Judges: A.M.Ahmadi,CJI, Jagdish Saran Verma, S.C.Agrawal, B.P.Jeevan Reddy, A.S.Anand, B.L.Hansaria, K.S.Paripoornan, B.N.Kirpal, S.C.Sen, JJ.

Facts:

The appellant is a textile mill situated at Ahmedabad. The appellant and a few other mills manufacture "blended yarn". The said blended yearn was captively consumed by the various mills for manufacture of fabric, popularly known as "art silk" fabric.

A Special Application was filed by M/s. Calico Mills, who manufactured fabrics and was captively consuming blended yarn, produced by it for manufacturing fabric known as "art silk fabric". The Division Bench of the Gujarat High Court by judgment dated 15.1.1976, held that the levy of the excise duty on blended yarn prior to March 16/17, 1972, under Tariff Item 18 or 18A of the First Schedule to the Central Excise Act, 1944 (hereinafter referred to as CEA,1944) was clearly ultra vires.

The High Court directed refund of the excise duty levied for 3 years prior to institution of the petition, which was instituted on 6.5.1972.

The appellant and other mill-owners stated that as a result of the declaration of the law as aforesaid by the Court, they were not liable to pay excise duty on blended yarn up to March 16/17, 1972 and that they had paid the excise duty on the same upto that date under mistake of law.

They requested for refund of the excise duty so paid till March 16/17, 1972, stating that such duty was illegally recovered from them.

The Revenue did not refund the excise duty as claimed. So, the appellant and others filed suits within three years of the aforesaid judgment (15.1.1976) for refund of excise duty illegally recovered from them, with interest.

The trial court decreed the suits. Then the appeal was filed by the Union of India against the aforesaid decrees passed by the trial court.

The High Court of Gujarat allowed the appeals and set aside the decrees passed by the trial courts, by judgment dated 6.4.1984. The H.C held that in order to successfully sustain the claim of restitution based on Section 72 of the Indian Contract Act, 1872(hereinafter referred to as ICA,1872) the person claiming restitution should prove "loss or injury" to him, and in the cases before them, the excise duty paid on blended yarn was ultimately passed on to the buyer of the fabric, and so the claim for restitution will not lie.

It explained that, in cases where an assessee has "passed on" the duty paid by or realised from him, he has suffered no loss or injury, and the action for restitution is unsustainable. Aggrieved from the order of the High Court, the appellants preferred civil appeal before the Honorable Supreme court disputing the aforesaid statement of the law provided by the High Court.

Issues:

(i) Whether in an action claiming refund of excise duty (tax) paid under mistake of law where the liability has "passed on" or deemed to have passed on, is it essential for the person claiming such refund, to establish "loss or injury" to himplacing reliance on Section 72 of the ICA,1872.

(ii) Whether there is violation of Article 265 of the Constitution?

(iii) Whether an action by way of civil suit or a writ petition under Article 226 of the Constitution will lie in the light of various amendments to the Act, claiming "refund" or "restitution"?

Laws:

Constitution of India - Article 265 - State that taxes not to be imposed save by authority of law. No tax shall be levied or collected except by the authority of law.

Constitution of India - Article 226 - Provides power of High Courts to issue certain writs.

Indian Contract Act, 1872 - Section 72 - Liability of a person to whom money is paid or thing delivered by mistake or under coercion.

Central Excise Act, 1944 - Section 11-A- Provides for recovery of duties not collected or short-collected by Revenue.

Central Excise Act, 1944 - Section 11-B- Provides for refund of taxes collected in excess of what is legitimately due under the Act.

Contentions:

Appellant

(i) Section 72 of the ICA, 1872 does not make any distinction between a mistake of law and the mistake of fact; it takes in both kinds of mistake.

(ii) The taxes are paid under a mistake of law and the Appellant is entitled to recover the same from the State on establishing the mistake.

(iii) A suit or writ is maintainable on the ground that the tax has been collected without the authority of law, i.e., contrary to Article 265 of the Constitution.

(iv) The right to recover excess duty paid is both a constitutional and a statutory right.

(v) 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.

(vi) Article 265 of the Constitution enjoins that no duty shall be levied and collected except in accordance with law. If a manufacturer has been asked to pay more than what he is liable to pay under the CEA, 1944 he is immediately entitled to get the refund of the wrongfully collected duty.

Respondent

(i) The doctrine of unjust enrichment is a just and salutary doctrine. The Appellant cannot collect the duty from his purchaser at one end and also collect the same duty from the State on the ground that it has been collected from him contrary to law.

(ii) The doctrine of unjust enrichment is inapplicable to' the State. State represents the people of the country.

(iii) A manufacturer must fight his own battle and only if he succeeds therein, can he claim refund. He cannot take advantage of success of another manufacturer.

(iv) Such a person cannot plead payment of duty under a mistake of law within the meaning of Section 72 of the Contract Act.

