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

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

A here-under : (in case of doubt, the body of the judgment should be looked into).

(A) If the excise duty paid by the assessee was ultimately passed on to the buyers or any other person, and that the assessee has suffered no loss or injury, the action for restitution based B on Section 72 of the Contract Act, is 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.)

c (B) The decision in Kanhaiya Lal's case and the cases following the same, cannot be understood as laying down the law that even in cases the liability has been "passed on", the assessee can maintain an action for restitution.

If the decision in Kanhaiya Lal's case (supra) and the cases D following the said decision, enables such a person to claim refund (restitution), with great respect of the learned Judges, who rendered the above decisionsj I express my dissent there- to. In this context, the observations in para 29 - clause III shall also be Borne in mind. E (C) Article 265 should be read along with the Preamble and Article 39(b) and (c) of the Constitution, and so construed in cases where the assessee has passed on the liability to the consumer or third party, he is not entitled to restitution or refund. The fact that the levy is invalid need not automatically result in a direction for refund of all collections made in pursuance thereto.

(D) The presumption is that the taxpayer has passed on the liability to the consumer (or third party). It is open to him to rebut the presumption. The matter is exclusively within the knowledge of the taxpayer, whether the price of the goods included the 'duty' element also and/or also as to whether he has passed on the liability since he is in possession of all relevant details. Revenue will not be in a position to have an indepth analysis in the innumerable cases to ascertain and find out whether the taxpayer has passed on the liability. The

MAFATLAL INDS. LTD. v. U.0.1. [PARIPOORNAN, J.] 781

matter being within the exclusive knowledge to the taxpayer, the burden of proving that the li~bility has not been passed on should lie on him.

(E) It is not possible to conclude that any and every claim for refund of illegal/unauthorised levy of tax, can be made only in accordance with the provisions of the Act (Rule 11, Section B llB etc., as the case may be), and an action by way of suit or writ petition undef Article 226 will not be maintainable under any circumstances. An action by way of suit or a petition under · Article 226 of the Constitution is maintainable to assail the levy or order which is illegal, void or unauthorised or without c jurisdiction and/or claim refund, in cases covered by proposi- tions No. (1), (3), (4) and (5) inDulabhai's case, as one passed outside the Act, and ultra vires. Such action will be governed by the general law and the procedure and period of limitation provided by the specific statute will have 110 application. D (F) The attack against the illegal or unauthorised levy as also the relief of refund may fall ordinarily within the three categories specified in paragraph 29 of the judgment. An action by way ·of suit or writ petition under Article 226 of the Constitution of India will lie in the cases, and subject to t):ie conditions stated in paragraphs 29 and 30 of the judgment.

(G) The jurisdictibn of tjvil courts is not bar.red in entirety regard- ing the attack against the levy and/or claim for refund; in those cases, coming within the three categories mentioned in paras 5 and 29 of this judgment, the jurisdiction of the ordinary courts will not be ousted, in the circumstances and subject to the conditions stated therein and in para 30 (supra).

(H) Section 11B(2) and (3) cannot be made applicable to refunds already ordered by the court or the refund ordered by the statutory authorities, which have become final. It G follows from a plain reading of Section llB, Clauses (1), (2) and (3) of the Act. The provisions contemplate the pendency of the application on the date of the coining into force of the Amendment Act or the filing of an application which is contemplated under law, to obtain a refund, after H

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

A the Amendment Act comes into force. If the said provisions are held applicable, even to matters concluded by the judg- ments or final orders of courts, it amounts to stating that the decision of the court shall not be binding and will result in reversing or nullifying the decision made in exercise of the judicial power. The legislature does not possess such B power. Alternatively, it may be stated that duty paid in cases, which finally ended in orders or decrees or judg" ments of courts, must be deemed to have been paid under protest and the procedure and limitation etc. stated in Section 11B(2) read with Section 11B(3) will not apply to c such cases.

(I) It need hardly be stated, that Section llB(l), the proviso thereto, Section 11B(2) and Section 11B(3) read together will apply, only to (1) refund applications made under the statute D and filed before the Amendment of the Act and still pending on the date of commencement of Amendment Act, 1991 and (2) applications contemplated under law to obtain refund and filed after the ".ommencement of the Amendment Act, 1991. (cases dealt with in paras 5 and 29 of this judgment will not be covered by the above to the extent stated therein). E

(J) The proviso to Section 11B(2), provides, that the duty of excise will be refunded in few specified cases, subject to certain conditions - one of them is the manufacturer - in cases, where he has not passed on the incidence to any other person [Clause (d)]. Those provisions will apply only for refunds to be made under the Act. In the totality of the factual situation, it cannot be said, that the provisions ushered in by Amendment Act, 1991 - and the scheme formulated in Sections llB and 12A to B -- (in the light of the clarifications made in the body of the judgment, and more particularly in paras 25 and 40 above) are, a "device" or invalid or arbitrary or unreasonable (except to the extent stated in para 38 supra) or in any way constitutionally infirm. (Of course, the cases dealt with in paras 5 and 29 H are excluded to the extent stated therein).

MAFATLALINDS. LTD. v. U.0.1. [HANSARIA,J.SEN,J.] 783

42. The principles laid down in this judgment should be applied to A the fact situation obtaining in individual cases and should be disposed of accordingly.

The matters may be placed before My Lord the Chief Justice for appropriate orders in this behalf. B HANSARIA, J. The conclusions arrived at by learned brother Paripoornan, J. and the reasons given in support thereof, have my respect- ful concurrence. I have nothing useful to add. The time at my disposal does not really permit me to do so, as the draft of this judgment reached my hands on the night of 15th instant; indeed, the first draft judgment of the c case got me in the evening of 13th of this month.

SEN, J. Leave granted in the Special Leave Petitions.

In C.A. No. 3255 of 1984 and a number of other cases which have been heard together, questions have been raised, firstly, as to whether a D refund of Central Excise Duty wrongly realised from a tax-payer can be withheld on the ground of what is described as 'unjust enrichment', without any specific provision of Jaw to that effect; secondly, whether the position was altered after the Central Excise Act, 1944 was amended by the Central Excises and Customs Law (Amendment) Act, 1991 which came into effect E on September 20, 1991? By virtue of this amendment Section llB along with a few other sections of the Central Excise Act, 1944 stood amended. I shall deal with both these questions separately. But before entering into that controversy, it is important to bear in mind the provisions of Article 265 of the Constitution and its amplitude. It has also to be seen what is the scope, meaning and purport and also the import of what is described as F 'unjust enrichment'. A challenge has also been made to the validity of the · amendments made to the Central Excise Act. That will also have to be examined.

ARTICLE 265 G J Article 265 of the Constitution lays down that "no tax shall be levied or collected except by authority of law." The mandate of the Constitution is lucid and clear and must be taken to mean what it says. 'No tax' takes in every type of tax. It has been contended on behalf of the Union of India that Article 265 merely lays down that no direct tax shall be levied or H I

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

A collected except by authority of law. The first question is that if that was the intention of the Constitution makers, then why did they not say so in so many words? 'Taxation' has been defined in Article 366 (28) to include the imposition of any tax or impost, whether general or local or special, and 'tax' shall be construed accordingly. Therefore, the word 'tax' will include any tax general, local or special. That means every kind of tax direct or indirect will come within the ambit of Article 265.

It has also to be noted that Article 265 is included in Part XII of the Constitution which deals with Finance, Property, Contracts and Suits. Chapter I of Part XII deals with Finance. Under this heading, both direct and indirect t~ have been dealt within a number of Articles. Article 268 deals with stamp duties and duties of excise on medicinal and toilet preparations. Article 269 deals with duties in respect of succession to property other ¢1,lan agricultural land, estate duty in respect of property other than agricultural land, terminal taxes on goods or passengers, taxes on railway fares and freights, taxes other than stamp duties on transactions in stock-exchanges and futures markets and taxes on the sale or purchase of newspapers and on advertisements published therein. Article 270 deals with taxes on income other than agricultural income. Article 272 deals with Union duties of excise, other than duties of excise on medicinal and toilet preparations. Article 276 deals with taxes for the benefit of a State or a E municipality, district board, local board or other local authority in respect of professions, trades, callings or employments. Article 277 deals with taxes, duties, cesses or fees which were being lawfully levied by the Govern- ment of any State or by any municipality or other local authority or body for the purposes of the State, municipality, district or other local area. p Article 287 deals with tax on the consumption or sale of electricity. All these Articles go to show that Part XII, Chapter I, deals with not only direct taxes like taxes on income or duties in respect of succession to property, but also deals with indirect taxes like stamp duty, duties of excise on medicinal and toilet preparations, other duties of excise, terminal taxes on goods, taxes on railway freights, taxes on transactions in stock- exchan- G ges and futures markets and taxes on sale or purchase of newspaper. In the context of all these Articles in Chapter I of Part XII dealing with direct and indirect taxes, it is difficult to hold that the mandate at the beginning of the Chapter that "no tax shall be levied or collected except by authority of law'',. was meant to be confined to direct taxes only and not to other H types of taxes which were specifically enumerated in a number of other

MAFA1LAL INDS. LTD. v. U.O.I. [SEN, J.] 785

Articles in Chapter I of Part XII of the Constitution. A Moreover, this argument, if accepted, will have dangerous implica- tions. It will mean that the Constitution has impliedly empowered the Government to levy and collect indirect taxes without any authority of law. Bearing in mind that the bulk of the taxes imposed by the Union and practically the entire amount of taxes collected by the States is by indirect B levies, the constitutional protection against unlawful taxes will become meaningless and devoid of any substance.

