http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 9

CASE NO.:

Appeal (civil) 6832-6833 of 1999

PETITIONER:

Sahakari Khand Udyog Mandal Ltd.

RESPONDENT:

Commissioner of Central Excise and Customs

DATE OF JUDGMENT: 09/03/2005

BENCH:

RUMA PAL & ARIJIT PASAYAT & C.K. THAKKER

JUDGMENT:

JUDGMENT

Thakker, J.

Both these appeals arise out of a common order passed by the Customs Excise

and Gold (Control) Appellate Tribunal, Western Regional Bench at Bombay

(hereinafter referred to as `CEGAT') on 1st June, 1999 by which it

confirmed the orders in original passed by Assistant Collector Central

Excise, Valsad and affirmed by Collector of Central Excise (Appeals),

Ahmedabad.

Before dealing the points raised by the parties in the present appeals,

relevant facts of both the cases may be stated in brief. Civil Appeal No.

6832 of 1999 is filed by M/s. Sahakari Khand Udyog Mandal Ltd. (`Mandal'

for short). According to the Mandal, it is engaged in manufacturing sugar

falling under sub item (1) of Item No. 1 of the First Schedule to the

Central Excise and Salt Act, 1944 (hereinafter referred to as `the Act').

The appellant-Mandal vide its letter dated 14th August, 1978 addressed to

the Range Forest Officer, Billimora, claimed rebate of Rs. 6,92,779.59 ps..

The refund was claimed on the basis of Notification No. 257/76 dated

September 30, 1976. The Notification was issued by the Government in

exercise of the powers under sub-rule (1) of Rule 8 of Central Excise

Rules, 1944 (hereinafter referred to as `the Rules'). It inter alia

provided for exemption from payment of excise duty leviable thereon in

excess of average production of sugar of the corresponding period of

preceding three years. The notification also provided that such exemption

would be on sale of sugar as specified in columns 3 and 4 as levy sugar and

free sale sugar.

According to the appellant-Mandal, the production of sugar by the Mandal

during the preceding three years was as under :

1973-74 - 1,68,636 quintals

1974-75 - 1,65,308 quintals

1975-76 - 1,30,595 quintals

Thus, total production of three years was 4,64,539 quintals. The average

production of three years for the period of 1973-74, 1974-75 and 1975-76

was 1,54,846.33 quintals (4,64,539 - 3). Since production of sugar for the

year 1976-77 was 2,09,982 quintals, the appellant-Mandal was entitled to

benefit of exemption from octroi duty for excess production of 55,135.67

quintals. The appellant, therefore, submitted its claim for Rs. 6,92,779.59

ps.

The Assistant Collector of Central Excise, by an order dated 29th March,

1993, held the claim to be time barred under Section 11B of the Act as it

was filed after six months. He also held that for an amount of Rs.1,348.80

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 9

ps., the claimant was not entitled as the claim related to 48 kgs. of sugar

which was re-processed sugar and hence not permissible. Regarding the

amount of Rs.6,92,779.59 ps., the Assistant Collector held that to get

benefit of exemption, excess sugar was to be sold as levy sugar and free

sale sugar in the ratio of 65 : 35 respectively. The appellant claimed the

amount as under :

Excess Ratio of Kind of Rate per Total

Production Percentage Sugar Qtl Rebate

1. 55135.67 65% i.e. Levy 4.20 1,50,520.40

35838.18

2. 55135.67 35% i.e. Free sale 28.10 5,42,259.19

19297.48

Rs. 6,92,779.59

On going through actual sale by the appellant, however, it was found that

out of excess production of 55,135.67 quintals sugar, the Mandal had sold

sugar as levy sugar and free sale sugar as under:

42133 Qtl. Levy Sugar x Rs.4.20 = 1,76,l958.60

(Rate of rebate)

13003 Qtl. Free Sale x Rs.28.10 = 3,65,384.30

Sugar (Rate of rebte)

Total Rs. 5,40,342.90

The claimant, therefore, according to the Assistant Collector, could not

have claimed Rs.6,92,779.59 ps., but only Rs. 5,42.342.90 ps., The

Assistant Collector further observed that the claimant had already charged

and collected the duty amount from its customers and as such it was not

entitled to claim the said amount. He, therefore, transferred the amount to

Consumer Welfare Fund, set up by the Government of India.

