In the face of this proviso, it is idle to contend that sub-sec- tions (1) and (2) of Section 11-B do not apply to pending proceedings. They apply to all proceedings where the refund has not been made finally and unconditionally. Where the duty has been refunded under the orders of the court pending disposal of an appeal, writ or other proceedings, it would not be a case of refund finally and unconditionally, as explained in Jain Spinners and I. T.C. 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), they cannot be re-opened and/or be governed by Section ll-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 ir:. any manner by this clarification made by us. So far as the difficulty or impossibility of filing the documents referred to in Section 12-A is concerned, it is obvious that the said requirement cannot be insisted upon in cases where the application is filed prior to the commen- cement 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 H

706 SUPREME COURT REPORTS(1996) SUPP.10 S.C.R.

A duty has not been passed on by him is still upon the applicant. Sub-section (1) of Section 11-B of general application. It not merely governs the pending applications but also provides for future applications. Reasonably construed and read together, the said provisions mean that in respect of pending applications, the requirement is only to produce such documentary B 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 person. The requirement of enclosing the documents referred to in Section 12-A is obligatory only where the claim or refund pertains to the period subsequent to the commencement of the 1991 (Amendment) Act.

88Copy pinpoint88. There is yet another circumstance : Section 12-B does not create a new presumption unknown till then; it merely gives statutory shape to an existing situation, as explained hereinbefore. 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, as held by D us in the earlier part of this judgment. 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 real. TJ:ie manufacturer has already collected the duty from his purchaser and has thus reimbursed itself. By E 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 law conferred such a right in him - not Article 265, nor Section 11-B. It was only on account of an incorrect view of law taken p in Kanhaiyalal - and that cannot be treated as a vested legal right. Correc- tion 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-ruled decision. In cases, where the burden is not passed on, there is no prejudice; he can always get the refund.

G IS SECTION 11-B A MERE DEVICE TO RETAIN ILLEGALLY COLLECTED TAXES?

89Copy pinpoint89. A major attack is mounted by the learned counsel for petitioners- appellants on Section 11-B and its allied provisions on the ground that real purpose behind them was not to benefit the consumers by refus-

MAFATLAL INDS. LTD. v. U.O.L 707

ing refund to manufacturers (on the ground of passing on the burden) but only to enable the government to retain the illegally collected taxes. It is suggested that the creation of the Consumer Welfare Fund is a mere pretence and not an honest exercise. By reading the Rules framed under Section 12- D, it is pointed out, 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 B situation. The Rules contemplate only grants being made to Consumer Welfare Societies. Even in the matter of making grants, it is submitted, the Rules are so framed as to make it highly difficult for any consumer organisation to get the grant. There is no provision in the Act, Sri Nariman submitted, to locate the person really entitled to refund and to make over C the money to him. "We expect a sensitive Government not to bluff but to hand back the amounts to those entitled thereto'', intoned Sri Nariman. It is a colourable device - declaimed Sri Sorabjee - "a dirty trick" and "a shabby thing". The reply of Sri Parasaran to this criticism runs thus : it ill-becomes the manufacturers/assessees to espouse the cause of con- sumers, when all the while they had been making a killing at their expense. D No consumers' organisation had come forward to voice any grievance against the said Provisions. Clause (e) of the proviso to sub- section (2) of Section 11-B does provides for the buyer of the goods, .to whom the burden of duty has 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. It is, therefore, not correct to suggest that the Act does not provide for refund of duty to the E person who has actually borne the burden. There is no vice in the relevant provisions of the Act. Rules cannot be relied upon to impugn the validity of an enactment, which must stand or fall on its own strength. The defect in the Rules, assuming that there is any, can always be corrected if the experience warrants it. The Court too may indicate the modifications p needed in the Rules. The Government is always prepared to make the appropriate changes in the Rules since it views the process as a "trial and error" method - says Sri Parasaran.

90Copy pinpoint90. We agree with Sri Parasaran that so far as the provisions of the Act go, they are unexceptionable. Section 12-C which creates the Con- G sumer Welfare Fund and Section 12-D which provides for making the Rules specifying the manner in which the money credited to th~ 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 H

708 SUPREME COURT REPORTS[l996] SUPP. 10 S.C.R.

A burden; the Rules only provides 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 11-B does provide for the purchaser of goods applying for and 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 11-B. It is, therefore, not c;orrect to contend that the impugned provisions do not provide for refunding 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 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 D "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 purchasers of high priced goods where the duty component is large and not by all and sundry/small purchasers. This practical inconvenience or hardship, as it is called, cannot be a ground for E 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 - assuming that such an argument is permissible in the case of a taxing enactment inade by Parliament. (See R.K Garg and other decisions cited in Paras 78 and 79). ' F DO SECTIONS 11-B AND 12-B HAVE THE EFFECT OF CHANGING THE VERY NATURE OF EXCISE DU1Y?

91Copy pinpoint91. It is next contended that in a competitive atmosphere or for other r commercial reasons, it may happen that the manufacturer is obliged to sell his goods at less than its proper price. The suggestion is that the manufac- turer 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; it will become a tax on income or on weightiness. We are unable to appreciate this argument. Ordinarily, no manufacturer will sell his products at less than the cost-price plus duty. He cannot survive

MAPATI.AL INDS. LTD. v. U.O.I. 709

in business if he does so. Only in case of distress sales, such a thing 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 than what is exigible and payable. A manufacturer 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 D requirement complained of (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 from part of the price at which the goods are to be sold, while Section 12-B raises a E presumption of law 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 rebuttable presumption of law - and not a conclusive presumption - there is no basis for impugning its validity on the groun\i of procedural unreasonableness 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 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 manufacturer entertains a 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 H

710 SUPREME COURTREPORTS(1996) SUPP.10 S.C.R.

A 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.

92Copy pinpoint92. For a proper appreciation of the learned counsel's contention, it would be appropriate to examine the scheme of the Act and the Rules .. concerning the valuation of excisable goods and their clearance/removal. B Section 4 deals with valuation of excisable goods. The assessable value under Section 4 determined on the basis of the normal price referred to in Section 4(1)(a) - and in certain cases under Section 4(1)(b). In either case, the excise duty and certain specified amounts are deductible. More impor- tant, in the documents submitted by the manufacturer for determination of the assessable value, he has to clearly state the excise duty payable as well as other charges and discounts which he claims to be deductible. Ordinarily speaking, a manufacturer has to file a classification list first (Rule 173-B) for approval by the Proper Officer. On the basis of the approved classifica- tion list and the rate of duty approved therein, he files a price list for approval as contemplated by Rule 173-C. Prior to April 1, 1994, the price list has to be declared in the form prescribed for the purpose which form required the manufacturer to disclose clearly and separately the excise duty and other deductions claimed by him. The Form requires the manufacturer to declare t)lat the facts stated therein are true. After the price list is approved,"removal" begins. Under the Self Removal Procedure (S.R.P.), the procedure in vogue until recently - speaking broadly - was that at the time to removal of goods, gate pass in Form G.P. I had to be issued which required the manufacturer to mention several particulars of the goods removed including the rate of duty and the total duty paid. Form G.P. I too had to be verified by. the manufacturer declaring that the facts stated therein are true. From the price list and the gate pass, therefore, it was easy to ascertain the duty component of the price. It may also be mentioned that G.P. I required the name and address of the consignee as well as the manner of transport to be mentioned therein. (More often than not the sale of excisable goods is simultaneous with the removal/clearance.) In G addition to the above, the manufacturer was required to file monthly returns (RT-12) as provided by Rule 173-G. The monthly returns had to be filed every month, within seven days of the succeeding month in respect of all clearances during that month. The RT-12 also provides for several particulars including the rate of duty and duty payable. These documents H clearly and cogently disclose the excise duty that has been paid. Since April