Mr. Parasaran, appearing on behalf of Union of India has argued that Article 265 has to be read along with the Directive principles. The State has been enjoined to direct its policy towards securing that the c ownership and control of the material resources of the community are so distributed as best to subserve the common good. I do not see how this provision or any other provision of Article 39 can in any way whittle down the scope of Article 265 of the Constitution. If the provisions of Article 39 are to be construed as a licence given to the State to retain whatever has been collected however unlawfully, then why should any distinction be made between direct taxes and indirect taxes? If the argument is taken to its logical conclusion, it will mean that the State will be at liberty to retain whatever it has gathered unlawfully by- direct as well as indirect taxation and use the same for the purpose of common good according to its perception. The victims of unlawful activities of the State will have no remedy against the State. This reasoning, if accepted, will have the effect of turning the State into a Leviathan in which the individuals have only such rights as may be permissively given by the State. The various constitutional guarantees given to protect the individuals from the oppression by State will become futile and without any meaning and substance. Neither Article F 38 nor Article 39, in any way, empower the State to levy or retain taxes without any authority of law.

The importance and effectiveness of the Directive Principles of the State Policy have been laid down in Article 31C in the following words : G "3JC. Saving of laws giving effect to certain directive principles. - Notwithstanding anything contained in article 13, no law giving . effect of the policy of the State towards securing all or any of the principles laid down in part IV shall be deemed to be void on the ground that it is inconsistent with, or takes away or abridges any H

786 SUPREME COURTREPORTS[1996] SUPP.10 S.C.R.

A of the rights conferred by article 14 or article 19; and no law containing a declaration that it is for giving. effect to such policy shall be called in question in any court on the ground that it does not give effect to such policy:

Provided that where such law is made by the Legislature of a B State, the provisions of this article shall not apply thereto unless such law, having been reserved for the consideration of the Presi- dent, has received his assent."

The disputes raised in this case do not relate to enforcement of the guarantees contained in Article 14 or Article 19 of the Constitution in any manner. The faws of Central Excise have been enforced since 1944 or even earlier. It is a tax on manufacture of goods. The object of the tax is to raise revenue for the Government. But this can only be done in accordance with law. No man can be subjected to an unlawful exaction made by the State by whatever process in disregard of the guarantee given by Article 265 of the Constitution. I

In my judgment, apart from its boldness, there is no merit in this contention that guarantee contained in Article 265 of the Constitution must . be restricted to direct taxes only. In my judgment, Article 265 must be implemented in letter and spirit as it stands and all the tax laws and all Government actions to realise and retain tax must be tested on the anvil of this guarantee. The courts should jealously guard against any attempt to whittle down or do away with any of the guarantees given under the Constitution to the citizens. In my judgment, Article 265 will have to be given full effect in cases of direct as well as indirect taxation. If any tax has been levied and collected without authority of law, then the State has committed a wrong and that wrong must be undone by the State by returning the tax unlawfully collected to the person from whom it was collected.

The Court has a duty to uphold the Constitution in letter and spirit. G If the Court comes to the conclusion that a levy of tax is unlawful, the Court will direct the Government to return the tax. It is not for the Court to enquire how the tax-payer has managed his affairs after payment of the · unlawful levy. It is but natural that the tax-payer will try to raise funds by raising price or cutting down costs or forgoing profits to get over the loss H caused by the unlawful exaction of tax. There is usually considerable time

MAFATLAL INDS. LID. v. U.O.I. [SEN, J.] 787

gap from payment of any illegal levy and obtaining an order of refund. In A most of the cases several years pass before refund of duty paid can be obtained. In such a situation, it is impossible for the taxpayer company not to do something to raise money somehow to carry on its business. Merely because a manufacturer has raised its price after paying the illegal levy cannot be a ground for denying him the constitutional guarantee contained B in Article 265. The constitutional guarantee is unconditional and unequivo- cal and must be enforced regardless of what the manufacturer does after payment of tax. If the manufacturer has done something unlawful, steps must be taken against him. If this Court holds that constitutional guarantees ought to be enforced depending upon the conduct of the manufacturer after payment of the illeg<1l levy, then the Court would be adding a rider c to Article 265 which is not permissible. By this forced interpretation the Court will not be upholding the Constitution, but will be undermining it.

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

The Court cannot, by torturing the language of Article 265 Ol by any other means, construe it so as to give it a meaning which it does not H

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

A naturally bear. It was observed in the case of Commissioner of Inland Revenue v. Rossminster Ltd., (1980) AC 952 at 1018 that in construing a statutory provision, the rule of construction must be "however much a court may deprecate an Act, it must apply it. It cannot by torturing its language or any other means construe it so as to give a meaning which the Parliament B did not clearly intend it to bear". The same rule of construction will apply for construing a constitutional provision. The Court may dislike Article 265 and its natural consequence. But because of that the Court cannot torture its language to bring out a meaning which the words do not naturally bear. Once it is established that a levy or collection of tax is void, no legal or equitable right is acquired by the State in the unlawfully collected money. C The right to get refund accrues to the person who pays it the moment an illegal levy or collection is made. Once the levy or collection is declared illegal, the illegally collected amount has to be immediately paid back to the person from whom it was collected. The refund order is made to enforce the right of the tax-payer which accrued when the tax was illegally levied and collected from him. This is an absolute obligation under the Constitution. No statute can provide otherwise. If a collection of tax is . found to be illegal being in contravention of the provisions of Central Excise Act, then it not only violates the Act but also the Constitution. If the Central Excise Act is amended or any s.eparate act is passed to provide for denial of refund to the taxpayer, in any manner, then such amendment or Act is as offensive to the Constitution as the illegal levies themselves were. If the tax has been illegally exacted from a person, then he has been denied the protection given to him by the Constitution. The denial of the right to recover the unlawfully collected tax is denial of the protection given to citizen by Article 265. F A similar question was examined by the Judicial Committee of the Privy Council in an appeal from Australia in Commissioner for Motor Transport v. Antill Ranger & Co. Pvt. Ltd., (1966) 3 AIL E.R. There, certain charges had been levied by the State of New South Wales under an Act in connection with inter-State transactions. These charges where held to be G violative of Section 92 of the Commonwealth of Australian Constitution. Subject to imposition of uniform duties of customs, Section 92 guarantees freedom of trade, commerce and intercourse among the States by internal carriage or ocean navigation. The levy under the Principal Act having been declared unlawful, an Act called the state Transport Co-ordination (Bar- H ring of Claims and Remedies) Act, 1954 was passed barring and extinguish-

MAFATLALINDS. LTD. v. U.0.1. (SEN, J.) 789

ing the right of recovery of any sums collected or recovered under the A Principal Act. It was made clear that the provisions of the Barring Act ·would apply to proceedings pending at the commencement of the Act as well as proceedings brought after the commencement of the Act. The validity of the Barring Act was challenged. It was pointed out by the Jmikial Committee that if the Act was valid, it would be a complete answer B to the claim of the taxpayers. But the validity of the relevant provisions of the Barring Act could be no greater or no less if they had been contained in the Principal Act itself. It was held that neither prospectively nor retrospectively can a State law make lawful that which the Constitution says is unlawful. If the statute laid down that the charges in respect of inter- State trade should be imposed and that, if they were illegally imposed and c collected, they should nevertheless, be retained, such an enactment would be illegal. The statutory immunity accorded to illegal acts is as offensive to the Constitution as the illegal acts themselves.

The Judicial Committee posed the following question" ..... Then the D question is whether the statutory immunity accorded to illegal acts is not as offensive to the Constitution as the illegal acts themselves, and, applied to the present circumstances, that question is whether, if the imposition of charges in respect of inter-state trade is invalid as an offence against s.92, it they ·is not equally an offence to deny the right to recover them after have been unlawfully exacted." E

The Judicial Committee answered the question by saying that :

"It appears to their Lordships that to this question there can be only one answer. It cannot be too strongly emphasise or too often p repeated that, in the words of the High Court, the immunity given by s.92 to trade, commerce and intercourse cannot be transient or illusory. Yet, how fugitive would that protection be if effect where given to the argument of the appellants in this case."

The Judicial Committee clearly recognised Section 92 of the G Australian Constitution as a measure of protection to the respondents who were the taxpayers. The judicial Committee emphasised, this protection could not be allowed to be transient or illusory. We should also not allow the protection to the tax- payers by Article 265 of our Constitution to be transient and illusory. H

790 SUPREME COURT REPORTS[1996J SUPP. 10 S.C.R.

A The Judicial Committee went on to give an illustration which is also useful for the purpose of this case. A trader desiring to engage in inter- state trade and confronted with the provisions of an unlawful Act may conform to its requirements and submit to the pecuniary exactions in order that he may be able to carry on his business. He can test the legality of the exactions in a court of law and if he was right and these sums were unlawfully exacted, he is entitled to the protection afforded by Section 92 of the Constitution. What is his situation if then he finds himself by a later provision of the same Act or by a subsequent Act once more subjected to the same exactions? The burden of his trade remains just what it was; the freedom of his trade has been in the same degree impaired. In letter and spirit, Section 92 is in the same measure defeated.