Being aggrieved by the order passed by the Assistant Collector, the

appellant preferred an appeal before the Collector of Central Excise

(Appeals), Ahmedabad. Before the Appellant authority, it was contended that

the Assistant Collector had committed an error of law in holding the claim

to be barred by time; there was an error on the part of the adjudicating

authority in reducing the claim of Rs.1,348.80 ps. on the ground that the

sugar was re-processed goods and no rebate could be allowed and the working

out of ratio of 65 : 35 of levy sugar and free sale sugar had not been

correctly applied and the Assistant Collector ought not to have reduced the

claim. He also erred in not paying the amount to the Mandal. As the order

passed by the Assistant Collector was contrary to law, it was liable to be

set aside by ordering the respondents to pay the amount claimed by the

appellant - Mandal.

The Appellate Authority considered the submission regarding the claim of

Rs.1,348.80 ps. and upheld it observing that in accordance with the

Notification No. 257/76, the claimant was entitled to the said amount and

the order disallowing the claim was not proper and accordingly it was set

aside. Regarding the claim being barred by limitation, it was observed that

since the sugar year was over on September 30, 1976, the claim was required

to be submitted within six months. But the claim was submitted on 14th

August, 1978, and hence, it was barred by limitation. It was contended by

the Mandal that initially the claimant had claimed benefit of Notification

No. 36 of 1976 but after the Directorate of Sugar informed the claimant on

19th July, 1978 that the claim of the Mandal was liable to be rejected, it

filed the present claim on 14th August, 1978. The Appellate Authority,

however, observed that the Assistant Collector could not go beyond the

provision of law and when the time limit had been prescribed under Section

11B of the Act, the claim was rightly held to be time barred.

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 9

Regarding non-payment of amount to the claimant, the Appellate Authority

observed that the Assistant Collector was right in transferring the refund

to the Consumer Welfare Fund. The claimant no doubt objected to invoking

the doctrine of unjust enrichment under Section 11B of the Act contending

that the rebate was in the nature of incentive to the factories to

encourage them to produce more sugar and such rebate was not intended to

benefit the consumers. But it was observed that with the amendment of

Section 11B, the new provision would apply to all claims including those

filed before the amendment. The Collector also observed that the

Notification No. 257/76 did not use the word "rebate" but provided for

exemption from payment of duty on levy sugar and free sale sugar at the

rate specified in the table appended thereto. Section 11B provided for

refund of excise duty in certain cases to the applicant under sub-section

(2) of Section 11B of the Act. Since the case in hand was not covered by

the said provision as the Mandal had not paid the said amount, the Mandal

could not get such amount. He, therefore, dismissed the appeals.

The aggrieved appellant approached the CEGAT. Before the CEGAT, the

arguments advanced before the lower Authorities were reiterated. The CEGAT,

however, confirmed the order passed by the Assistant Collector as well as

by the Collector. According to the CEGAT, the claim was "clearly barred by

limitation". The CEGAT also observed that even if the claim was not barred

by limitation, it would come within the judgment of this Court in Mafatlal

Industries Ltd. and Ors. v. Union of India and Ors., [1977] 5 SCC 536 :

(1997) 99 ELT 247. The appeal was accordingly dismissed.

In Civil Appeal No. 6833 of 1999, the appellant had claimed rebate of Rs.

6,44,841 vide its letter dated 1st September, 1978 lodged with Range Forest

Officer, Billimora. The rebate was claimed on the basis of Notification No.

108/78 dated 28th April, 1978. Under the said Notification, a sugar factory

was entitled to exemption from excise duty on excess production of sugar of

the corresponding period of preceding three years. The notification also

provided that such exemption would be on sale of sugar as specified in

columns (3) and (4) as levy sugar and free sale sugar. According to the

Mandal, the production of sugar by the appellant Mandal for preceding three

years was as under :

1975 - 15,573 quintals

1976 - Nil

1977 - 24,817 quintals

Total - 40,390 quintals

1978 - 45,845 quintals.