MAFATLAL INDS. LTD. v. U.O.I. 711

• - 1, 1994, however, there is said to have occurred a change in the procedure. A Under the new Rules, a proforma has been provided under which a declaration is to be filed" indicating inter alia the tariff-chapter heading applicable and the effective rate of duty assessable on the goods. This Form has to be filled in and filed by the manufacturer with a declaration that the particulars stated therein are true. In the place of gate pass, provision is B now made for a special form of invoice which gives full particulars of the price, assessable value, rate of duty and duty actually paid. From the invoice and the proforma now prescribed, it is equally easy to ascertain the duty component, i.e., the effective duty paid and passed on to the pur- chaser. c

93Copy pinpoint93. We may also mention t~at, in case of S.R.P., the Rules require that every assessee shall keep a current account with the Collector/Com- missioner. He has to make periodical credits in the current account by cash payment into the treasury so as to keep the balance sufficient to cover the duty due on the goods intended to be removed at any time. On each consignment removed by him, he has to pay the duty determined by him by debiting the same to the current account before removal of the goods. As stated already, in the case of S.~.P. also, the manufacturer has to file the monthly returns in Form RT-12 which have to be assessed by the Proper Officer as required by Rule 173-1. The Proper Officer adjusts the duty paid by the manufacturer against the duty assessed by him. if as a result of such adjustment, it is found, during the course of assessment of RT-12 Forms, that duty has not been levied or paid or has been short- levied or short-paid, the authority is entitled to make a demand for the same according to law. F

94Copy pinpoint94. Indeed, it is suggested on behalf of the Union of India that if, in any case, a manufacturer is obliged to sell his goods at a price lower than the normal price declared under Section 4 (for the purposes of determining G the assessable value), it is always open to him to approach the excise authorities for re- determination of the assessable value. In other words, he can ask for reduction in the excise duty component on the ground that he is obliged to sell his goods at a lower price on account of various commercial compulsions. H

712 SUPREME COURT REPORTS[1996] SUPP.10 S.C.R. 0

95Copy pinpoint95. Rule 9-B provides for provisional assessment in situations specified in clauses (a), (b) and (c) of sub-rule (1). The goods provisionally assessed under sub-rule (1) may be cleared for home consumption or export in the same manner as the goods which are finally assessed. Sub-rule · (5) provides that "when the duty leviable on the goods is assessed finally B in accordance with the provisions of these Rules, the duty provisionally assessed shall be adjusted against the duty finally assessed, and if the duty provisionally assessed falls short of or is in excess of the duty finally assessed, the assessee shall pay the deficiency or be entitled to a refund, as the case may be". Any recoveries or refunds consequent upon the adjustment under sub-rule (5) of Rule 9-B will not be governed by Section C 11-A or Section 11-B, as the case may be. However, if the final orders 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 position would be the same in the converse situation.

NATURE AND CHARACTER OF REFUND CLAIMS UNDER THE CENTRAL EXCISES AND SALT ACT AND THE CUSTOMS ACT:

96Copy pinpoint96. It would be evident from the above discussion that the claims for refund under the said two enactments constitute an independent regimen. Every decision favourable to an assessee/manufacturer, whether on the question of classification, valuation or any other issue, does not automat- ically entail refund. Section 11-B of the Central Excises and Salt Act and Section 27 of the Contract Act, whether before or after 1991 Amendment G - as interpreted by us herein - 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

MAFATLALINDS.LTD.v. U.O.I. 713

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/Sec- tion 27 are constitutionally valid, as explained by us hereinbefore. They have to be applied and followed implicitly wherever they are applicable.

MEANING AND PURPORT OF SECTION 11-D : B

97Copy pinpoint97. It was contended by the learned counsel for the appellants- petitioners that Section 11-D provides for double taxation. It was con- tended that sub-section (1) of Section 11-D 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. We do not think that there is any foundation for the said under- standing or apprehension. There are no words in the section which provided 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 E 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 case, the manufacturer has collected less amount as representing the duty of excise than 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, Secti,x;;_ 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.

98Copy pinpoint98. A clarification : The situation in the case of captive consumption has not been dealt with by us in this opinion. We leave that question open.

PART - IV

99Copy pinpoint99. The discussion in the judgment yields the following propositions. We may forewarn that these propositions are set out merely for the sake H

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

A of convenient reference and are not supposed to be exhaustive. In case of any doubt or ambiguity in these propositions, reference must be had to the discussion and propositions in the body of the judgment.

(i) Where a refund of tax duty is claimed on the ground that it has been collected from the petitioner/plaintiff - whether before the commen- cement of the Central Excises and Customs Laws (Amendment) Act, 1991 or thereafter - by mis-interpreting or mis- applying the provisions of the Central Excises and Salt Act, 1944 read with Central Excise Tariff Act, 1985 or Customs Act, 1962 read with Customs Tariff Act or by mis-inter- preting or mis-applying any of the rules, regulations or notifications issued under the said enactments, such a claim has necessarily to be preferred under and in accordance with the provisions of the respective enactment before the authorities specified thereunder and within the period of limita- tion prescribed therein. No suit is maintainable in that behalf. While the jurisdiction of the High Courts under Article 226 - and of this Court under D Article 32 - cannot be circumscribed by the provisions of the said enact- ments, they will certainly have due regard to the legislative intent evidenced by the provisions of the said Acts and would exercise their jurisdiction consistent with the provisions of the Act. The writ petition will be con- sidered and disposed of in the light of and in accordance with the provisions of Section 11-B. This is for the reason that the power under E Article 226 has to be exercised to effectuate the rule of law and not for abrogating it.