An argument was advanced before the Judicial Committee that the Barring Act did not impo~e any burden on trade but only barred the right of property viz., the right to sue for money................... which accrued after the trading operations were over. the Judicial Committee rejected this argument by observing that "........ an enactment whose only object is to validate an exaction which the section renders unlawful would in their Lordships' opinion be a mockery of the spirit of the Constitution".

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

The view of the Judicial Committee was that but for Section 92 of the Australian Constitution, the Barring Act might have been held to be

.MAFA1LALINDS.L1D.v. U.O.I.(SEN,J.) 791

valid. In the instant case also, the amended provisions of Section llB of the Central Excise Act might have been held to be valid but for Article 265 of the Indian Constitution. The right to get refund arose the moment an illegal levy was imposed. As was pointed out in that case, the taxpayer had no option but to pay this levy; otherwise he could not have carried on his trade at all. The goods would not be cleared without payment of the illegal demand made by the excise authority. This does not debar him from ..., pointing out that the collection of tax was illegal and claiming return of the illegal levy.

The American Constitution does not contain anything similar to Article 265 of our Constitution. The U.S. Supreme Court, therefore, had c no difficulty in upholding the validity of Section 424 of Revenue Act of t 1928 in the case of United States v. Jefferson Electric Manufacturing Com- pany, .78 L.Ed. 859. Section 424 provided :

"Sec. 424 Refund of automobile accessories tax. D (a) No refund shall be made of any amount paid by or collecteg from any manufacturer, producer, or importer in respect of the tax imposed by subdivision (3) of S.600 of the Revenue Act of · 1924........... unless either -

(1) pursuant to a judgment of a court in an action duly begun E ' prior to April 30, 1928 ; or

(2) It is established to the satisfaction of the Commissioner that such amount was in excess of the amount properly payable upon the sale or lease of an article subject to tax, or that such amount was not collected, directly or indirectly, from the purchaser or F lessee, or that such amount, although collected from the purchaser or lessee, was returned to him: ......"

The Act came into force on 29th May, 1928. The section was chal- ... lenged on the ground that it was violative of the Fifth Amendment of the G American Constitution in that a taxpayer was being deprived of his proper- ,,. ty without due process of law and his private property was being taken away for public use without just compensation. It was held :

"The contention is made that sub-division (a) (2), when construed and applied as we hold it should be infringes the due process clause H

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

A of the Fifth Amendment to the Constitution in that it strikes down rights accrued theretofore and still subsisting, but not sued on prior to April 30, 1928. This contention is pertinent, because the cases now being considered were begun after April 30, 1928, and in each the tax in question was paid before S.424 was enacted, which was May 29, 1928. B If the tax was e"oneous and illegal, as is alleged, it must be conceded tha~ under the system then in force, there accmed to the taxpayer when he paid the tax a right to have it refunded without any showing as to whether he bore the burden of the tax or shifted it to c the purchasers. And it must be conceded also that S.424 applies to rights accrued theretofore and still subsisting, but not sued on prior to April 30, 1928, and subjects them to the restriction that the taxpayer (a) mlist show that he alone has borne the burden of the tax, or (b), if he has shifted the burden to the purchasers, must give a bond promptly to use the refunded sum in reimbursing them. D But it cannot be conceded that in imposing this restriction the section strikes down prior rights, or does more than to require that it be shown or made certain that the money when refunded will go to the one who has borne the burden of the illegal tax, and therefore is entitled in justice and good conscience to such relief. E This plainly is but another way of providing that the money shall go to the one who has been the actual sufferer and therefore is the real party in interest.

We do not perceive in the restriction any infringement of due process of law......." F What the U.S. Supreme Court held in that case was that the new enactment did not infringe the due process of law and, therefore, could not be struck down. The U.S. Supreme Court did not 'have to consider the impugned section in the light of a provision similar to Article 265 of the G Indian Constitution. But there were two important observations which have to be borne in mind :

.(1) If the tax was erroneous and illegal, a right accrued to the taxpayer when he paid the tax to have it refunded without showing as to whether he bore the burden of tax or shifted it H to the purchaser.

MAFATLAL INDS. LTD. v. U.0.1. [SEN, J.) 793

(2) Section 424 applied to rights accrued theretofore and still A __:: subsisting but not sued on prior to April 30, 1928.

A question similar to the one dealt with by the American Supreme Court also came up before the Supreme Court of Canada, in the case of Air Canada v. British Columbia, (1989) 59 D.L.R. 4th 161. The principles laid down in Air Canada case cannot be understood unless one bears in B ~ mind the peculiar facts of the case which has been recorded in detail in the judgment of La Forest, J.

The dispute was confined to the taxes paid by Air Canada in the 23 month period between August 1, 1974 and July 1, 1976. The tax was levied c under the Gasoline Tax Act, 1948. The Act as it stood on August 1, 1974 provided that every purchaser shall pay a tax equal to 10 cents per gallon on all gasoline purchased except gasoline purchased for use in an aircraft, which was taxed at a lower rate. Section 2 defined "Purchaser" as under :

"Purchaser" means any person who within the Province purchases D gasoline when sold for the first time after its manufacture in or importation into the Province."

An identical provision in a cognate statute was struck down by the Privy Council which led to retroactive amendment of the Gasoline Tax Act E by inserting Section 25 which was as under :

"25(1) In this section "purchaser" means any person who, within the Province, after August 1, 1974 and before July 8, 1976 pur- chased or received delivery of gasoline for his own use or con- sumption or for the use or consumption by other persons at his expense, or on behalf of, or as an agent for a principal who was acquiring the gasoline for use or consu1Dption by the principal or by other persons at his expense.

"" (2) Every purchaser shall pay to Her Majesty for the purpose of raising revenue for Provincial purposes a tax of 15c a gallon on all gasoline purchased by him after August 1, 1974 and before February 28, 1975, but

(a) where gasoline was purchased for use in an aircraft the .. tax shall be 8c a gallon, and H

794 SUPREME COURTREPORTS[1996] SUPP.10 S.C.R.

A (b) where gasoline in the form of liquefied petroleum gas or natural gas was purchased to propel a motor vehicle the tax shall be lOc a gallon.

{3) Every purchaser shall pay to Her Majesty for the purpose of raising revenue for Provincial purposes a tax of 17c a gallon on B all gasoline purchased by him after February 27, 1975 and before July 8, 1976, but

(a) where gasoline was purchased for use in an aircraft the tax shall be Sc a gallon, and c (b) where gasoline in the form of liquefied petroleum gas or natural gas was purchased to propel a motor vehicle the tax shall be 12c a gallon.

(4) x x x x x x x D (5) Where after August 1, 1974 and before July 8, 1976, money was collected or purported to have been collected as taxes, penal- ties or interest under this Act, the money shall by this section be conclusively deemed to have been confiscated by the government without compensation." E These amendment were statutorily given retroactive character by Section 62 (5) of the Finance Statutes Amendment Act, 1981. By this change of definition of purchaser what was an indirect tax earlier was converted . into a direct tax. The tax was on gasoline purchased by a F purchaser for his own use or consumption or for consumption of other persons at his expense or on behalf of or as an agent for the principal for use or consumption by the principal or by other persons at his expense. Although, it was provided by sub-section (5) that the amount which was collected before the amendment of the Act between August 1, 1974 and July 1, 1976 as tax shall be conclusively deemed to have been confiscated by the Government without compensation, according to La Forest, J., the Section really does not mean what it says. A fund of money illegally collected was lying with the Province. Having imposed the tax retroactively, the Province merely was enabled to retain the amount in its hands by adjusting it against the tax which has subsequently become payable by the amended provision. The tax retained and the tax payable were· identical

MAFATLALINDS. LTD. v. U.0.1. [SEN,J.] 795

amounts. This in sum and substance, was the judgment of La Forest, J. The A rest of the observations of La Forest, J. in Air Canada case appears to be obiter.

After referring to the amended Section, La Forest, J. said :

"11tat the tax is a direct tax I have no doubt. Since at least bank of B Toronto v. Lambe, (1887), 12 App. Cas. 575, the generally accepted test of what constitutes a direct tax has been that of John Stuart Mill: A direct tax is one which is demanded from the very person who it is intended or desired should pay it". That person is clearly identified in the definition in the 1976 Act as the ultimate consumer of the gasoline; there is no passing on of the tax to others, whatever may be the opportunities of recouping the amount of the tax by other means (a. very different thing)."

Referring to the new Section 25 brought into existence by the 1981 Act, La Forest, J. identified the real issue of the case in the following words:

"None of the judges in the courts below casts any doubt on the legislative power of the province to impose a retroactive tax in the manner provided in s. 25(1) to (4). What they really disagreed about was the effect of s.25(5) on those provisions. In common with these judges. I am unable to see any constitutional impediment to the province's enacting s.25(1) to (4). On the reasoning regard- ing the 1976 Act, these provisions seem to be a proper exercise of its power to impose direct taxation in the province, the sole difference being that the 1981 provisions are given retroactive effect, a result that is not constitutionally barred. The real question, then, is whether when s.25(1) to (4) are conjoined to s.25(5), they become so coloured by the latter provision as to make all of s.25 ultra vires." G That question was answered by La Forest, J. in the following words:

"That, of course, raises the issue whether s.25(5) is itself ultra vires. There are, in my view, some serious difficulties in establishing its invalidity. It may be, if the provision stood alone, that it could be successfully maintained that it violates the principle in the Amax H

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

A decision. I need not consider that situation because it does not stand alone. It is the fifth of five subsections, the first four of which impose a valid direct tax, and it must obviously be read in that context. It must also be read in light of the well-known principle that it must be assumed that the legislature intended to stay within . the confines of its constitutional competence. While, as Esson, J.A. B notes, the expression "confiscated" is distasteful, one should not permit it to mislead us regarding the purpose of s.25(5). The function of the courts is not to give the legislature lessons in tact. Their function, rather is to attempt to discover what the legislature, however, clumsily was attempting to achieve by the language it c used, a task that should, as already noted, be informed by the presumption that the legislature intended to stay within its con- stitutional powers.