According to the appellant, the average of earlier three years came to

13,466.67 quintals and hence the appellant was entitled to rebate on excess

production of 32,378.33 quintals. The Authority, however, held that since

there was `nil' production of sugar by the appellant for one year (1976),

as per the policy of the Government, the said year was required to be

ignored. The Authority, in the circumstances, held that average production

of the appellant was 20,195 quintals (40,390 - 2). On that basis, the

appellant was entitled to claim rebate on the excess production of 25,650

quintals. The Assistant Collector also observed that ratio of levy sugar

and free sale sugar had to be maintained as 65 : 35.

The appellant ought to have sold sugar as under :

16672.50 Qt. x Rs. 9.60 = Rs. 1,60,056.00

8,977.50 Qt. x Rs.54.00 = Rs. 4,84,785.00

Grand total Rs. 6,44,841.00

The appellant however, cleared levy sugar and free sale sugar in the

following ratio :

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 9

21,261 Qt. x Rs. 9.60 = Rs. 2,04,105.60

4,389 Qt. x Rs. 54.00 = Rs. 2,37,006.00

Total = Rs. 4,41,111.60

The appellant, therefore, could not claim Rs.6,44,841 but only

Rs.4,41,111.60 ps. Taking note of the fact that the sugar factory had

"already" charged and collected duty amount from the customers to whom the

free sale sugar as well as levy sugar has been released", the Assistant

Collector held that under Section 11B of the Act, the Mandal could not

claim the said amount from the Government. He in the circumstances reduced

the claim to Rs.4,44,111.60 ps. but transferred the amount to Consumer

Welfare Fund set up by the Government of India.

Being aggrieved by the said order passed by the Assistant Collector, the

appellant preferred an appeal but the appeal was dismissed by the Collector

of Customs. The aggrieved appellant then approached the CEGAT as already

noted earlier. The CEGAT also dismissed the appeal. The common order passed

by the CEGAT in both the matters have been challenged by the Mandal in the

present appeals.

We have heard learned counsel for the parties. The learned counsel for the

appellant-Mandal contended that the Authorities below committed an error of

law in holding the claim of the appellant as time barred. He also contended

that the Authorities were wrong in reducing the claim of the appellant in

Civil Appeal No. 6833 of 1999 by improperly interpreting Notification No.

108/78 dated 28th April, 1978 and in calculating the average production as

per the said Notification. According to the learned counsel, production of

sugar by the appellant in three years was required to be divided in three

years ignoring the fact that there was no production for one year. The

appellant in that case would be entitled to benefit of excess production of

32,378.33 quintals and not 25,650 quintals. The counsel vehemently

contended that the decision of the Authorities on application of the

doctrine of unjust enrichment was unwarranted and ill-founded and the ratio

laid down in the Mafatlal Industries Ltd. would not apply. According to the

counsel, sub-section (2) of Section 11B could not be invoked by the

Authorities and the appellant was entitled to rebate as claimed. It was

submitted that the object of granting rebate was to encourage sugar

factories to have more and more sugar production and it was intended to be

given to factories and not to consumers. It was, therefore, not open to the

Authorities to take into account extraneous ground for refusing relief to

the appellant. The amount hence could not have been diverted to the

Consumer Welfare Fund set up by the Government of India but ought to have

been given to the claimant. The counsel also submitted that there was an

error on the part of the Authorities in reducing the claim of the appellant

on the ground of actual sale of sugar on quota fixed for levy sugar and

free sale sugar. Sugar was sold according to the policy of the Government

and, hence, reduction of rebate was improper. He, therefore, submitted that

both the appeals should be allowed with an appropriate direction to the

respondents to pay the amount to the appellant-Mandal.