The said enactments including Section 11-B of Central Excises and Salt Act and Section 27 of the Customs Act do constitute "law'' within the F meaning of Article 265 of the Constitution of India and hence, any tax collected, retained or not refunded in accordance with the said provisions must be held to be collected, retained or not refunded, as the case may be, under the authority of law. Both the enactments are self-contained enact- ments providing for levy, assessment, recovery and refund of duties im- G posed thereunder. Section 11-B of the Central Excises and Salt Act and Section 27 of the Customs Act, both before and after the 1991 (Amend- ment) Act are constitutionally valid and have to be followed and give effect to. Section 72 of the Contract Act has no application to such a claim of refund and cannot form a basis for maintaining a suit or a writ petition. H All refund claims except those mentioned under Proposition (ii) below

MAFATLALINDS. LTD. v. U.0.1. 715

have to be and must be filed and adjudicated under the provisions of the A Central Excises and Salt Act or the Customs Act, as the case may be. It is n~cessary ·to emphasise in this behalf that Act provides a complete mechacisffi for correcting any errors whether of fact or law and that not only an appeal is provided to a Tribunal - which is not a departmental organ ~ but to this Court, which is a civil court. B

(ii) Where, however, a refund is claimed on the ground that the provision of the Act under which it was levied is or has been held to be unconstitutional, such a claim, being a claim outside the purview of the enactment, can be made either by way or a sui~ or by way of a writ petition. This principle is, however, subject to an exception : where a person c approaches the High Court or Supreme Court challenging the constitution- al validity of a provision but fails, he cannot take advantage of the decla- ration 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 D another person's case; this is the ratio of the opiniqn of Hidayatullah, CJ. in Tilokchand Motichand and we respectfully agree with it.

Such a claim is maintainable both by virtue of the declaration con- tained in Article 265 of the Constitution of India and also by virtue of E Section 72 of the Contract Act. In such cases, period of limitation would naturally be calculated taking into account the principle underlying clause (c) of sub-section (1) of Section 17 of the limitation Act, 1963.. A refund claim in such a situation cannot be governed by the provisions of the Central Excises and Salt Act or the Customs Act, as the case may be, since F the enactments do not contemplate any of their provisions being struck down and a refund claim arising on that account. It other words, a claim of this nature is not contemplated by the said enactments and is outside their purview.

(iii) A claim for refund, whether made under the provisions of the G Act as contemplated in Proposition (i) above or in a suit or writ petition in the situations contemplated by Proposition (ii) above, can succeed only if the petitioner/plaintiff alleges and establishes that he has not passed on the burden of duty to another person/other persons. His refund claim shall be allowed/decreed only when he establishes that he has not passed on the H

716 SUPREME COURT REPORTS(l996] SUPP. 10 S.C.R.

A burden of the duty or to the extent he has not so passed on, as the case may be. Whether the claim for restitution is treated as a constitutional imperative or as a statutory requirement, it is neither an absolute right nor an unconditional obligation but is subject to the above requirement, as explained in the body of the judgment. Where the burden of the duty has been passed on, the claimant cannot say that he has suffered any real loss or prejudice. The real loss or prejudice is suffered in such a case by the person who has ultimately borne the burden and it is only that person who can legitimately claim its refund. But where such person does not come forward or where it is not possible to refund the amount to him for one or the other reason, it is just and appropriate that that amount is retained by the State, i.e., by the people. There is no immorality or impropriety involved in such a proposition.

The doctrine of unjust enrichment is a just and salutory doctrine. No person can seek to collect the duty from both ends. In other words, he cannot collect the duty from his purchaser at one end and also collect the same duty from the State on the ground that it has been collected from him contrary to law. The power of the Court is not meant to be exercised for unjustly enriching a person. The doctrine of unjust enrichment is, however, inapplicable to· the State. State represents the people of the country. No one can speak of the people being unjustly enriched.

(iv) It is not open to any person to make a refund claim on the basis of a decision of a Court or Tribunal rendered in the case of another person. He cannot also claim that the decision of the Court!fribunal in another person's case has led him to discover the mistake of law under which he has paid the tax nor can he claim that he is entitled to prefer a writ petition or to institute a suit within three years of such alleged discovery of mistake of law. A person, whether a manufacturer or importer, must fight his own battle and must succeed or fail in such proceedings. Once the assessment or levy has become final in his case, he cannot seek to reopen it nor can he claim refund without re-opening such assessment/order on the ground of a decision in another person's case. Any proposition to the contrary not only results in substantial prejudice to public interest but is offensive to several well established principles of law. It also leads to grave public mischief. Section 72 of the Contract Act, or for that matter Section 17(1)(c) H of the Limitation Act, 1963, has no application to such a claim for refund.

MAFATLAL INDS. LTD. v. U.0.1. 717

(v) Article 265 of the Constitution has to be construed in the light of the goal and the ideals set out in the Preamble to the Constitution and in · Articles 38 and 39 thereof. The concept of economic justice demands that in the case of indirect taxes like Central Excises duties and Customs duties, the tax collected without the authority of law shall not be refunded to the petitioner- plaintiff unless he alleges and establishes that he has not passed on the burden of duty to a third party and that he has himself borne the burden of the said duty.

(vi) Section 72 of the Contract Act is based upon and incorporates a rule of equity. In such a situation, equitable considerations cannot be ruled out while applying the said provision. C

(vii) While examining the claims for refund, the financial chaos which would result in the administration of the State by allowing such claims is not an irrelevant consideration. Where the petitioner-plaintiff has suffered no real loss or prejudice, having passed on the burden of tax or duty to D another person, it would be unjust to allow or decree his claim since it is bound to prejudicially affect the public exchequer. In case of large claims, it may well result in financial chaos in the administration of the affairs of the State. E (viii) The decision of this Court in Income Tax Officer Benaras v. Kanhaiyalal Mukundlal Saraf, [1959] S.C.R. 1350 must be held to have been wrongly decided insofar as it lays down or is understood to have laid down propositions contrary to the propositions enunciated in (i) to (vii) above. It must equally be held that the subsequent decisions of this Court follow- F ing and applying the said propositions in Kanhaiyalal have also been wrongly decided to the above extent. This declaration - or the law laid down in Propositions (i) to (vii) above - shall not however entitle the State to recover to taxes/duties already refunded and in respect whereof no proceedings are pending before any authority/Tribunal or Court as on this date. All pending matters shall, however, be governed by the law declared G herein notwithstanding that the tax or duty has been refunded pending those proceedings, whether under the orders of an authority, Tribunal or Court or otherwise.

(ix) The amendments made .and the provisions inserted ·by the H

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

A Central Excises and Customs Law (Amendment) Act, 1991 in the Central Excises and Salt Act and Customs Act are constitutionally valid and are unexceptionable.