In the context in which it appears, s.25(5) seems to be nothing more nor less than machinery for collecting the taxes properly imposed in the first four subsections of s.25. It must be remem- bered that the amounts illegally collected under the ultra vires provision before 1974 would be equal to the taxes levied under s. 25(1) to (4). A~stratively, the taxes levied under the invalid scheme were collected in the same manner and in the same amounts and from the same taxpayers as would have occurred if the scheme had originally been framed along the lines of s.25(1) to (4). What the legislature attempted to do by s.25(5), therefore, was to provide collection machinery whereby the moneys owing by the taxpayers under the latter provision could simply be taken out of the equal amounts it had collected from those taxpayers under the invalid tax. It was in that sense that the moneys were deemed to have been confiscated by the government."

Having reached this conclusion, La Forest, J. distinguished this case with the principles laid down in Amax case in the following manner : G "In that case, the Legislature sought, by giving itself immunity, to avoid repaying an unlawful tax. This was simply an indirect way of giving effect to the invalid statute............... The situation is entirely different here. The legislature did directly what it was empowered to do impose a direct tax under sub-sections (1) to (4). I see no

MAFATLALINDS. LTD. v. U.0.1. [SEN,J.] 797

reason why it could not then take that tax out of moneys it had improperly collected from the taxpayers under the ultra vires statutes, just as it could have set it off against any other obligatioh of the government to the taxpayers. The good fortune of the legislature, in the unusual facts of this case, in having collected amounts that matched precisely those owing by each taxpayer under s.25(1) to (4) affords no reason to brand as unconstitutional a tax that it can validly impose and collect."

This is the ratio of the decision of La Forest, J. An unconstitutional levy brought about by an indirect tax was cured retroactively by a direct levy. What was collected wrongfully under an indirect levy was retained by c adjusting the unlawful collection against what turned out to be a valid collection under the new law. Section 25(5) was clumsily worded in that it had used the word "confiscated". Properly understood, according to La Forest, J., it did not really confiscate the amount already paid but adjusted that amount against the subsequent lawful demands made under the retroactively amended provisions. D

Thereafter, La Forest, J. went on to discuss the points raised on "mistake of law". La Forest, J. came to the conclusion after review of the case law that "in my view, the distinction between mistake of fact and mistake of law should play no part in the law of restitution. " But he was E of the view that recovery of taxes imposed by a legislation subsequently declared ultra vires could not be allowed "even if the airlines could show that they bore the burden of the tax........................"

The view on ultra vires taxes as expressed by La Forest, J. is an extreme proposition which may be acceptable in accordance with the F Constitution laws of Canada, but it cannot be held valid under our system.

Wilson, J. who dissented in part held:

"It is, in my view, impossible to divorce s.25(1) to (4) from s.25(5) of the Gasoline Tax Act, R.S.B.C. 1979, c.152. The only G possible basis for the confiscation under s.25(5) is the imposition of the retroactive tax under s.25(1) to ( 4). Certainly the payments made under the ultra vires legislation could riot support such a confiscation since the moneys were not as a constitutional matter properly exigible under that legislation....." H

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

A Averting to "Mistake of Law'' Wilson, J. observed:

11 Whatever the nature of the mistake, the key question, my •••••••

colleague suggests, should be whether the respondent has been unjustly enriched at the appellants' expense or whether there is some specific reason which makes restitution inappropriate in the B circumstances. My colleague concludes that there was unjust en- richment in this case but he finds two reasons why restitution is inappropriate. The first is that the appellants in all likelihood passed on the burden of the ultra vires tax. to their customers; the unjust enrichment of the respondent was therefore not shown to c be at the expense of the appellants. The second is that the general rule of recovery shoul('as a matter of policy, be reversed where . the person unjustly enriched is a governmental body......"

Wilson, J. went on to observe :

D "It is, however, my view that payments made under unconstitutional legislation are not 'voluntary' in a sense which should prejudice the taxpayer. The taxpayer, assuming the validity of the statute as I believe it is entitled to do, considers itself obligated to pay. Citizens are expected to be law abiding. They are expected to pay their taxes. Pay first and object later is the general rule. The E payments are made pursuanc to a perceived obligation to pay which results from the combined presumption of constitutional validity of duly enacted legislation and the holding out of such validity by the legislature. In such circumstances I consider it quite unrealistic to expect the taxpayer to make its payments 'under protest'. Any F taxpayer paying taxes exigible under a statute which it has no reason to believe or suspect is other than valid should be viewed as having paid pursuant.to the statutory obligation to do so."

Adverting to the argument that any refund to the taxpayer who has passed on the burden of tax to the ultimate consumer will result in an unmerited "windfall" to him, Wilson, J. observed :

"My colleague advances another reason why the appellants should be denied recovery in this case. he says, in effect, that the appel- lants would be receiving a "windfall" if they received their money back because in all likelihood they have already recouped the

MAFATLAL INDS. LTD. v. U.O.I. [SEN, J.] 799

payments made on account of the ultra vires tax from their cus- A tomers. In tenns of my colleague's analysis, the appellants are unable to show that the unjust enrichment of the province was at their expense. In my view there is no requirement that they be able to do so. u-'here the payments were made pursuant to an unconstitutional statute there is no legi.timate basis on which they can be retained. As B Dickson, J. stated in Amax, supra, at p.10:

"To allow moneys collected under compulsion, pursuant to an ultra vires statute, to be retained would be tantamount to allowing the provincial Legislature to do indirectly what it could not do directly, and by covert means to impose illegal burdens.

Indeed, even on my colleague's unjust enrichment analysis Dick- son, J. found in Nepean, supra, that there were no equitable reasons of principle or policy to preclude recovery from Ontario Hydro."

I shall deal with Sections UB, UD and 12A to 12D of Central Excise Act as amended by the Act 40, 1991 later in this judgment in greater detail. But it may be noted that now these provisions have made it practically impossible for a taxpayer to get back what had been collected unlawfully from him, whatever the wording of the statute may be. La Forest, J. interpreted sub-section (5) of Section 25 of the Gasoline Tax Act and construed that although the word "confiscation" was used, the provision was not confiscatory but was really a provision for setting off of the new claims arising out of the retroactive statute against the moneys which were lying in the hands of the Province even though unlawfully collected. In the present case, although the term\confiscation" has not been used in Sections llB, UD and 12A to 12D these provisions, in effect, have confiscated without any compensation all ill.egally gathered taxes which came within their ambit.

Air Canada case came up for further consideration in the case of Allied Air Conditioning Inc. v. British Columbia, 76 B.C.L.R. 2( d) 218. Here the question was whether a taxpayer could recover the moneys which were collected as tax, but were not properly payable. The plaintiff had paid H

800 SUPREME COURTREPORTS[1996] SUPP.10 S.C.R.

A Social Service Tax to the Province of British Columbia totalling to $ 500,000. In the judgment of Oliver, J, it was stated that the required elements at the heart of the law of restitution was (1) an enrichment of the defendant, (2) a corresponding deprivation of the plaintiff and· (3) an absence of any juristic reason for the enrichment.

B Oliver, J. stated that the distinction between recovery of money paid under mistake of fact and money paid under mistake of law had now been swept away by the decision in Air Canada Case. On the day on which the judgment in he case of Air Canada was pronounced, a second judgment was delivered in the case of Air Canada v. British Columbia ("C.P. Air") C 1989, 36 B.C.L.R. (2d) 185. There the dispute related to social Service Tax, wrongly paid on (a) aircraft parts and equipment and (b) alcoholic beverages sold to passengers on the flight. The Supreme Court held that C.P.A. could recover the Social Service Tax paid on purchasers of equip- ment and parts, but the tax paid on alcoholic beverages soldto passengers was imposed on the passengers who consumed the liquor and therefore, the C.P.A. was not entitled to recover the same. Oliver, J. observed that "it can be agreed that both taxes were passed on to customers by Air Canada in the price of airline tickets." La Forest, J. in the C.P.A. case held that Social Service Tax paid by the airlines was not properly payable on either aircraft parts or on alcoholic beverages. Having found that the tax was inapplicable, La Forest, J. concluded "there seems no reason to refuse Air Canada the recovery it seeks. There is nothing to indicate it ever aban- doned this claim." The claim for recovery of the tax paid on alcoholic beverages was rejected on the ground that "the tax was imposed on the passengers, not Air Canada. Air Canada was simply an agent to collect it under the Act, and, in fact, obtained a fee for doing so. I am unable to see how it could identify the passengers who consumed the liquor, so its repayment to Air Canada would simply amount to windfall to the airline."