Learned counsel for the respondent, on the other hand, supported the orders

passed by the Authorities. According to him, one claim was clearly barred

by limitation. A finding of fact has been recorded that the claim was

submitted after a period of six months. The Authorities were, therefore,

right in rejecting the claim. Regarding average production, the counsel

submitted that Clause 3 of Notification No. 108/78 is clear and it states

that the average production for the period in the preceding three sugar

years shall be worked out in which the factory has actually worked during

the said period. The period for which it had not worked had to be ignored.

He also submitted that the calculation of average was as per the policy of

the Government and Clause 3 of the Notification and no grievance could be

made against such an action. On merits, the counsel submitted that for

claiming benefit of exemption of excess production of sugar, sale of sugar

must be as per the policy of the Government for levy sugar and free sale

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 5 of 9

sugar. From the record, it is clear and a finding has been recorded by the

Authorities that sale of sugar was not in the ratio of 65 : 35 for levy

sugar and free sale sugar respectively and, hence, the benefit was

calculated on the basis of actual sale of sugar and the action was legal,

valid and proper. Regarding the grievance of the appellant of transferring

the amount of exemption from octroi duty to Consumer Welfare Fund, it was

submitted that admittedly the appellant has not suffered. The octroi amount

has been passed on to customers and has already been recovered by the

appellant. Hence, under sub-section (2) of Section 11B of the Act, the

Mandal cannot claim such amount. But even if it is assumed that Section 11B

has no application, on general principle also, the appellant has no right

to claim such amount as it would result in `unjust enrichment' by the

appellant. Hence, by not extending the said benefit, the Authorities have

committed no error of law. He, therefore, submitted that the appeals

deserve to be dismissed.

Having heard learned counsel for the parties, in our opinion, the appellant

is not entitled to any relief. On limitation, it is clear from the record

that in Civil Appeal No. 6832 of 1999, the claim was in respect of the

production for the year 1976-77. It related to a claim up to 30th

September, 1977 and the appellant ought to have filed the claim within six

months i.e. on or before 31st March, 1978. Admittedly, the claim was

submitted on August 14, 1978. It was, hence, rightly held to be barred by

limitation.

Regarding average production of sugar for three years in Civil Appeal No.

6833 of 1999, in our opinion, the submission of the learned counsel for the

respondent is well founded that the average production of two years had to

be considered. Clause 3 of Notification No. 108/78 dated 28th April, 1978

reads as under:

"3. Where during the period mentioned in column (1) of the said Table

production in any of the preceding three sugar years was nil, the average

production shall be determined as under :-

The average production for the said period in the preceding three

sugar years shall be worked out on the basis of the period or

periods in which the factory had actually worked during the said

period and the period or periods in which it did not work during

the said period shall be ignored while arriving at the average."

(emphasis supplied)

A similar question came up for consideration recently before us in

Sidheshwar Sahakari Sakhar Karkhana Ltd. v. Union of India and Ors., Civil

Appeal No. 5866 of 1999 decided on 23rd February, 2005. In that case also,

the appellant Karkhana did not produce any sugar for one year. The

Authorities, therefore, ignored the said year while calculating average

production of the Karkhana. A grievance was made by the Karkhana that the

action of the Authorities was illegal and production of sugar ought to have

been divided in three years ignoring non-production for one year.

Interpreting the Notification and the language used in Clause 3 thereof,

this Court negatived the contention and held that when there was no

production by Karkanha for one year, the said period was required to be

ignored and was rightly ignored by the Government. In our opinion, the

ratio laid down in the said case applies to the case in hand also and the

action of respondent cannot be held illegal or contrary to law.

It was then contended that the authorities were not right in reducing the

amount of rebate on the basis of sale of levy sugar and free sale sugar.

According to the appellant-Mandal, sugar was sold by the Mandal, the

authorities were made aware of that fact, and nothing was suppressed. When

the authorities were aware and yet no objection was taken by them at any

time, it was not open to them to reduce the amount on the ground that sale

of sugar by the appellant Mandal was not as per so called policy of the

Government of 65 per cent levy sugar and 35 per cent free sale sugar.

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 6 of 9

Reduction of amount on that ground was illegal and unlawful.

