REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELALTE JURISDICTION

CIVIL APPEAL NO._6708  OF 2008 (Arising out of SLP (C) No. 380 of 2007)

Corporation Bank …. Appellant

Versus

M/s. Saraswati Abharansala and another …. Respondents

J U D G M E N T

S.B. SINHA, J.

1. Leave granted.

2. First  respondent  is  a  dealer  in  bullion  gold.   It  entered  into

transactions of purchase of gold from the appellant herein during the period

6th April, 1999 and 10th December, 1999.  The total transactions during the

said period were for a sum of Rs.423748518/-.  Indisputably the rate of tax

which was prevailing at the relevant time was 1%.  The amount of sales tax

at  the  said  rate  was  collected  from  respondent  No.1.   The  amount  so

collected, indisputably had been deposited with the sales tax authorities.

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3. On or about 27th December, 1999 vide S.R.O. No.1075/99 the rate of

sales tax was reduced from 1% to 0.5% which was given a retrospective

effect from 1st of April, 1999.  The said Notification reads thus :-

“9 Any dealer Sale  of  bullion  and specie to  registered  dealer  within the State.

This notification shall be deemed to have come into force on first day of April, 1999”

It was given a retrospective effect.  

4. The original SRO 1728/93 on the subject provided that “tax if  any

collected at the higher rate, shall be paid over to Government and tax if any

paid over to Government shall not be refunded”.    Clause 9 of Schedule IV

of SRO 1728/83 provided as under :-

“9 Minerals  and  Metals Corporation of India and Banks  

Sale  of  bullion  to registered  dealers  in jewellery  for manufacture  of  gold jewellery  within  the State for export.”

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This entry in SRO 1728/93 stood amended by SRO 301/99 to read :-

“9 Minerals  and  Metals Corporation of India and Banks  

Sale  of  bullion  to registered  dealers  in jewellery  for manufacture  of  gold jewellery  within  the State for export.”

The  said  entry,  as  stated  above,  was  further  amended  by  SRO

1075/99.  

5. Appellant  on  or  about  19th January,  2000,  in  view  of  the

aforementioned Notification, requested the Assistant  Commissioner,  Sales

Tax,  Special  Circle  I,  Calicult  to  refund  the  excess  amount  of  sales  tax

collected  from  the  respondent  No.1  amounting  to  Rs.20,97,763.50.  The

Assistant  Commissioner  Sales  Tax,  however,  rejected  the  said  prayer  in

terms of its letter dated 3rd March, 2000, which reads as under :-

“You may please see that the Government as per the  above  mentioned  SRO amended  the  original notification  in  SRO 1728/93.   According  to  the said  original  notification,  tax  if  any collected  at the  higher  rate  shall  be  paid  over  to  the Government and tax if any paid over to the Govt. shall not be refunded.  So you may please inform your customer accordingly.”

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6. The first respondent was communicated the same by the appellant in

terms of its letter dated 6th June, 2000 stating :-

“While  referring  to  your  representation  on  the subject  matter,  it  has  been  informed  by  our higherups  that  as  per  the  letter  from  the  Asst. Commissioner of Commercial Taxes, Calicut viz: 3301/1150/99-2000,  it  has  been  clarified  that according  to  the  GO.,  SRO  1728/93  “Any  tax collected at the higher rate shall  be paid over to the Govt.  and tax,  if  any paid over to the Govt. shall not be refunded.

Kindly note the same for your information.”  

7. A writ petition was filed by the first respondent against the appellant

before the High Court of Kerala questioning the validity of the said order.   

“i) declare  that  the  petitioner  is  liable  to  pay sales-tax at ½% for the transactions referred to  in  Ext.  P2  and  that  collection  of  any amount  in  excess  thereof  is  illegal  and  is liable to be refunded;

ii) issue  a  Writ  of  Mandamus  or  any  other appropriate writ, order or direction directing the respondent to refund to the petitions an amount  of  Rs.20,97,261/-  with  interest  @ 21% per annum from the date of collection of the amounts shown in Ext. P2 till the date of actual payment;  

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iii) issue  a  writ  of  Certiorari  or  any  other appropriate writ, order or direction quashing Ext. P3;”