The contention of the plaintiffs in Allied Air Conditioning Inc. Case ·before Oliver, J. was that the observations of La Forest, J. that "a passing- G on defence is available to the taxing authority whenever the taxpayer can be shown to have passed on the tax burden, regardless of whether it was passed on "specifically and directly" or generally in the price charged to customers" was obiter. The true reasoning of the Supreme Court with respect to the passing-on defence can be gleaned from its decision in C.P. H Air in which it allowed a passing-on defence where the tax was "directly

MAFATLALINDS. LTD. v. U.0.1. [SEN,J.] 801

and specifically" passed on to customers but not where the tax was merely A included generally in the price of airline tickets.

In the end, after noting that the comment of La Forest, J. at page 179 that "this alone is sufficient to deny the airlines' claim, Oliver, J. stated that rest of the decision of the La Forest, J. was obiter. Oliver, J., however, disposed of the case before him by observing : B

"In the present case the invoices given by the plaintiffs to their customers for lump sum contracts did not set out any amounts charged for materials, labour or taxes; simply the lump sum itself was sho~. The evidence discloses that many factors, including the competitive environment and the plaintiffs profit margin goals, c influence the amount of the lump sum.

In my opinion, it cannot be said in such a case that the tax is passed directly and specifically to customers so that they become the true taxpayers. While it is difficult to make specific com- D parisons, the situation in the present case more closely resembles the tax paid on aircraft parts and equipment in C.P. Air than the tax paid on alcoholic drinks in that case.

I find that in all the circumstances no passing- on defence is available and that the plaintiffs are entitled to restitution of the E amounts they are claiming as wrongly paid taxes, subject to any applicable limitation period.''

In the case of Woolwich building Society v. Inland Revenue Commis- sioners (No. 2), (1992) 3 All E.R. 737 at 763. Lord Goff cited with approval the dissenting view expressed by the Wilson, J. in Air Canada Case (supra) F after quoting from the judgment and noting the fact that :

"She also rejected the proposed defence of 'passing on' (at 160- 170). Accordingly in her opinion the taxpayer should be entitled to succeed. G I cannot deny that I find the reasoning of Wilson, J. most attractive. Moreover, I agree with her that, if there is t:i be a right to recovery in respect of taxes exacted unlawfully by the Revenue, it is irrelevant to consider whether th~ old rule barring recovery of money paid. under mistake of law should be abolished, for that H

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

rule can have no application where the remedy arises not from error o.n the part of the taxpayer, but from the unlawful nature of the demand by the Revenue. Furthermore, like Wilson, J, I very respectfully doubt the advisability of imposing special limits on recovery in the case of 'unconstitutional or ultra vires levies'."

.B In the concluding part of the judgment, Lord Goff recognised the difficulties involved in the doctrine of 'passing on'. Lord Goff pointed out that the question need not be finally decided in that case. It was observed;

c "It will be a matter for consideration whether the fact that the plaintiff has passed on the tax or levy so that the burden has fallen on another should provide a defence to his claim. Although this is contemplated by the Court of justice of the European Communities in the San Giorgio case, it is evident from Air Canada v. British Columbia that the point is not without its difficulties; and the D availability of such a defence may depend on the nature of the tax or other levy....."

In the case of Commissioner of State Revenue v. Royal Insurance Australia Ltd. 182 C.L.R. 51, the question before the Australian High Court E was whether a taxpayer is entitled to recover overpayment of stamp duty. It was held that there was no obligation to refund the overpayment because sub-section (1) of Section 111 of the Stamps Act conferred discretionary power on the Commissioner to refund the money but did not create any duty to do so. Therefore, the finding that there was an overpayment did not give rise to any enforceable obligation to make refund. One of the F points that came up for consideration was disruption of public finance as a consequence of restitution. Mason, C.J. did not uphold this contention. He observed that :

"That proposition was accepted by La Forest, J. in Air Canada v. British Columbia but it was repudiated by Wilson, J. in her dis- G senting judgment for reasons which, to my mind, are compelling...."

Mason, C.J. went on to observe that the argument that the plaintiff will. receive a windfall or will unjustly enrich if recovery from public authority is permitted, cannot be accepted straightaway. He further ob- H served:

MAFATLALINDS. LTD. v. U.0.1. [SEN,J.] 803 11 ...... In the context of the law of restitution, this economic view encounters major difficulties. The first is that to deny recovery when the plaintiff shifts the burden of the imposition of the tax or charge to third parties will often leave a plaintiff who suffers loss or damage without a remedy. That consequence suggests that, if the economic argument is to be converted into a legal proposition, the proposition must be that the plaintiffs recovery should be limited to compensation for loss or damage sustained. The third is that an inquiry into and a determination of the loss or damage sustained by a plaintiff who passes on a tax or charge is a very complex undertaking. And, finally, it has long been thought that, despite Lord Mansfield's statement in Moses v. Macferlan, the basis c of restitutionary relief is not compensation for loss or damage sustained but restoration to the plaintiff of what has been taken or received from the plaintiff without justification.

After a review of the large number of cases cited, Mason, C.J. D concluded:

"The United States and European decisions demonstrate that any acceptance of the defence of passing on is fraught with both practical and theoretical difficulties. Indeed, the difficulties are so great that, in my view, the defence should not succeed unless it is E established that the defendant's enrichment is not at the expense of the plaintiff but at the expense of scme other person or persons."

Brennan, J. who agreed with Mason, C.J. that the appeal should be dismissed, held that : F "The fact that Royal had passed on to its policy holders the burden of the payments made to the Commissioner does not mean that Royal did not pay its own money to the Commissioner. The passing on of the burden of the payments made does not affect the situation that, as between the Com~issioner and Royal, the former was G enriched at the expense of the latter."

In the concurrent judgment Of Dawson, J., there are certain obser- vations to which I shall refer later on in this judgment.

All these cases go to show the complexity of the problem of doctrine H

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

A of "passing on". The U.S. view appears to be that but for the law passed in 1924, illegally collected tax had to be refunded even if it was passed on to the consumers. The majority view of the Canadian Supreme Court was to the contrary. However, the dissenting judgment of Wilson, J. was found preferable by Mason, C.J. in Australia as well as by Lord Goff who spoke B for the House of Lords in England. But the English decision as well as the Australian decisions were founded on common law and Bill of Rights.

In none of these countries any constitutional provision akin to Article 265 fell for consideration. The debate whether a taxpayer is entitled to get refund when the levy is found illegal is concluded by Article 265 of the C Constitution in our country. The protection afforded to the taxpayer is total and complete. It cannot be taken away under any circumstances or by any legislative action. The Constitution being sacrosanct and overriding, in my view, any tax collected unlawfully, must be returned to the taxpayer. Whether the taxpayer has passed on the burden of the tax to the consumers or not is a matter of no consequence.

The constitutional embargo is on both the levy and collection of tax without authority of law. It has been repeatedly asserted by the Courts that every taxing law has three parts. First is charge, the second is computation which results in a demand of tax and the third is recovery of the tax so computed. The Constitution has enjoined that there must be a valid levy. The word 'levy' has also been understood in a broad sense in various cases to include not only the imposition of the charge but also the whole process upto raising of the demand. The Constitution guarantees that not only the levy should be lawful but also collection of tax must also be done with the authority of law. The State is not permitted to exact any tax from a citizen without the authority of law and without following the procedure laid down by law. This guarantee has to be strictly enforced not only in the matter of levy but also in the matter of collection. It was pointed out by this Court in the case of ¥unicipal Council, Khurai and Another v. Kamal Kumar & Anr. Others, [1965] 2 SCR 653 that Article 265 of the Constitution clearly implies that the procedure to impose a liability upon the taxpayer has to be strictly complied with. Where it is not complied with, the liability to pay a tax cannot be said to be according to law. In that case, a validly passed municipal law was sought to be enforced, but the objections of the rate- payer were not dealt with by the Municipal Council as a whole but by a H sub-committee. The Court held that this was erroneous. The phrase 'levy

MAFATLAL INDS. LTD. v. U.O.I. [SEN, J.] 805

and collection' indicates that all the steps in making a man liable to pay a A tax and exaction of tax from him must be in accordance with law. There must be a valid statute which will be properly followed. All steps must be taken according to statutory provisions. Recovery of tax must also be according to law. No one can be subjected to levy or tax or deprived of his money by the State without authority of law. B Article 39 of the Constitution has directed the State to formulate its policy towards securing that the ownership and control of the material resources of the comm.unity are so distributed as best to subserve the common good and that the operation of the economic system does not result in the concentration of wealth and means of production to the c common detriment. These provisions do not in any way curtail the scope and effect of Article 265. Section 39 does not enjoin that unlawfully collected properties should be used by the State for the common good. Nor does it say that the operation of the economic system should be so moulded as to prevent concentration of wealth, by unlawful means. Article 39 cannot be a basis for retaining whatever has been gathered unlawfully by the D Government for common good. Simply stated the Directive Principles of State Policy do not license the Government to rob Peter to pay Paul,

It has been repeatedly asserted by the Supreme Court of the United States that it is the duty of the Courts to be watchful for the constitutional rights of the citizens and against any stealthy encroachments thereon. (See Boyd v. United States, 116 US 616 (1886). Actually, that should be the main function of the Court. Otherwise, independence of the judiciary will be- come meaningless.

"Independen~ tribunals of justice ........ will be naturally led to resist every encroachment upon· rights expressly stipulated for in the Constitution by the declaration of rights."