We are unable to uphold the argument. In our opinion, both the

notifications are abundantly clear. The benefit under the said

notifications can be claimed only if sugar is sold in the proportion of 65

: 35 levy sugar and free sale sugar respectively. Since the appellant was

claiming the benefit of exemption from excise duty, it was obligatory on

the appellant-Mandal to sell sugar in the ratio of 65 : 35 as specified in

the notifications and unless that condition is fulfilled, the benefit of

exemption from duty could not be claimed by it. On the basis of actual sale

by the appellant, the respondent had calculated the amount of exemption

from excise duty which was in consonance with the notifications and no

grievance can be made by the appellant against that decision.

It was also argued that the authorities below could not have invoked the

provisions of Section 11B of the Act for denial of the benefit of

notifications. Section 11B was inserted in the Act by the Amendment Act of

1978 (Act 25 of 1978) with effect from November 17, 1980. It provided for

refund of duties in certain cases of excess payment. The section was

further amended by the Amendment Act of 1991 (Act 14 of 1991) with effect

from September 19, 1991.

In Union of India v. Jain Spinners Ltd., [1992] 4 SCC 389 and in Union of

India v. I.T.C. Ltd., [1993] Supp 4 SCC 326, this Court held that so long

as the refund proceedings are pending and not finalized, the amended

provisions get attracted and may disentitle the manufacturer from claiming

any refund contrary to the amended provisions. To put it differently, the

provisions of Section 11B as amended by the Amendment Act of 1991 would

also apply to claims of refund which are pending. It was held that the

Court is bound to take notice of change in law governing refund and can

call upon the manufacturer to furnish evidence to prove that the amount of

duty of excise in relation to which refund was claimed was not passed on by

him to customers.

In Mafatlal Industries Ltd., this Court reiterated the law laid down in

Jain Spinners Ltd. and I.T.C. Ltd. Speaking for the majority, B.P. Jeevan

Reddy, J., observed that the Court should have due regard to the

legislative intent evidenced in the Act and must exercise jurisdiction

consistent with the provisions of law.

The learned counsel for the appellant referred to a decision of this Court

in Hindustan Metal Pressing Works v. Commissioner of Central Excise, Pune,

[2003] 3 SCC 559, and submitted that principles contained in Section 11B of

the Act would not apply to past cases. It may, however, be stated that in

that case, the proceedings were finalized, transaction was over and the

amount was refunded to assessee in 1989. In that fact- situation, this

Court held that past finalized transactions could not be reopened on the

ground that refund was erroneously granted and there was unjust enrichment.

The fact-situation in the present case is totally different. The amount has

been passed on to consumers and the claim is made by the Mandal to refund

the amount. The ratio laid down in Hindustan Metal Pressing Works,

therefore, does not help the appellant.

Finally, it was submitted that the doctrine of `unjust enrichment' has no

application. The said doctrine, therefore, could not have been invoked by

the authorities for denying the benefit of exemption from payment of excise

duty and in refusing to pay the amount to which the appellant was held

entitled by diverting it to Consumers Welfare Fund set up by the

Government.

We are not impressed by that argument also. In our view, the submission is

not well founded and cannot be accepted.

Stated simply, `Unjust enrichment' means retention of a benefit by a person

that is unjust or inequitable. `Unjust enrichment' occurs when a person

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 7 of 9

retains money or benefits which in justice, equity and good conscience,

belong to someone else.

The doctrine of `unjust enrichment', therefore, is that no person can be

allowed to enrich inequitably at the expense of another. A right of

recovery under the doctrine of `unjust enrichment' arises where retention

of a benefit is considered contrary to justice or against equity.

The juristic basis of the obligation is not founded upon any contract or

tort but upon a third category of law, namely, quasi-contract or the

doctrine of restitution.

In the leading case of Fibrosa v. Fairbairn, [1942] 2 All ER 122, Lord

Wright stated the principle thus :

"....(A)ny civilized system of law is bound to provide remedies for cases

of what has been called unjust enrichment or unjust benefit, that is, to

prevent a man from retaining the money of, or some benefit derived from

another which it is against conscience that he should keep. Such remedies

in English law are generically different from remedies in contract or in

tort, and are now recognized to fall within a third category of the common

law which has been called quasi-contract or restitution."