' (x) By virtue of sub-section (3) to Section 11-B of the Central Excises B and Salt Act, as amended by the aforesaid Amendment Act, and by virtue of the provisions contained in sub-section (3) of Section 27 of the Customs Act, 1962, as amended by the said Amendment Act, all claims for refund (excepting those which arise as a result of declaration of unconstitutionality of a provision whereunder the levy was created) have to be preferred and adjudicated only under the provisions of the respective enactment. No suit for refund of duty is maintainable in that behalf. So far as the jurisdiction of the High Courts under Article 226 of the Constitution - or of this Court under Article 32 - is concerned, it remains unaffected by the provisions of the Act. Even so, the Court would, while exercising the jurisdiction under the said articles, have due regard to the legislative intent manifested by the provisions of the Act. The writ petition would naturally be considered and disposed of in the light of and in accordance with the provisions of Section 11-B. This is for the reason that the power under Article 226 has to be exercised. to effectuate the regime of law and not for abrogating it. Even . while acting in exercise of the said constitutional power, the High Court E cannot ignore the law nor can it over-ride it. The power under Article 226 is conceived to serve the ends of law and not to transgress them.

(xi) Section 11-B applies to all pending proceedings notwithstanding the fact that the duty may have been refunded to the petitioner/plaintiff pe'lding the proceedings or under the orders of the Court/Tribunal/Authority or otherwise. It must be held that Union of India v. Jain Spinners, [1992) 4 S.C.C. 389 and Union of India v. I. T.C., [1993) Suppl. 4 S.C.C. 326 have been correctly decided. It is, of course, obvious that where the refund proceedings have finally terminated - in the sense that the appeal period has also expired - before the commencement of the 1991 (Amendment) Act (September 19, 1991), they cannot be re-opened and/or governed by Section ll-B(3) (as amended by the 1991 (Amend- ment) 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 made by us.

MAFATLAL INDS. LTD. v. U.O.I. [AHMADI, CJ.] 719

(xii) Section 11-B does provide for the purchase making the claim for refund provided he is able to establish that he has not passed on the burden to another person. It, therefore, cannot be said that Section 11-B is a device to retain the illegally collected taxes by the State. This is equally true of Section 27 of the Customs Act, 1962. B

100Copy pinpoint100. We take note of the fact that writ petitions/writ appeals/suits claiming refund of excise duties/customs duties may be pending as on today. They are liable to fail on the ground of maintainability by virtue of the law . declared herein. Since the law is being declared and clarified by us now, we make the following directions :' in cases where writ petitions, writ appeals (by whatever appellation they are called) or suits (at whatever stage they may be, as on today) are pending as on today, and provided they have not already taken proceedings for refund under the Act, it shall be open to the petitioners/appellants/plaintiffs to file applications for refund under Section 11-B within sixty days from today. If the applications are so filed by them, they shall not be rejected on the ground of limitation and shall be dealt with according to law. We make it clear that this direction applies only to petitioners/appellants/plaintiffs in pending writ peti- tions/writ appeals/suits (pending as on today), as explained hereinabove, and not to any others. The applications so filed under Section 11-B shall be disposed of under Section 11-B, as interpreted herein, and in accordance with law. It is obvious that if any of such petitioners/appellants/plaintiffs already taken proceedings for refund under the Act and having failed therein - either partly or wholly - have resorted to writ petition or suit, they shall not be entitled to the benefit of this direction. F

101Copy pinpoint101. The individual cases may now be listed before a Division Bench for being disposed of in this light of the judgment.

There shall be no order as to costs.

AHMADI, CJ. I have had the benefit of studying the judgments of G my learned brothers Reddy, Sen and Paripoornan, JJ. Pursuant to the discussions that I have had with them and with all my other learned brothers on this bench, I find myself to be broadly in agreement with the conclusions recorded by Reddy, J. subject to the two aspects on which I have recorded my views hereunder : H

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

A The first of these is the issue regarding the extent to which the jurisdiction of ordinary courts is ousted in respect of claims for refund of taxes illegally levied and collected. In my view, it would be incorrect to hold, as Reddy, J. has done, that every claim for refund of illegal or unauthorised levy of tax is necessarily required to be made in accordance with the provisions of the Central Excise Act, 1944 (hereinafter called "the Excise Act"). The leading authority governing this issue is the decision of this Court inDhulabhai and Others v. State of Madhya Pradesh and Another, [1968] 3 S.C.R. 662. In this case, after analysing the leading decisions in the field, this Court laid down the following propositions with a view to determining the extent to 'Nhich the jurisdiction of civil courts can be ousted:

"(1) Where the statute gives a finality to the orders of the special tribunals the Civil Courts' jurisdiction must be held to be excluded if there is adequatt- remedy to do what the Civil Courts would normally do in a suit. Such provision, however, does not exclude those cases where the provisions of the particular Act have not been complied with or the statutory tribunal has not acted in conformity" with the fundamental principles of judicial procedure.

(2) Where there is express bar of the jurisdiction of the Court, an examination of the scheme of the particular Act to find the ade- quacy or the sufficiency of the remedies provided may be relevant but is not decisive to sustain the jurisdiction of the civil court.

Where there is no express exclusion the examination of the remedies and the scheme of the particular act to find out the intendment becomes necessary to see if the statute creates a special right or a liability and provides for the determination of the right or liability and further lays down that all questions about the said right and liability shall be determined by the tribunals so con- stituted, and whether remedies normally associated with actions in G Civil Courts are prescribed by the said statute or not.

(3) Challenge to the provisions of the particular Act as ultra vires cannot be brought before Tribunals constituted under that Act. Even the High Court cannot go into that question on a revision or reference from the decision of the Tribunals.

MAFA1LAL INDS. LID. v. U.0.I. [AHMADI, CJ.] 721

( 4) When a provision is already declared unconstitutional or the constitutionality of any provision is to be challenged, a suit is open. A writ of certiorari may include· a direction for refund if the claim is clearly within the time prescribed by the Limitation Act but it is not a compulsory to replace a suit.

(5) Where the particular Act contains no machinery for refund of tax collected in excess of constitutional limits or illegally collected a suit lies.

( 6) Questions of the correctness of the assessment apart from its constitutionality are for the decision of the authorities and a civil suit does not lie if the orders of the authorities are declared to be final or there is an express prohibition in the particular Act. In either case the scheme of the particular Act must be examined because it is a relevant enquiry.

(7) An exclusion of the jurisdiction of the Civil Court is not readily to be inferred unless the conditions above set down apply."

In view of these propositions, which have been reiterated by this Court on several occasions and thus constitute sound law, it is clear that actions by way of suits or petitions under Article 226 of the Constitution E 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 understood by focussing on the parameters of these classes which are as follows :

Class 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 (hereinafter called "Contract Act") or invoke the writ jurisdiction of the High Court under Article 226 of the Constitution.