Madison, I Annals of Cong. 439 (1789).

Repeatedly, in various contexts, it has been emphasised that constitu- G tional rights of citizens should not be watered down however desirable the end result of a particular case may be. The Constitution is to last for ever. If for one particular case, out of its perceieved notion of expediency, the Court cuts down the scope and effect of a constitutional provision, the Court will be failing in its bounden duty to uphold the Constitution. The H

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

A Court should not be guided by any policy of expedition but only by the dictates of what has been laid by the Constitution and what the American Courts refer to as "Imperative of Judicial Integrity." It is the imperative of judicial integrity that Article 265 is upheld as it is. If it is allowed to be destroyed in this case, there is no reason why other Articles of the Con- B . stitution should not slowly and steadily be whittled away to take away all the other guarantees given to the citizens by the Constitution. This case, then, would be a dangerous precedent for demolition of the Constitution, article by article.

Apart from that, the Government cannot be allowed to say that it has broken the law but it will retain the fruits thereof. As was observed by Mr. Justice Brandeis in Olmstead v. United States, 277. US 438 (1928) :

"Our Government is the potent, the omnipresent teacher. For good or for ill, it teaches the whole people by its example...... .If the Government becomes a lawbreaker, it breeds contempt for law; it invites every man to become a law unto himself; it invites anarchy."

In the case of Mapp v. Ohio, 367 US 643 (1961), Mr. Justice Claks delivering the opinion of the Court in a case where the State tried to use in evidence he materials gathered as a result of unlawful search, on the ground that it was very desirable to do so in the facts of that case observed :

"Our decision, founded on reason and truth, gives to the individual no more than that which the Constitution guarantees him, to the police officer no less than that to which honest law enforcement is entitled, and, to the courts, that judicial integrity so necessary in true administration of justice."

In may view, the scope and effect of Article 265 cannot be whittled down in any manner in order to enable the Government to retain unlawfully gathered tax on the pretext that a refund will unduly enrich the taxpayers. G Whatever the consequence may be, the provisions of the Constitution must be upheld as they stand.

In my judgment, Article 265 does not permit the State to levy or collect any tax without the authority of law. This is a protection afforded to the citizens by the Constitution from State oppression in financial matters. This protection given to the citizens must be jealously guarded by

MAFATLALINDS. LTD. v. U.O.I. [SEN,J.] 807

the Courts. If any tax has been gathered unlawfully by the State, It cannot be retained by the State. If any law has been passed for retention of the illegal levy, it must be struck down in the same manner as the Judicial Committee struck down the Barring Act in the case of Commissioner for Motor Transport v. Antill Ranger & Co. Pty, Ltd., (supra).

WHO IS THE TAX-PAYER UNDER THE CENTRAL EXCISE ACT? B

The taxable event for payment of central excise is manufacture of· excisable goods. The Central Excise Act has a long history and the courts have never been in doubt that the excise duty under the various Excise Acts was payable by the manufacturer and if there was any excess payment, the c refund of the excess amount of tax must be made to the manufacturer who had actually paid the duty'. In this connection, it has to be borne in mind that the Central Excise and Salt Act. 1944 is a consolidating Act. In the statement of objects and reasons it is stated :

"The administration of internal commodity taxation in British India D has grown up piecemeal over many years and has been consider- ably expanded during the last decade. Hitherto, the introduction of a new central duty of excise has required the enactment of a _) self-contained law and the preparation of a separate set of statutory rules. There are now no less than 10 separate excise Acts E (the excise on kerosene being covered by a part of the Indian Finance Act, 1922) and 11 sets of statutory rules; and there are also 5 Acts relating to salt, the duty on which is by a wide margin the oldest of our taxes on indigenous commodities. The taxes being closely akin to one another, the methods of collection follow the name general pattern and many of the provisions of the various F Acts are identical or closely similar; and this is the case also with many of the statutory rules. The anglomeration of statute and regulations dealing with similar matters is neither convenient for the public nor conducive to well-organised administration. G

3. The intention of the Bill is to reproduce provisions already existing in the Acts which it is proposed to appeal but in the process certain small amendments have been made, either in mode~ing the language <;>r for dovetailing the provisions and H

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

A otherwise adapting them to present circumstances. These amend- ments are the minimum consistent with each blending and adap- tation."

Section 39 of the Act, when it was passed in 1944, stood as under :

B "39. The enactments specified in the Third Schedule are hereby repealed to the extent mentioned in the fourth column thereof. But all rules made, notifications published, licences, passes or permits granted, powers conferred and other things done under any such enactment and now in force shall, so far as they are not inconsistent c with this Act, be deemed to have been respectively made, publish- ed, granted, conferred or done under this Act."

The Third Schedule contained as many as 17 Acts which were entirely repealed. The Acts were inter alia, The Motor Spirit (Duties) Act, 1970. The Silver (Excise Duty) Act. 1930. The Sugar (Excise Duty) Act, 1934, D the Matches (Excise Duty) Act, 1934. The Iron and Steel Duties Act, 1934. The Tyres (Excise Duty) Act, 1941, The Tobacco (Excise Duty) Act, 1943 and the Vegetable Product (Excise Duty) Act, 1943 and Mechanical Lighters (Excise Duty) Order, 1934.

E In all these Acts the Central Government were empowered to make rule for assessment and collection of duty, issue of notice requiring pay- ment, the manner in which the duties shall be payable and the recovery of duty not paid. The rules also provided for appeals in case the tax-payer was aggrieved by any order.

F Elaborate provisions were made for payment of excise duty on various products, the manner in which the duty was to be paid, imposition of penalty in case of evasion of duty and also the remedies to a tax-payer including refund of any excess amount of duty paid. If an assessee suc- ceeded in appeal, the appellate authority was competent to give suitable G direction to grant relief to the assessee. For example, under the Sugar (Excise Duty) Order, 1934 duty was imposed on certain varieties of sugar. Provisions was made for filing of monthly returns (Rule 5). The Collector was empowered to make assessment and also summary assessment (Rule 6). Provisions for refunds and remissions of duty were made (Rule 9). Any H dispute could be determined by a suitably empowered officer (Rule 11)

MAFAlLAL INDS. LTD. v. U.0.1. [SEN, J.) 809

and appeal also lay to such authority as the Local Government might direct A (Rule 12). Any order of the Collector or such authority could be revised by the Local Government or such higher authority as the Local Govern- ment might direct. A time limit for filing of appeals was provided in Rule 13. Rule 16 entitled the Collector to recover duty which had been short levied through inadvertence, erro"i: or misconstruction of ~he law by the Collector, or through misstatement as to quai:it~y.on the part of the owner of a factory, or even when erroneously refunds had been made. Rule 17 provided, "No duty which has been paid and of which repayment wholly or in part is claimed in consequence of the same having been paid through inadvertence, error or misconstruction shall be returned unless such claim is made within three months from the date of such payment". Likewise, in the Mechanical Lighters (Excise Duty) Order, 1934 a duty of excise was imposed on manufacture of mechanical lighters. Such manufacturer was required to take a. licence from the Collector (Rule 4). The manufacture could only take place in terms of the licence. Every holder of licence had to keep a correct daily account (Rule 7). D Within five days after the close of such month, every holder of a licence had to submit to the Collector a monthly return showing the number of mechanical lighters removed from the manufactory during that month (Rule 8). On receipt of the return, the Collector would make an assess- ment. The Collector was empowered to make a summary assessment E (Rule 9). Provisions for refunds and remissions were contained in Chapter IV. Chapter V dealt with miscellaneous provisions including provision for preferring an appeal, firstly to the Local Government or to such higher authority as the Local Government might direct. Appeal could also be made to the Central Board of Revenue and any order could be revised by the Governor General in Council (Rule 22). Rule 23 imposed a time limit of three months for preferring an appeal. Rule 26 dealt with short . levy through inadvertence, error or misconstruction on the part of the Collector, or through mis-statement as to the quantity on the part of the owner of the manufactory. Recovery could also be made when erroneous refunds had been made. Such claims of refund had to. 'be, made within three months from the date of such payment. Some provisions were made ' in the other Orders or statutes by directly providing for payment of tax, appeals and refunds or by incorporating provisions of other Acts like Sea Customs Act. What is important to remember is that it was never in doubt H

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

A that it was the manufacturer who was liable to pay tax and also entitled to get refund of any tax paid to the State through "inadvertence, error or misconstruction."

This scheme was continued in the consolidating Act of 1944. As was B stated in the object clause of the Act the Act sought to consolidate the existing legislations and did not seek to bring about any fundamental changes in the legislation. In fact even under the Central Excise and Salt Act, 1944 after the levy of duty if the tax-payer felt aggrieved he could go up on appeal and claim that the levy was.excessive or unlawful and if he succeeded, he got refund of the excess amount paid. This is how the Act C was understood and interpreted.

Now it is being argued that if excess amount of duty has been realised the tax-payer should not get back the excess payment because it is morally wrong. The burden of tax has been passed on to the consumers who are I the real tax-payers. D This argument cannot be upheld for three reasons :

(1) When a statute of this nature, which is a consolidating Act, is passed, the Court should not presume that the Legislature was unaware of the scheme of the earlier statutes and how the law was understood and administered. The Legislature avowedly did not bring about any fundamental change in the structure of these existing laws in passing the consolidation Act. Tax was to be paid on manufacture of the excisable goods. There were provisions for assessment and computation of tax. Provisions were also made for appeals, recovery of tax in cases of short levy and refund of tax in cases of excess realisation. The duty of the Court is not to legislate but to find out the intention of the Legislature. The legislative intent was to consolidate and continue the laws that were existing in one comprehensive statute and even when the new statute was in force the Legislature did not think fit to stop refund of a wrong levy of tax to the manufacturer and thereby confer a right to the consumers to get refund before the amendment made in 1991.