Lord Denning also stated in Nelson v. Larholt, [1947] 2 All ER 751;

"It is no longer appropriate, however, to draw a distinction between law

and equity. Principles have now to be stated in the light of their combined

effect. Nor is it necessary to convass the niceties of the old forms of

action. Remedies now depend on the substance of the right, not on whether

they can be fitted into a particular framework. The right here is not

peculiar to equity or contract or tort, but falls naturally within the

important category of cases where the court orders restitution if the

justice of the case so requires."

The above principle has been accepted in India. This Court in several cases

has applied the doctrine of unjust enrichment.

In Orient Paper Mills Ltd. v. State of Orissa, [1962] 1 SCR 549, this Court

did not grant refund to a dealer since he had already passed on the burden

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

make a provision that an amount of illegal tax paid by the persons could be

claimed only by them and not by the dealer and such restriction on the

right of the dealer to obtain refund could lawfully be imposed in the

interests of general public.

In Mulamchand v. State of M.P., AIR (1968) SC 1218, a contract was entered

into between the plaintiff and the Government for removal of forest

produce. The plaintiff deposited an amount of Rs. 10,000 and collected

forest produce. It was, however, turned out that the provisions of Article

299 of the Constitution were not complied with and the contract was void.

The plaintiff claimed refund of Rs. 10,000.

Applying the provision of Section 70 of the Contract Act, 1872 and

referring to Fibrosa and Nelson, this Court said :

"....It is well established that a person who seeks restitution has a duty

to account to the defendant for what he has received in the accounting by

the plaintiff is a condition of restitution from the defendant".

In M/s. Amar Nath Om Prakash and Ors. v. State of Punjab and Ors., [1985] 1

SCC 345 : [1985] 2 SCR 72, Section 23A of the Punjab Agricultural Produce

Markets Act, 1961 enabled the market committees to retain the fee levied

and collected by them from licensees in excess of the leviable amount if

the burden of such fee was passed on by the licensees to purchasers. The

validity of the said provision was challenged and refund was claimed. The

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 8 of 9

Court, however, relying on Orient Paper Mills held that consumer public who

had borne the ultimate burden were the persons really entitled to refund

and since the market committees represented their interests, they were

entitled to retain the amount and the licensees who had levied and

collected the amount from consumers could not claim the benefit.

The Court said;

"The primary purpose of Section 23-A is seen on the face of it; it prevents

the refund of license fee by the market committee to dealers, who have

already passed on the burden of such fee to the next purchaser of the

agricultural produce and who want to unjustly enrich themselves by

obtaining the refund from the market committee, Section 23-A, in truth,

recognizes the consumer-public who have borne the ultimate burden as the

persons who have really paid the amount and so entitled to refund of any

excess fee collected and therefore directs the market committee

representing their interest to retain the amount. It has to be in this form

because it would, in practice, be a difficult and futile exercise to

attempt to trace the individual purchasers and consumers who ultimately

bore the burden. It is really a law returning to the public what it has

taken from the public, by enabling the committee to utilize the amount for

the performance of services required of it under the Act. Instead of

allowing middlemen to profiteer by ill-gotten gains, the Legislature has

devised a procedure to undo the wrong item that has been done by the

excessive levy by allowing the committees to retain the amount to be

utilized hereafter for the benefit of the very persons for whose benefit

the marketing legislation was enacted."

This Court held that the provision gave to the public through market

committees what they had taken from the public and due to it. It rendered

unto Caesar what was Caeser's.

The law laid down in Orient Paper Mills Ltd. and Amar Nath Om Prakash was

quoted with approval by this Court in Mafatlal Industries Ltd.

In M/s. Shiv Shankar Dal Mills v. State of Haryana, [1980] 2 SCC 437,

market fee was collected under a provision which was struck down by this

Court in an earlier case. A prayer was, therefore, made by the traders to

refund the amount collected from them. This Court held that though

collection of market fee from the traders was illegal but traders could

demand only such amount that had not passed on to the customers. For that

view, the Court referred to Articles 38 and 39 of the Constitution as also

discretionary nature of the power under Article 226 of the Constitution.