Class II : "Illegal levy" - where claims for refund are founded on the ground that there is misinterpretation/misapplication/erroneous interpreta- tion of the Excise Act and the Rules framed thereunder. H

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

A Ordinarily, all such claims must be preferred under the provisions of the Excise Act 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. Reddy, J. has held that in all cases, except where unconstitutionality is alleged, the remedy is to be pursued within the framework of the Excise Act. This is a dangerous proposition for it will not cater to situations where the authorities under the Excise Act assume authority in cases where there is an inherent lack of jurisdiction. This is because, if one were to follow Reddy, J.'s reasoning, the authorities under the Act will have the final say over situations in which they totally lack inherent jurisdiction. In such a situation, there is nothing to prevent the authorities from exercising juris- diction in cases which are ultra vires the Excise Act but intra vires the Constitution. To that extent, I would hold that in cases where the authorities under the Excise Act initiate action though lacking in inherent 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 as authority acting under a statute is said to lack inherent jurisdiction have been clearly demarcated by several decisions of this Court.

Class Ill : "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.

F Ordinarily, no assessee can be allowed to reopen proceedings that have been ·finally concluded against him on the basis of a favourable · decision in the case of another assessee. This is because 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. G In cases where the levy of a tax has been held to be (1) unconstitu- tional; or (2) void for want of inherent jurisdiction (as explained in Class II), it is open. for the assesses to take advantage of the declaration of the law so made and claim refunds on the ground that they paid the tax Under H a mistake of law. This is because such claims are outside the ambit of the

MAFATLALINDS. LTD. v. U.O.L [AHMADI, CJ.] 7'23

Excise Act. In such cases, the limitation period applicable will be that A specified in Section 17(1)(c) of the Limitation Act.

Reddy, J. has moulded an exception to the above stated principle. He has held that where a person approaches the High Court or the Supreme Court challenging the constitutional validity of a provision but fails, he cannot take advantage of the declaration of unconstitutionality · B 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 ignored or put aside as if it did not exist on the basis of the decision in another person's case. However, in my opinion, 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 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 provisions. Considering the gravity of the case, in my opinion, it should be left open to such an assessee to use 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. · E On the issue of the retrospective application of the amended provisions of the Excise Act, I wish to emphasise on practical difficulty that may arise. Reddy, J. has held that in respect of proceedings that have been finally culminated, there is no question of reopening proceedings, and retrospectively applying the amended Section llB. However, in respect of decrees and orders that have become final but have not been executed, the non obstante clause, Section 11B(3), provides as follows :

"(3) Notwithstanding anything to the contrary contained in any judg- ment, decree, order or direction of the Appellate Tribunal or any court or in any other provision of this Act or the rules made thereunder or any other law for the time being in force, no refund shall be made except as provided in sub-section (2)."

(Emphasis added)

It is, therefore, clear that in respect of such decrees and orders, the H

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

A procedure and conditions prescribed in Section llB will have to be com- plied with. However, under the scheme of the amended Excise 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 pending decrees and orders. But it must at the same time be reallsed that in such a case, the assessee was protesting the recovery of the 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 proviso to clause (1) of Section llB. This would enable the assessees in such cases to file fresh applications under Section 11B(2), thereby complying with the scheme of the amended Excise Act.

Subject to the above, I agree with the rest of the conclusions reached by Reddy, J.

PARIPOORNAN, J. Common questions of law arise for considera- tion in this batch of cases. Initially the matter came up before a two Member Bench. The said Bench felt that the decision of the Constitution E Bench comprising of 5 Judges in Sales Tax Officer, Benaras & Others v. Kanhaiya Lal Mukundlal Saraf, AIR (1959) SC 135 = [1959) SCR 1350 requires reconsideration and referred the matter to a larger bench of 7 Judges. When the matter came up before a Bench of 7 Judges, it was noticed that Kanhaiya Lat's case (supra) was expressly approved by a F bench of 7 Judges in the decision reported in State of Kera/a v. Aluminium Industries Ltd., (1965) 16 STC 689, and so, by order dated 28.7.1993, the said Bench directed that the matter may be placed before the learned Chief Justice for constituting a still larger Bench. That is how this batch cf cases came up before a Bench of 9 Judges. We heard, Sri F.S. Nariman, Sri Soli Sorabjee and Sri Harish Salve, Senior Advocates, who appeared for the different assessees (claimants) and Sri K. Parasaran and Sri M. Chandrashekhar, Senior Advocate who appeared for the Union of India.

2. Stated briefly, the controversy centres round the tenability or otherwise of the claim for refund of the amounts paid be way of excise duty under the Central Excises and Salt Act, 1944, now titled as Central Excise

MAFATLALINDS. LTD. v. U.0.1. [PARIPOORNAN,J.) 725

Act, 1944 (hereinafter referred to as 'the Excise Act') on the ground that A ;; it was so done under "mistake of law". It will be convenient to deal with the controversy by adverting to the minimal facts in the main appeal argued before us - Civil Appeal No. 3255 of 1984 - Mafatlal lndustlies Ltd., Ahmedabad v. Union of India. The appellant is a textile mill situate at Ahmedabad. The appellant and a few other mills manufacture "blended B yarn". The said blended yearn was captively consumed by the various mills for manufacture of fabric, popularly known as "art silk" fabric. For the period prior to March 16/17, 1972, the mills paid excise duty on blended yarn manufactured for captive consumption under Tariff Item 18 or 18A of the First Schedule to the Excise Act. In Special Application No. 1058/72 filed by M/s. Calico Mills, who manufactured fabrics and was captively c consuming blended yarn, produced by it for manufacturing fabric kn.own as "art silk fabric", a Division Bench of the Gujarat High Court by judgment dated 15.1.1976, held that the levy of the excise duty on blended yarn prior to March 16/17, 1972, under tariff Item 18 or 18A was clearly ultra vires. D The High Court directed refund of the excise duty levied for 3 years prior to institution of the petition, which was instituted on 6.5.1972. The appel- !ant and other mill-owners stated that as a result of the declaration of the law as aforesaid by the Court, they were not liable to pay excise duty on blended ya~n up to March 16/17, 1972 and that they had paid the excise duty on the same upto that date under mistake of law. They requested for refund of the excise duty so paid till March 16/17, 1972, stating that such duty was illegally recovered from them. The Revenue did not refund the excise duty as claimed. So, the appellant and others filed suits within three years of the aforesaid judgment (15.1.1976) for refund of excise duty illegally recovered from them, with interest. The trial court decreed the suits. In the appeals filed by the Union of India against the aforesaid decrees passed by the trial court, the High Court of Gujarat allowed the appeals and set aside the decrees passed by the trial courts, by judgment dated 6.4.1984. It was held that in order to successfully sustain the. claim ~- of restitution based on Section 72 of the Contract Act, the person claiming restitution should prove "loss or injury" to him, and in the cases before them, the excise duty paid on blended yarn was ultimately passed on to the .. buyer of the fabric, and so the claim for restitution will not lie. In other words, in cases where an assessee has "passed on" the duty paid by or realised from him, he has suffered no loss or injury, and the action for H

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

A restitution is unsustainable. The aforesaid statement of the law is seriously disputed by the appellants in Civil Appeal No. 3255/84 and others.