H Before that the Central Excise Act did not recognise any right of the

MAFATLALINDS. LTD. v. U.0.1. [SEN,J.] 811

consumer of excisable goods to get a refund of duty. A (2) Refund of tax whether under Income Tax Act, Wealth Tax Act, gift Tax Act, Estate Duty Act, Sales Tax Act, Customs Act or the Central Excise Act has to be given under the statutory provisions contained in the Act. Refund in a taxing statute is to be made not on the ground of compensation for B loss or damage sustained by a tax-payer but on the p1inciple of restoration to the (ax-payer of what had been collected from him withou_t justification of law. This was highlighted by Mason, CJ. in theAustralian Case (supra). It is not without significance that in all the tax laws, the word 'refund' has been c preferred to 'restitution' or 'compensation'. The dictionary meaning of 'refund' is "to give or pay back money etc.", Webster Comprehensive Dictionary, International Edition

1984. When a taxing statute provides for refund, it is not to be understood as a section providing for compensation for loss or damage. Refund of tax means returning to the assessee what had been taken or received from him unlawfully.

(3) Under the Central Excise Act, there is only one tax which is levied by Section 3 and tbe tax-payer is the person who pays the charge levied by Section 3. The taxable event under the charging section is manufacture. This is the duty which a manufacturer has to pay before he can remove the manufac- tured goods from his factory. What the buyer of the goods pays to the manufacturer is the price of the goods. No duty is levied by the Central Excise Act upon the buyer. What the buyer pays to the manufacturer is not under any charge imposed by any statute. What he pays is the price of the goods. The price is a matter of contract between the buyer and the seller. Whatever the buyer pays and the seller gets is the price of the goods, even though the tax element is included in the price. I shall refer to the decided cases later in the judgment.

Section 3, which is the charging Section, reads :

"3. Duties specified in the Schedule to the Central Excise Tmiff Act, 1985 to be levied. H

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

A (1) There shall be levied and collected in such manner as may be prescribed duties of excise on all excisable goods which are produced or manufactured in India as and at the rates, set forth in the Schedule to the Central Excise Tariff Act, 1985.

PROVIDED that the duties of excise which shall be levied and B collected on any excisable goods which are produced or manufac- tured, -

(i) in a free trade zone and brought to any other place in India; or c (ii) by a hundred per cent export-oriented undertaking and al- lowed to be sold in India,

shall be an amount equal to the aggregate of the duties of customs which would be leviable under section 12 of the Customs Act, 1962 (52 of 1962), on like goods produced or manufactured outside D India if imported into India, and where the said duties of customs are chargeable by reference' to their value, the value of such excisable goods shall, notwithstanding anything contained in any other provision of this Act, be determined in accordance with the provisions of the Customs Act, 1962 and the Customs Tariff Act, E 1975 (51 of 1975). ·- Explanation I : Where in respect of any such like goods, any duty of customs leviable under the said section 12 is leviable at different rates, then, such duty shall, for the purposes of this proviso, be deemed to be leviable under the said section 12 at the highest of those rates.

Explanation 2 : In this proviso, -

(i) "free trade zone" means the Kandla Free Trade Zone and the Santa Cruz Electronics Export Processing Zone and includes any other free trade zone which the Central Government may, by notification in the Official Gazette, specify in this behalf;

(ii) "hundred per cent export-oriented undertaking" means an 1 undertaking which has been approved as a hundred per cent export-oriented undertaking by the Board appointed in this

MAFATLAL INDS. LTD. v. U.O.I. [SEN, J.) 813

behalf by the Central Government in exercise of the powers conferred by section 14 of the Industries (Development and Regulation) Act, 1951 (65of1951), and the rules made under that Act.

(1A) The provisions of sub-section (1) shall apply in respect of all excisable goods other than salt which are produced or manufac- B tured in India by, or on behalf of, Government, as they apply in respect of goods which are not produced or manufactured by Government.

(2) The Central Government may, by notification in the official gazette, fix, for the purpose of levying the said duties, tariff values of any articles enumerated, either specifically or under general headings, in the Schedule to the Central Excise Tariff Act, 1985 (5 of 1986) as chargeable with duty ad valorem and may alter any tariff values for the time being in force. D (3) Different tariff values may be fixed --

(a) for different classes or descriptions of the same excisable goods; or .

(b) for excisable goods of the same class or description -- E (i) produced or manufactured by different classes of producers or manufacturers; or

(ii) sold to different classes of buyers : F PROVIDED that in fixing different tariff values in respect of excisable goods falling under sub-clause (i) or sub- clause (ii), regard shall be had to the sale prices charged by the different classes of producers or manufacturers or, as the case may be, the normal practice of the wholesale trade in such goods." G Actually there has been a very little change in the charging section since 1944, except that since 1985 excise duty has to be paid at the rates set forth in the "Schedule to the Central Excise Tariff Act, 1985". Before this amendment with effect from 28.2.1986, the levy was at the rates set forth in the First Schedule of the Central Excise Act. Since 1944 the taxable H

814 SUPREME COURTREPORTS[1996] SUPP.10 S.C.R.

A event continues to be production and manufacture or excisable goods. The moment any excisable goods are produced or manufactured, levy of excise duty is attracted. The time and manner of payment of duty have been fixed by Rule 9 of the Central Excise Rules :

"RULE 9. time and manner of payment of duty. - {1) No B excisable goods shall be removed from any place where they are produced, cured or manufactured or any premises appurtenant thereto, which may be specified by the Collector in this behalf, whether for consumption, export or manufacture of any other commodity in or outside such place, until the excise duty leviable c thereon has been paid at such place and in such manner as is prescribed in these Rules or as the Collector may require and except on presentation of an application in the proper form and on obtaining the permission of the proper officer on the form:

Provided that such goods may be deposited without payment of duty in a store-room or other place of storage approved by the Collector under Rule 27 or Rule 47 or in a warehouse appointed or registered under Rule 140 or may be exported under bond as provided in Rule 13:

E Provided further that such goods may be removed without payment or on part payment of duty leviable thereon if the Central Government, by notification in the Official Gazette, .allow the goods to be so removed under Rule 49:"

Rule 9A inter alia lays down that the rate of duty and tariff valuation F shall be the rate and valuation in force in the case of goods removed from a factory or a warehouse on the date of the actual removal of such goods from such factory or warehouse. Even if any excisable goods are lost after manufacture, the duty will have to be paid. Clause (iii) of sub rule (4) of Rule 9A provides : G "Rule 9A(4). The rate and valuation, if any, applicable to cases of losses of goods shall -

H (ii) ............................................................................................................ .

MAFATLALINDS. LTD. v. U.O.L [SEN,J.] 815

(iii) where the loss occurs in storage, whether in a factory or in a A warehouse, be the rate and valuation, if any, in force on the date on which such loss is discovered by the proper officer or made known to him."

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

The argument that the real tax-payer is the person who buys. the goods from the manufacturer or the ultimate consumer because duty is included in the price, forms a component of the price and is thereby passed on to the consumer, does not bear scrutiny. Excise duty is payable because of the charge levied by Section 3. Whether the manufacturer is able to sell his goods or not, excise duty will have to be paid. If a man is able to pass on the burden or not is something with which the Excise Act is not concerned. If as a result of high excise tariff the price becomes too high and the goods become unsaleable, the manufacturer may go out of business but will not be absolved from payment of duty. Hardships suffered by the manufactures may be redressed by the Government for which power has been retained in the Central Excise Act (Section 5A). But a manufacturer cannot decline to pay excise duty on the ground of inability to sell his products and failure to pass on the burden of the duty. G

If the Central Excise Officer discovers that the duty of excise has not been levied or paid or has been short levied or short paid, he has a right to recover the duty from the manufacturer (Section llA). The short levy may have been due to an oversight or mistake committed by the Excise H

816 SUPREMECOURTREPORTS(1996] SUPP. lOS.C.R.

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

The charge of duty under the Central Excise act is imposed by E Section 3. It has to be computed in the manner laid down in the rules and paid also in the way rule provides. The charge of tax is to be recovered from every person "who produces, cures or manufactures any excisable goods" (Rule 7). It may also be recovered from person who stores such goods in a warehouse. It further provides that the duty shall be payable "at p such time and place and to such person as may be designated". Rule 7 really supplements the· charging section and specifies the person who has to pay excise duty and to whom, where and within which time the duty is to be paid. Rule 9, which has been set out earlier in the judgment, places a bar on removal of goods from the place of manufacture "until the excise duty leviable thereon has been paid at such place and in such manner as G is prescribed in these rules or as the Collector may require". Under the scheme of the Excise Act and the rules, these are the only provisions by which excise duty is made payable. The charge is declared in Section 3. The liability to pay duty is cast on any person who produces, cures or manufactures any excisable goods or stores such goods in a warehouse H (Rule 7). Time and manner of payment of duty is laid down by Rule 9.