Following Nawabganj Sugar Mills Co. Ltd. v. Union of India, [1976] 1 SCC

120 : [1976] 1 SCR 803, the Court devised a scheme providing for refund of

amounts to those from whom illegal collections had been made by traders.

In Mafatlal Industries Ltd. also, this Court held that refund of tax/duty

wrongfully paid can be claimed on the basis of doctrine of equity and a

person demanding such restitution must plead and prove that he had paid

such tax/duty and had suffered loss/injury. The burden is on the petitioner

to prove that the tax/duty paid by him is not passed on to customers or

third party and that he is entitled to restitution.

A reference may also be made to a recent decision of the Constitution Bench

in Godfrey Phillips India Ltd. and Anr. v. State of U.P. and Ors., Writ

Petition c No. 567 of 1994, dated January 20, 2005. In that case,

constitutional validity of Uttar Pradesh Tax on Luxuries Act, 1995 as also

other State Acts was challenged inter alia on the ground of legislative

competence by the State Legislature. The Court allowed the petition and

held that the State Legislature were not competent to impose luxury tax on

tobacco and tobacco products and the Acts were declared ultra vires and

unconstitutional. In the intervening period, however, tax was collected by

the appellants from consumers and also paid to the State Government. In

certain cases, interim relief was obtained by the appellants from this

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 9 of 9

Court against recovery of tax and as alleged by the State Government, the

appellants continued to charge tax from consumers/customers.

In the circumstances, speaking through Constitution Bench, one of us, (Ruma

Pal, J.) stated;

"(F)ollowing the principles in Somalya Organics (India) Ltd. v. State of

U.P. [2001] 5 SCC 519 while striking down the impugned Acts we do not think

it appropriate to allow any refund of taxes already paid under the impugned

Acts. Bank guarantees if any furnished by the assessees will stand

discharged.

It was stated on behalf of the State Governments that after

obtaining interim orders from this Court against recovery of luxury

tax, the appellants continued to charge such tax from

consumers/customers. It is alleged that they did not pay such tax

to respective State Governments. It was, therefore, submitted that

if the appellants are allowed to retain the amounts collected by

them towards luxury tax from consumers, it would amount to "unjust

enrichment" by them.

In our opinion, the submission is well founded and deserves to be

upheld. If the appellants have collected any amount towards luxury

tax from consumers/customers after obtaining interim orders from

this Court, they will pay the said amounts to the respective State

Governments."

From the above discussion, it is clear that the doctrine of `unjust

enrichment' is based on equity and has been accepted and applied in several

cases. In our opinion, therefore, irrespective of applicability of Section

11B of the Act, the doctrine can be invoked to deny the benefit to which a

person is not otherwise entitled. Section 11B of the Act or similar

provision merely gives legislative recognition to this doctrine. That,

however, does not mean that in absence of statutory provision, a person can

claim or retain undue benefit. Before claiming a relief of refund, it is

necessary for the petitioner/appellant to show that he has paid the amount

for which relief is sought he has not passed on the burden on consumers

and if such relief is not granted, he would suffer loss.

In the present case, not only no such case has been made out by the

appellant-Mandal, the position is just contrary. All the authorities below

have expressly recorded a finding that the appellant-Mandal has recovered

the amount from consumers and as such excise duty is passed on to

consumers/customers. In view of specific finding, in our opinion, the

conclusion is inescapable that the appellant-Mandal is not entitled to

claim any amount. Allowing exemption or refund of amount would result in

`unjust enrichment' by the appellant which cannot be permitted. In our

opinion, therefore, even on that count, orders passed by the authorities

and refusal to grant benefit cannot be held arbitrary, unreasonable or

inequitable. The said ground also, therefore, has to be rejected.

For the foregoing reasons, both the appeals deserve to be dismissed and are

accordingly dismissed. There shall be no order as to costs.