3. In the ultimate analysis, the main question that falls for considera- tion in this batch of cases is, whether in an action claiming refund of excise duty (tax) paid under mistake of law, is it essential for the person claiming such refund, to establish "loss or injury'' to him? In other words, in cases where the person from whom the excise duty (tax) is collected, has "passed on" the liability or deemed to have passed on the liability, is it open to him to claim refund of the duty paid by him, placing reliance on Section 72 of the Indian Contract Act? The further question as to whether an action by way of civil suit or a writ petition under Article 226 of the Constitution will lie in the light of various amendments to the Act, claiming "refund" or ·"restitution", also arises for consideration.

4. I Pfrused the draft judgment prepared by my learned brother D Jeeven Reddy, J., wherein on the main question, he has held that if the person claiming the refund has passed on the burden of duty to another and has not really suffered any loss or prejudice, there is no question of reimbursing him and he cannot successfully sustain an action for restitu- tion, based on Section 72 of the Indian Contract Act. With great respect, I fully concur with the aforesaid conclusion of my learned brother. But, in E view of the importance of the question raised, I would like to record my own reasons for the aforesaid conclusion. I shall separately deal with the maintainability of the action either by way of suit or petition under Article 226 of the Constitution - the extent to which there is ouster of jurisdiction of Courts. F

5. -In this batch of cases, the claims by different assessees for refund of excise duty paid by them under mistake of law arise over a period of years, and the claims were made in different proceeding - before the departmental authorities, by way of civil suits and writ petitions under Article 226 of the Constitution, which are in appeal before us. G Broadly, the basis for the various refund claims can be classified into 3 groups or categories :

(I) The levy is unconstitutional - outside the provisions of the Act or not contemplated by the Act.

MAFATLALINDS. L1D. v. U.O.I. [PARIPOORNAN,J.) 727

(II) The levy is based on misconstruction or wrong or erroneous interpretation of the relevant provisions of the Act, Rules or Notifications; or by failure to follow the vital or fundariie'll'tal provisions of the Act or by acting in violation of the fundamental principles of judicial procedure.

(III) Mistake of law - the levy or imposition was unconstitutional or illegal or not exigible in law (without jurisdiction) and, so found in a B proceeding initiated not by the particular assessee, but in a proceeding initiated by 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. C For the periods during which the refund were claimed, there were different statutory provisions which governed the subject. They are -

(a) Period up to 7.8.1977 - Rule 11 of the Central Excise Rules, before amendment; D (b) Period from 7.8.1977 to 16.11.80 - Rule 11 of the Central Excise Rules, as amended;

(c) Period from 16.11.1980to19.9.1991- Section llA and Section llB of the then Central Excises & Salt Act; E

(d) Period after 19.9.1991 - Section llA read along with Section llB of the Act, as amended by Act 40 of 1991.

The circumstances and grounds on the basis of which the refund can be claimed, the period within which it should be so done, the forum before F which the claim should be preferred and whether the decision thereon is subject to the jurisdiction of ordinary courts, vary from period to period. We shall advert to such provision and their impact on various aspects regarding the claim for refund a little later. G Rule 11 of the Central Excise Rules which dealt with claims for refund of duty as it was in force prior to 7.8.1977, is to the following .. effect:

"Rule 11. No refund of duties or charges erroneously paid, unless claimed within three months. - No duties or charges which have H

72Ji, SUPREME COURT REPOR TS(l996] SUPP. 10 S.C.R.

A been paid or have been adjusted in an account current maintained with the Collector under Rule 9, and of which repayment wholly or in part is claimed in consequence of the same having been paid through inadvertance, error or misconstruction, shall be refunded unless the claimant makes an application for such refund under his signature and lodges it with the proper officer within three months from the date of such payment or adjustment, as the case maybe."

It should be noted that Rule 11 before amendment did not provide for any ouster of jurisdiction of courts. We shall deal with Rule 11-A as amended and Sections llA and B of the Excise Act a little later. The Revenue states that in view of these later provisions, there is ouster of jurisdiction of courts, relating to claims for refund.

6. The claims by different assessee for refund arose and are/were D preferred during different periods. After Rule 11 was amended and Sec- tions llA and B were inserted in the Act, the statute contained provisions making them exclusive for claiming refund. Be that as it may, it is only relevant to state at this juncture that in all cases, irrespective of the relevant statutory provisions in the Excise Act and/or the Rules, the claims for refund were made in different proceedings mainly based on section 72 of E the India Contract Act. So the main issue, in all the cases, that arises for consideration is, whatever be the nature of the attack regarding the levy, or the basis put forward for claiming refund, or the period for which refund is claimed or the character of the proceedings in which it was so done, or the different nature or chancter of the statutory provisions either providing p or not providing as to how and in what manner the claim should be made, - whether the claim for refund is tenable in any of the proceedings, for any period, based on Section 72 of the Contract Act, if the assessee has "passed c on" the liability to the consumer or third party?

7. The levy under the Excise Act is an indirect tax (duty). A duty of ".. G excise is levied on the manufacture or production of goods. Ordinarily, it is levied on the manufacturer or producer of goods. (Since the levy is in relation to or in connection with the manufacture or production of goods, it may be levied even at a point later than manufacture or production of the goods.) The duty levied will form part of the total cost of the manufac- H turer or producer. The levy being a component of the price for which the

MAFATLALINDS. LTD. v. U.0.1. [PARIPOORNAN,J.) 729

goods are sold, is ordinarily passed on to the customer. It is a matter of common knowledge that every prudent businessman will adjust his affairs in his best interests and pass on the duty levied or leviable on the com- modity to the consumer. That is the presumption in law.

8. The claim for refund. in these cases is based upon the plea that excise duty was paid when it was not exigible. It was so done under mistake of law. Refund is claimed basing the action under Section 72 of the Contract Act, which is to the following effect :

"Liability for person to whom 72. A person to whom money has money is paid or thing been paid, or anything delivered, delivered, by mistake or under by mistake or under coercion, coercion. must repay or return it.

Illustrations

(a) A and B jointly owe 100 rupees to C. A alone pays the amount D to C, and B, not knowing this fact, pays 100 rupees over again to C. C is bound to repay the amount to B.

(b) A railway company refuses to deliver up certain goods to the consignee, except upon the payment of an illegal charge for car- E riage. The consignee pays the sum charged in order to obtain the goods. He is entitled to recover so much of the charge as was illegally excessive."

Chapter V of the Indian Contract Act is styled thus : "Of Certain Relations Resembling Those Created By Contract". The Chapter contains five sec- F tions - Section 68 to 72. The rights and liabilities dealt with in those Sections accrue from relations resembling those created by contract. It is not a real contract, but one implied in law or a quasi-contract.