8. The said writ petition was dismissed by a learned Single Judge of the

said Court by his order dated 4th April, 2006 holding :-   

“There cannot be any dispute that the petitioner is entitled to move the Commissioner.  Whether the petitioner had to pay any tax in excess of the due rates  and  if  so  what  is  the  fate  of  such  excess payment is certainly a dispute.  The petitioner has to move the Commissioner for appropriate orders. It  will  be  open  to  the  petitioner  to  take  all available  contentions  on  the  claim  for  refund before  the  Commissioner.  Accordingly,  without expressing any opinion as to the merits of the case, this writ petition is disposed of as follows:-

In  the  event  of  the  petitioner  moving  the Commissioner  (Commercial  Taxes),  government of Kerala, Thiruvananthapuram within a period of two months  from today,  the  Commissioner  shall consider the issue with notice to the petitioner and the first respondent and take appropriate action in accordance with law in the matter within another four months.”

9. An intra court appeal was filed by the first respondent and a Division

Bench of  the High Court  by reason of  the  impugned judgment  dated  7th

November, 2006 allowed the said writ appeal opining :

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“When  the  legislature  or  the  government  had given  that  relief  with  retrospective  effect, necessarily,  that  relief  shall  reach  the  concerned eligible citizen.  The bank had opportunity to file the return showing the real tax liability based on Ex.P1 and claiming refund in terms of Section 33 and could pay over  the  amount  to  the  appellant, the customer of the first  respondent.   If that had been claimed, necessarily, the assessing authority would  have  refunded  it  with  10%  interest  as provided in Section 44(4).”

10. Mr.  R.  Mohan,  learned  Additional  Solicitor  General,  appearing  on

behalf of the appellant-bank at the outset submits that the writ petition for

refund of tax was not maintainable.  It was contended that in any event it

was not permissible for the Division Bench of the High Court to direct the

appellant to refund the excess amount collected and granting liberty to it to

file a claim application thereafter with the sales tax authorities, which is per

say unjust.   

11. Mr. R. Sathish, learned counsel appearing on behalf of the respondent

No.2/State  of  Kerala  would  submit  that  despite  amendment  the  original

condition attached with SR No.1728/93 i.e. the tax if any collected at the

higher rate, shall be paid over to Government and the tax, if any paid over to

Government shall not be refunded, having remained un-amended, the State

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is  not  liable  to refund the amount.   It  was urged that  although the High

Court  has  taken  note  of  the  said  condition  laid  down  in  SOR  No.

1728/1993, but failed and/or neglected to consider the same in its proper

perspective.  

12. Mr. M.K. Sreegesh, learned counsel appearing on behalf of the first

respondent,  however,  would  submit  that  the  Notification  should  be

construed keeping in view the objective, it seeks to achieve as would appear

from  Notification dated 27th December, 1999.

13. It  was  contended that  the amendment  had  been brought  into  force

with retrospective effect.  The condition laid down therein must be held to

have been repealed.  

14. Indisputably the gold in bulk quantity was sold by the Bank within

the State.  Purchase was required to be effected at least worth Rs.25 lakhs at

a time.  It was, however, felt that the intermediary dealers, who normally

buy gold from the banks and primarily cater to the requirements of local

goldsmith  and  jewellers,  would  not  be  in  a  position  to  carry  out  their

activity since they would not be eligible for the reduced rate of 0.5% when

they buy the material from banks or other first sellers within the State.  In

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the aforementioned situation, the Government had taken a decision to make

the said rate of tax applicable when the bullion and specie are sold to any

registered dealer within the Sate.  

15. The aforementioned objective on the part of the State would appear

from  the note appended to SOR No. 1075/99 dated 27th December, 1999.  It

is true that the original Notification SRO 1728/1993 contained a provision

for not refunding the amount of tax collected at a higher rate.  

16. Subsequent  Notification,  namely  SOR  No.  301/1999,  however,

reduced  the  rate  provided  the  sale  is  effected  within  the  State  for

manufacture of ornaments.   SRO 1728/1993, as noticed hereinbefore, was

further amended by SRO No. 1075/1999, in terms whereof a legal fiction

was created giving it a retrospective effect and retroactive operation on or

from 1st April, 1999.   

17. The rate of tax which was applicable on 1st April, 1999 by reason of

the said legal fiction was, therefore, 0.5 %. The effect of a legal  fiction is

well known.  It must be given full effect.  It must be taken to its logical

conclusion.   