MAFATLALINDS. LTD. v. U.O.I. [SEN,J.] 817

Date for determination of duty and tariff valuation is provided by Rule 9A A and Rule 9B provides for provisional assessment to duty. It is provided that when the duty leviable on the goods is assessed finally, the duty provisional- ly assessed has to 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 has to pay the deficiency or be entitled to refund, as B the case may be. Provisions were also made for recovery of duties not levied or not paid, or short-levied or not paid in full or erroneously refunded (Rule 10). Rule lOA provided residuary powers for recovery of duties for which any specific provision had not been made in the Act or the Rules. Rule lOB dealt with claim for refund of duties. c Rules lOA and lOB were as under :

"JOA. Residuary Powers for Recove1y of Sums Due to Govemment. - (1) Where these rules do not make any specific provision for the collection of any duty, or of any deficiency in duty if the duty has for any reason been short levied, or of any other sum of any kind D payable to the Central Government under the Act or these rules, the proper officer may serve a notice on the person from whom such duty, deficiency in duty or sum is recoverable requiring him to show cause to the Assistant Collector of Central Excise why he should not pay the amount specified in the notice. E (2) The Assistant Collector of Central Excise, after considering the representation, if any, made by the person on whom notice is served under sub-rule (1), shall determine the amount of duty, deficiency in duty or sum due from such person (not being in excess of the amount specified in the notice) and thereupon such person F shall pay the amount so determined within ten days from the date on which he is required to pay such amount or within such extended period as the Asst. Collector of Centrai Excise may, in any particular case, allow.

JOB. Claim for refund of duty. - Any person claiming refund of G

- any duty paid by him may, make an application, for refund of such duty to the Assistant Collector of Central Excise before the expiry of six months from the date of payment of duty :

Provided that the limitation of six months shall not apply where any duty has been paid under protest. · H

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

A Explanation. - Where any duty is paid provisionally under these rules on the basis of the value or the rate of duty, the period of six months shall be computed from the date on which the duty is adjusted after final determination of the value or the rate of duty, as the case may be.

B (2) If on receipt of any such application the Assistant Collector of Central Excise is satisfied that the whole or any part of the duty paid by applicant should be refunded to him, he may make an order accordingly.

(3) Where, as a result of any order, passed in appeal or revision, c 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.

(4) Save as otherwise provided by or under these rules, no claim for refund of any duty shall be entertained. D Explanation : For the purposes of these rule 'refund' includes rebate referred to in rules 12 and 12A."

Rules WA and lOB were in force till 1980. These two rules were substantially adopted in Section llA and llB of the Central Excises and E Salt Act, 1944 by the Customs Central Excises and Salt Act and Central Boards of Revenue (Amendment) Act, 1978. The two sections came into · force on 17.11.1980. It is well-settled that these two rules (Rules lOA and lOB) are complementary. Rule lOA invests the Government with the power to recover duty where any duty had no,t been levied or paid or had been short-levied or erroneously refunded or any duty assessed had not been paid in full. In such a case, the proper officer within six months could serve a notice on a person chargeable with the duty requiring him to show cause . why he should not pay the amount specified in the notice.

Likewise, Rule lOB enabled a person to claim "refund of any duty paid by him". This could be done by an application for refund of such duty to the Assistant Collector of Central Excise before expiry of six months from the date of payment of duty. Where any duty was paid provisionally under Rue 9B, the period of six months was to be computed from the date on which the duty was adjusted after final determination of the value. If as a result of any appellate or revisional order refund of duty is due to any person, the proper officer had to refund the amount to such person even without any application.

MAFATLALINDS. LTD. v. U.O.L [SEN,J.] 819

There is nothing in the Act which enables or enjoins the manufac- A turer to pass on the duty of excise to the purchaser nor is any duty cast on the purchaser to pay the excise duty. It is the manufacturer who has to pay the duty imposed by Section 3 by virtue of the provisions of Rule 7 and in· the manner laid down in Rules 9A and 9B. He is the person against whom proceedings for recovery could be taken in case of non-levy or short-levy B or erroneous refund of duty. Only a person who was under a legal obliga- tion to pay duty under Section 3 read with Rule 7 and has actually paid duty in the manner laid down in Rule 9 (or any other rule), can claim refund of duty.

'Duty' has been defined by Rule 2(v) to mean "the duty payable under c Section 3 of the Act". All these provisions go to show that there is only one duty payable under the Central Excise Act. It has to be paid by the manufacturer or producer of the excisable goods. In fact stringent provisions have been made to ensure that there is no evasion of duty by the manufacturer. Under Rule 43 the manufacturer is required to give D notice before commencement of production. He has also to give a notice before stopping or resuming production of such goods. He has also to give particulars of the raw-materials used for production and if there is any change in the nature of the raw-material that has also to be conveyed to the Collector of Excise. Under Rule 49 duty has to be paid by a manufac- E turer only when the goods are removed from the factory premises or an approved place of storage. But a manufacturer has to pay on demand the duty leviable on any goods which cannot be accounted for or which are not shown to have been lost or destroyed by natural causes or by an un- avoidable accident during handling or storage of such goods. F The procedure of clearance is contained in Rule 52. The manufac- turer has to make an application in triplicate to proper officer in proper form at least twelve hours before the removal of the goods. The officer has to assess amount of duty on the goods on production of evidence that the sum has been paid into the treasury or the approved Bank as has been G provided in the Rules. This rule has also importance for our purpose. Duty of Central Excise is to be paid into the treasury or the Bank specified in Rule 52. Any payment made by any person by way of price has not been treated as payment of duty by the Central Excise Act. Rule 53 enjoins every manufacturer to niake stock account of his goods. Monthly return has to H

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

A be filed showing the quantity of goods manufactured, the quantity removed on payment of duty, the quantity removed for export without payment of duty and such other particulars as may be prescribed. Materials used for manufacturing of the goods have also to be accounted for under the provisions of Rule 55. It is not really necessary to examine the scope of procedure for the duty-paid materials or under MODVAT scheme. All these elaborate rules and procedures have been made for payment and collection of duty by and from the manufacturer.

The Central Excise Act has not made the manufacturer an agent of the State for collection of tax from the consumers. If an illegal levy has been made on the manufacturer and any tax has been collected unlawfully from him by the State, the State cannot refuse to return the unlawfully collected amount. The amount whi~h has been unlawfully collected is the property of the tax- payer. If the law has been broken by the State and an unlawful levy has been made the State is not at liberty to distribute the amount so collected on any supposed equitable principle to' somebody other than the actual tax-payer without a specific provision of law to that effect. If this is allowed, the legal wrong done to the tax-payers will remain unredressed. In the case of Baidyanath AyU1ved Bhawan (P) Ltd. v. Excise Commissioner, U.P. & Ors., [1971] 2 SCR 590, a Bench of Three Judges of this Court reiterated that the Court should not concern itself with the policy behind the provisions of the statute or even with its impact. The observations of Rowlatt, J. in Cape Brandy Syndicate v. Commissioner of Inland Revenue, (1921) 1 K.B. 64, was cited in the judgment that "in a taxing Act one has to look at what is clearly said. There is no room for any intendment. There is no equity about a tax. There is no presumption as to F a tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used."

In the case of R.C. Parsi v. Union of India, AIR (1962) SC 1281 after quoting with approval the observations of Lord Simonds in The Judicial G Committee, in governor General in Council v. Province of Madras, AIR (1945) PC 98 at p. 101, Subba Rao, J. observed as under :

"...... the said tax can be levied at a convenient stage so long as the character of the' impost, that is it is a duty on the manufacture or production, is not lost. The method of collection does not affect

MAFATLALINDS. LTD. v. U.O.I. [SEN,J.) 821

the essence of the duty, ·but only relates to the machinery of collection for administrative convenience. Whether in a particular case the tax ceases to be in essence an excise duty, and the rational connection between the duty and the person on whom it is imposed ceased to exist, is to be decided on fair construction of the provisions of a particular Act." B In Bharat Kala Bhandar (Private) Ltd. v. Municipal Committee, Dhamangaon, 59 ITR 73, the subject matter of dispute was a municipal levy. The appellant claimed repayment of an excess amount of tax recovered by the Municipality. Although the facts and the subject mater of the decision was municipal levy which is quite different from the facts c of this case, there is an important observation made by a Constitution Bench of Five Judges :

"The Constitution is the fundamental law of the land and it is wholly unnecessary to provide in any law made by the legislature that anything done in disregard of the Constitution is prohibited. Such a prohibition is to be read in every. enactment."

Here we are dealing with a taxing legislation. Like all other taxing statutes the Cential Excise Act has a charging section, provisions for computation and quantification of the charge and also collection of the charge (Sections 11 and llA) and also for refund of duty (Section llB). The Court cannot ignore these provisions and hold without any specific charge levied to that effect in the Act that the ultimate consumer is the real tax- payer. The refund must be made of excess realisation of the duty of excise to the manufacturer. The Government has not imposed nor realised any duty from the ultimate consumer.

The structure of the Excise Act has to be borne in mind. Duty is levied on manufacture and collected from the manufacturer according to the rules. The well-known distinction between levy and assessment and between levy and collection will have to be borne in mind in this Connec- G tion. In the case of Assistant Collector of Central Excise, Calcutta Division V. National Tobacco co. of India Ltd., [1972] 2 sec 560, it was held by this

Court that : r'

"The term "levy'' appears to us to be wider in its import than the H

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