Law is fairly settled that "Money paid under a mistake or on a consideration which has wholly failed or under duress falls under the G general head of money "had and received." An action for money "had and received." An action for money "had and received" is an action "founded on simple contract" which has been called quasi contract or restitution". Pollock & Mulla Indian Contract And Specific Relief Acts (10th Edition) page 598. H

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

A 9. The Law of Restitution is founded upon the principle of "unjust enrichment". As stated by the learned authors, Lord Goff of Chieveley and Gareth Jones "The Law of Restitution" (3rd Edu.) 1986. "It presupposes three things : first, that the defendant has been enriched by the receipt of a benefit; secondly, that he has been so enriched at the plaintiff's expense; B and thirdly, that it would be unjust to allow him to retain the benefit. These three subordinate principles are closely interrelated." (page 16).

Cheshire Fifoot & Furmston's "Law of Contract" (12th Edn.) 1991, page 649.)

C 10. The second aspect aforesaid, namely, that the defendant has been enriched "at the plaintiffs' expense", has been considered by Peter Birks (Professor of Civil Law, University of Edinburgh) "introduction to the Law of Restitution". rather elaborately. The principles discernible from the above discussion has bee succinctly stated by Endrew Burrows : The Law of Restitution (1993), at page 16, thus : D "It is the major theme of Birks' work that this phrase ambiguously conceals two different ideas in the law of restitution. The first, and most natural meaning, is that the defendant's gain represents a loss to the plaintiff: in Birks' tenninology a 'subtraction from' the plaintiff. E The second, and less obvious meaning, is that the defendant's gain has been acquired by committing a wrong against the plaintiff."

(Emphasis supplied)

The person claiming restitution should have suffered a "loss of injury". In F my opinion, in cases where the assessee or the person claiming refund has passed on the incidence of tax to a third person, how can it be said that he has suffered a loss of injury? How is it possible to say that he has got ownership or title to the amount claimed, which he has already recouped from a third party? So, the very basis requirement for a claim of restitution G under Section 72 of the Contract Act is that the person claiming restitution should plead and prove a loss or injury to him; in other words, he has not passed on the liability. If it is not so done, the action for restitution or refunds, should fail.

11. In this connection, the decision of a three-member Bench of this H Court in Mulamchand v. State of Madhya Pradesh, AIR (1968) S.C. 1218,

MAFATLALINDS. LTD. v. U.O.I. [PARIPOORNAN,J.] 731

affords some guidance. The appell<\flt in that case, purchased a right to pluck, collect and remove the forest produce from the proprietors. The right was acquired before the propriety rights vested in the State of Madhya Pradesh by Act No. 1 of 1951 - called the Abolition Act. Acting under the Act, in April, 1951 the Deputy Commissioner auctioned the forest produce of villages covered by the purchases of the appellant. Amongst others, the appellant had deposited a sum of Rs. 10,000 towards the right to collect lac from' the forest. It turned out that the provisions of Article 299 of the Constitut\ion were not complied with and the contract entered into by appellant. therein with the State of Madhya Pradesh was void. The ·appellant Paimed ri:fun.d on the basis that there was no valid contract. The trial court as wellas the appellant court held that the appellant having worked out the eontract by collecting the lac from the jungles in pursuance of the agreement, was not· entitled to refund of the amount of deposit. In t~e appeal filed by the appellant, this Court held that if the money is deposited and the goods are supplied or services rendered in terms of the contract, the provision of Section 70 of the Contract, Act may be applicable and, can be invoked by the aggrieved party to the void contract. D This Court further held at pages 1222-23, thus :

"The juristic basis of the obligation in such a case is not found(\d upon any contract or tort but upon a third category of law, namely, quasi-contract or restitution. In Fibrosa v. Fairbairn, (1943) AC 32 LOrd Wright has stated the legal position as- follows : E

"........ any civilised system of law is bound to provide remedies for cases of what has been called unjust enrichment or1unjust benefit, that is, to prevent a man from retaining the money of, or some benefit cl,erived from, another which it is against conscience that he should keep. Such remedies ill English Law are generically different from remedies in contract or in tort, and are now recog- nised to.fall within a third category of the common law which has been called quasi- contract or restitution."

(7) In Nelson v. Larhol~ (1948) 1 KB 339 Lord Denning has observed as follows.

"It is no longer appropriate to draw a distinction between law and equity, Principles have now to be stated in the light of their combined effect. Nor is it necessary to canvass the niceties of the H ·

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

A old fonns of action. Remedies now depend on the substance of the right, not on whether they can be fitted into a particular framework. The right here is not pecUliar to equity or contract or tort, but falls naturally within the important category of cases where the court orders restitution of the justice of the case so requires."

B (Emphasis· supplied)

· This Court furthe~ stated the law thus :

: ".... It is well established that a~ person who seeks restitution has a duty to account to the defendant for what he has received in the c transaction from which his right to restitution arises. In other words, an accounting by the plaintiff is a condition of restitution from the defendant (See 'Restatement of the Law of Restitution', American Law Institute, 1937 Edn., p. 634)."

(Emphasis supplied) D The observations extracted above indisputably point out that a person who seeks restitution, has a duty to disclose or account for what he has received in the transaction. An accounting is a condition 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 reslftution, should plead and prove that "he has not passed on" the liability to another. That is the nature of "accounting" in cases falling under Section 72 of the Contract Act. In my opinion, Qie 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 unsustainable. (This is the legal position even under general law, without reference to section 1JB of Central Excises & Salt Act as amended by Act 40/1991).

MAFA1LALINDS. LTD. v. U.0.1.[PARIPOORNAN,J.] 733

was argued. that the decision in Kanhaiya Lat's case was followed sub- A sequently in Tilokchand Motichand & Ors. v. H.B. Munshi & Anr., [1969) 2 SCR824; D. Cawasji & Co., Etc. Etc. v. The State of Mysore & Anr., [1975) 2 SCR 511; Dhanyalakshmi Rice Mills Etc. v. The Commissioner of Civil Supplies and Another, [1976) 3 SCR 387 Etc. The plea was that the law laid down in Kanhaiya Lat's case has stood the test of time for nearly four decades and there is no requirement either in Section 72 of the Indian . B Contract Act or in any of the above decisions, holding that in order to claim refund or restitution based on Section 72 of the Contract Act, the liability (duty) should not have been passed on. Our attention was also invited to the decision of House of Lords in Woolwich Building Society v. Inland Revenue Commissioners (No. 2), (1992) 3 All ER 737, of the Canadian Court in Air Canada case, (59 D.L.R. (4th series) 161), (in particular C dissenting judgment of Wilson, J.), of the decision of the Australian Court in Commissioner of State Revenue v. Royal Insurance Australia Ltd., (1994) 69 A.L.J. 51, of the European Economic Committee in San Giorgio S.PA. case (1985) 2 C.M.L.R. 658, and the decision of the United State Supreme Court in United States v. Jefferson Electric Manufacturing Co., 78 Lawyers' D Edition 859, It was argued that the preponderance of judicial opinion in other jurisdictions also is in favour of the view, that "passing on" of the liability, is an irrelevant factors for consideration in an action for restitu- . tion, and at any rate, it cannot form the basis of a valid defence in an action for "restitution". Mr. Parasaran, Senior Counsel for the Union of India contended that the question of "passing on" of the liability never arose for consideration in Kanhaiya Lat's case nor was it decided. The said decision cannot be an authority for the proposition that a person claiming refund of tax on the ground of mistake of law is not obliged to allege and prove that it has not been passed on; on the other hand, it is mandatory for a claimant in such cases to allege and prove that he suffered a loss or detriment. Then and then alone, that Court can grant the equitable relief of restitution. Counsel also contended that the principle in Kanhaiya Lat's case (supra) has not been uniformally followed by this Court subsequently. Counsel also distinguished the various foreigu decisions that were brought to our notice and highlighted the fact that those decisions were ren\iered on their own facts. Counsel further contended that in cases of indirec.t levy of tax (ess or fee) whi.ch was passed on, this Court has negatived the claim for refund in a few cases. Our attention was invited to the following decisions:

Shiv Shanker Dal Mills Etc. Etc. v. State of Haryana & Ors. Etc., [1980] 1 SCR 1170 (1173); State of Madhya Pradesh v. Vyankatlal & Anr., [1985) H

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

A 3 SCR 561, 566-568; M/s. Amar Nath Om Parkash and Ors. Etc. v. State of Punjab and Ors. Etc., (1985] 2 SCR 72 (at pp. 96-100); Indian Aluminium Company Limited v. Thane Municipal Corporation, (1992] Supp. 1 SCC 480 (488-489) and State of Rajasthan & Others v. Novelty Stores Etc., AIR (1995) SC 1132.

B 13. The main case relied on, Kanhaiya Lal's case (supra) requires a little detailed examination. The respondent, Kanhaiya Lal was a furn. For the assessment years 1948-49, 1949-50 and 1950-51, its forward transactions were brought to tax by the Assessing Authority - the Sales Tax Officer, as per Assessment orders dated 31.5.1949, 30.10.1950 and 22.8.1951. On C 27.2.1952, the Allahabad High Court in Messrs Budh Prakash Jai Prakash v. Sales Tax Officer, Kanpur & Ors., (1952) A.L.J. 332 held that the provisions of the Uttar Pradesh Sales Tax Act, taxing forward contracts were ultra vires the U.P. Legislature. The said judgment was affirmed by this Court or 3.5.1954. The attempts of the assessee to obtain refund of tax basing its claim on Budh Prakash Jai Prakash case before the statutory authorities were futile. Ther\:after, the· assessee-firm filed a writ petition in the High Court, praying to quash the assessment orders, and for direction for refund of tax illegally collected. By judgment dated 30.11.1956, a learned single Judge of the High Court, allowed the writ petition. In the appeal, the Revenue contended that since the tax was paid under mistake of law, it was not recoverable. Even so, relying on Section 72 of the Contract Act, the Division Bench affirmed the decision of the single Judge. The Revenue took up the matter in appeal before this Court. The pleas of the appellant-Revenue, that the assessee should have followed the proce- dure prescribed by the U.P. Sales Tax Act and, that the writ petition filed for refund of money would not lie, were not allowed to be urged by this F Court. Mainly, two questions arose before this Court for consideration -

(i) Whether the term "Mistake" occuring in section 72 of the Contract Act took within its fold "mistake of Law" as well as "mistake of fact"? · G (ii) Whether the tax paid under mistake of law can be recovered under Section 72 of the Indian Contract Act?

This Court held that word "mistake" occuring in Section 72 of the Contract Act has been used without any qualification or limitation and, so, it takes within its fold "mistake of law" as well as "mistake of fact". On the second

MAFA1LALINDS.LTD.v. U.0.1.[PARIPOORNAN,J.] 735

question, this Court held that once it is established that the payment, even though it be a tax, has been made by the party under a mistake of law, the party is entitled to recover the same and a party who received the tax is bound to repay or return it. This Court held that there can be no distinction in a tax liability and any other liability on a plain reading of Section 72 and the plea that tax paid by mistake of law cannot be recovered under Section B 72, will not be a proper interpretation of the relevant provisions, but to make a law, adding such words as "otherwise than by way of taxes" after the word "paid". The scope of Section 72 was considered only within a limited sphere. It should be noticed that no question was raised before this Court that in order to claim refund (restitution) of sales tax paid, - (an indirect levy) - under Section 72, the claimant should necessarily prove that he has sustained "a loss. or injury''. In other words, the tax collected by him has not been passed on to a third party. Dealing with the plea that the position in law obtaining in England, America and Australia that money paid under mistake of law could not be recovered, and that similar con- siderations should weigh in interpreting Section 72, the Court held that the true meaning and intent .of Section 72 should be interpreted on its own terms, divorced from all considerations, as to what was the state of previous law or the law in England or elsewhere. This Court made further observa- tions to the following. effect :

"If it is once established that the payment, even though it be of a E tax, has been made by the party labouring under a mistake ff law the party is entitled to recover the same and the party receiving the same is bound to repay or return it. No distinction can, therefore, be made in respect of a tax liability and any other liability on a plain reading of the terms of s. 72 of the Indian Contract Act, F even though such a distinction has been made in America vide the passage from Willoughby on the Constitution of the United States, Vol. 1, p. 12.op cit. To hold that tax paid by mistake of law cannot be recovered under s. 72 will be not to interpret the law but.to make a law by adding soI)le such words as "otherwise than by way of taxes" after the word "paid"." G

"Voluntary payment of such tax liability was not by itself enough to preclude the respondent from recovering the said amounts, once H

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

A it was established that the payments were made under a mistake of law. On a true interpretation of s. 72 of the Indian Contract Act the only two circumstances there indicated as entitling the party to recover the money back are that the monies must have been paid by mistake or under coercion. If mistake either of law or of fact is established, he is entitled to recover the monies and the B party receiving the same is bound to repay or return them irrespec- tive of any consideration whether the monies had been voluntarily, subject however to questions of estoppe~ waiver, limitation or the like. If, once that circumstance is established the party is entitled ·to the relief claimed." · c (p. 1364)

"No question of estoppel can ever arise where both the parties, as in the present case, are labouring under the mistake of law and one party is not more to blame than the other." "' D (p. 1365)

"The other circumstances would be such as would entitle a court of equity to refuse the relief claimed by the plaintiff because on E the facts and circumstances of the case it would be inequitable for the court to award the relief to the plaintiff. These are, however, equitable considerations and could scarcely be imported when there is a clear and unambiguous provision of law which entitles the plaintiff to the relief claimed by him. n

"Merely because the State of U.P. had not retained the monies paid by respondent but had spent them away in the ordinary course of the business of the State would not make any difference to the position and under the plain terms of s. 72 of the Indian Contract G Act the respondent would be entitled to recover back the monies p!lid by it to the State of U.P. under mistake of Law."