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18. Sales tax is leviable on sale of goods.  It must be collected by the

dealer as an agent of the State at such rate as may be specified:  

19. Neither the State nor the agent is entitled to collect tax at a rate higher

than specified.   The Kerala General  Sales  Tax Act,  1963 also contains a

provision for refund in  Section 44 thereof which reads as under :-

“Refund:- (1) When an assessing authority finds at the  time of  final  assessment,  that  the  dealer  has paid in  excess  of  what  is  due from him, it  shall refund the excess to the dealer.   

(2) When  the  assessing  authority  receives  an order from any appellate or revisional authority to make refund of tax or penalty paid by a dealer it shall effect the refund.

(3) Notwithstanding anything contained in sub- section (1) and (2),  the assessing authority shall have  power  to  adjust  the  amount  due  to  the refunded under sub-section (1) or sub-section (2), towards  the  recovery of  any amount  due  on  the date of adjustment, from the dealer.

(4) In case refund under sub-section (1) or sub- section (2) or adjustment under sub-section (3) is not  made within ninety days of the date of final assessment,  or as  the case may be, within ninety days of the date of receipt of the order in appeal or revision  or  the  date  of  expiry  of  the  time  for preferring appeal  or  revision,  the  dealer  shall  be entitled to claim interest at the rate of ten percent per annum on the amount due to him from the date of  expiry  of  the  said  period  upto  the  date  of payment or adjustment.”    

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20. Article 265 of the Constitution of India mandates that no tax shall be

levied or collected except by authority of law.  

21. In  terms  of  the  said  provision,  therefore,  all  acts  relating  to  the

imposition of tax providing, inter alia, for the point at which the tax is to be

collected, the rate of tax as also its recovery must be carried out  strictly in

accordance with law.  

22. If the substantive provision of a statute provides for refund, the State

ordinarily by a subordinate legislation could not have laid down that the tax

paid even by mistake would not  be refunded.   If  a tax has been paid in

excess of the tax specified, save and except the cases involving the principle

of ‘unjust  enrichment’, excess tax realized must be refunded.  The State,

furthermore is bound to act reasonably having regard to the equality clause

contained in Article 14 of the Constitution of India.   

23. It is not even a case where the doctrine of unjust enrichment has any

application as it is not the case of the respondent//State that the buyer has

passed on the excess amount of tax collected by it to the purchasers.  

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24. In view of the admitted fact that tax had been collected and paid for

the period 6th April,  1999 and 10th December, 1999 @ 1 %  of the price

which having been reduced from 1st April, 1999 to 0.5 %, the State, in our

opinion, is bound to refund the excess amount deposited with it.  

25. Furthermore the Notification having been given a retrospective effect

must be construed on the touchstone of the purpose and object it sought to

achieve.   Principle of purposive construction should be applied in a case of

this  nature  to  find  out  the  object  of  the  Act.   When a  statute  cannot  be

considered in such a manner which would defeat its object, the legislature is

presumed to be aware of the consequences flowing therefrom.  The statute

should be considered in such a manner so as to hold that it serves to seek a

reasonable result.  The statute would not be considered in such a manner so

as to encourage defaulters and discourage those who abide by the law.   

26. The statute furthermore, it is trite, should be read in the manner so as

to  do  justice  to  the  parties.   If  it  is  to  be held,  without  there  being any

statutory provision that those who have deposited the amount in time would

be put to a disadvantageous position and those who were defaulters would

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be better placed, the same would give rise to an absurdity.  Construction of

the statute which leads to confusion must be avoided.   

27. Thus the condition of non refund of the excess amount must be held

to have been repealed by necessary implication as the rate of tax so applied

to the transaction of sale of gold bullion was with retrospective effect.  

28. As all the facts are admitted and the State had refused to refund the

excess amount of tax realized from the appellant, in our opinion, the writ

petition was maintainable.   

29. We are, therefore, of the opinion that the interest of justice would be

served  if  instead  of  the  appellant  refunding  the  amount  to  the  first

respondent  and later  claiming refund from the authorities,  if  the State of

Kerala is directed to refund the amount of tax collected with interest at the

rate of 10% per annum to the first respondent at an early date, and not later

than four months from the date of communication of this order.  It is ordered

accordingly.  If, however, the amount is not paid within the aforementioned

period, the outstanding amount shall carry interest @ 15 % per annum.   

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30. The  appeal  is  allowed  with  the  aforementioned  observations  and

direction.  In the facts and circumstances of the case, however, there shall be

no order as to costs.   

……………………….J.       ( S.B. SINHA )

………………………..J.   ( CYRIAC JOSEPH )

New Delhi November 19, 2008

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