(v) A writ petition or a suit cannot be filed within three years of such "discovery of mistake of law".

(vi) The excise duty paid by the appellant was ultimately passed on to the buyers of the fabric, and the appellant has suffered no loss or injury, the action for restitution based on Section 72 of the ICA, 1872 is unsustainable.

(vii) Article 265 has to be read along with the Directive principles of the State policy.

Analysis:

Claim for restitution - Necessary to plead and prove a loss or injury

(i) The very basis requirement for a claim of restitution under Section 72 of the ICA, 1872 is that the person claiming restitution should plead and prove a loss or injury to him; in, other words, he has not passed on the liability

(ii) A person who seeks restitution, has a duty to disclose or account for what he has received in the transaction. An accounting is a condition precedent in an action for restitution. By way of analogy, it can be stated that in cases where restitution is claimed under Section 72 of the ICA,1872 on the ground of payment due to mistake of law, the person claiming restitution, should plead and prove that "he has not passed on" the liability to another. That is the nature of "accounting" in cases falling under Section 72 of the ICA, 1872.

(iii) Thus, the person claiming restitution should have suffered a "loss of injury". In cases where the assessee or the person claiming refund has passed on the incidence of tax to a third person, it can't be said that he has suffered a loss of injury. It is not possible to say that he has got ownership or title to the amount claimed, which he has already recouped from a third party.

Violation of Article 265 of the Constitution

(i) Article 265 cannot be read in isolation. 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 the claim of 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. The very concept of economic justice means and demands that unless the claimant (for refund) establishes that he has not passed on the burden of the duty/tax to others, he has no just claim for refund. The refund should really be made to the persons who have actually borne its burden.

(ii) If Article 265 of Constitution is literally interpreted and in isolation, and refund ordered, in cases where excise duty has been passed on, it will result in a mockery, totally ignoring the other salient features of the Constitution and the ground realities. As the Preamble states, the Constitution was enacted by the people, to secure to all the citizen, justice, political, social and economic.

(iii) The right to refund of taxes following from Article 265 or as a statutory right/equitable right affirmed by Section 72 of the ICA, 1872;the result is the same i.e., there is no automatic or unconditional right to refund. Thus, there is no violation of Article 265 of the Constitution.

Actions by way of suits or petitions: Elimination of judicial review under Article 226 of the Constitution

(i) For the periods during which the refund was claimed, there were different statutory provisions which governed the subject. The circumstances and grounds on the basis of which the refund can be claimed, the period within which it should be so done, the forum before which the claim should be preferred and whether the decision thereon is subject to the jurisdiction of ordinary courts, vary from period to period.

(ii) The question that falls to be considered is as to how far or to what extent the jurisdiction of the ordinary courts is barred, in view of the alternate remedies provided by the Act by way of appeals, revisions, claims for refund and the period of limitation provided therefore, etc. and specifically excluding the jurisdiction of the civil courts for claiming refund. In discussing this aspect, content of Article 265 is to be considered too. It will apply where the statute is unconstitutional or invalid and also where the collection is unauthorised/illegal, i.e., without "authority of law".

(iii) It is settled law that exclusion of the jurisdiction of the civil courts is not to be readily inferred, but that such exclusion must either be explicitly expressed or clearly implied.

(iv) Thus, it is clear that actions by way of suits or petitions under Article 226 of the Constitution cannot be completely eliminated.

Dissenting opinion by S.C.Sen, J.

(i) In all the circumstances no passing- on defence is available and that the plaintiffs are entitled to restitution of the amounts they are claiming as wrongly paid taxes, subject to any applicable limitation period.

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

(iii) 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 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

Conclusion:

(i) The appellant failed to prove the loss or injury sustained.

(ii) The excise duty paid by the assessee/appellant was ultimately passed on to the buyers or any other person, and the assessee has suffered no loss or injury, the action for restitution based on Section 72 of the ICA, 1872 is unsustainable. (This is the legal position even under general law, without reference to Section 11B of CEA,1944 as amended in 1991.)

(iii) There is no violation of Article 265 of the Constitution.

(iv) 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.

(v) 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 11B etc., as the case may be), and an action by way of suit or writ petition under Article 226 will not be maintainable under any circumstances.

(vi) The jurisdiction of civil courts is not barred in entirety regarding the attack against the levy and/or claim for refund. The jurisdiction of the ordinary courts will not be ousted absolutely.

Cases Referred:

(i) A.R. Antulay v. R.S. Nayak MANU/SC/0002/1988

(ii) STO v. Kanhaiya Lal Mukundlal Saraf MANU/SC/0129/1958;

(iii) Dhulabhai and Ors. v. State of Madhya Pradesh and Anr. MANU/SC/0157/1968

(iv) State of Rajasthan v. Novelty Stores MANU/SC/0223/1995;

(v) Orient Paper and Industries Ltd. V. State of Orissa MANU/SC/0169/1991