REPORTABLE

IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 8236      OF 2010 [Arising out of SLP (C) No. 28086 of 2009]

M/s. Jay Vee Rice & General Mills           …. Appellant

Versus

State of Haryana & Ors.           .… Respondents

WITH

CIVIL APPEAL NO. 8237     OF 2010 [Arising out of SLP (C) No. 20713 of 2009]

WITH CIVIL APPEAL NO.  8238    OF 2010

[Arising out of SLP (C) No. 27721 of 2009] WITH

CIVIL APPEAL NO. 8239    OF 2010 [Arising out of SLP (C) No. 35590 of 2009]

WITH CIVIL APPEAL NO. 8240  OF 2010

[Arising out of SLP (C) No. 36258 of 2009] WITH

CIVIL APPEAL NO. 8241   OF 2010 [Arising out of SLP (C) No. 36259 of 2009]

WITH CIVIL APPEAL NO. 8242   OF 2010

[Arising out of SLP (C) No. 36260 of 2009] WITH

CIVIL APPEAL NO.  8243   OF 2010 [Arising out of SLP (C) No. 28779 of 2009]

WITH CIVIL APPEAL NO.  8244     OF 2010

[Arising out of SLP (C) No. 26482 of 2009] WITH

CIVIL APPEAL NO. 8245   OF 2010 [Arising out of SLP (C) No. 28781 of 2009]

WITH CIVIL APPEAL NO.  8246       OF 2010

[Arising out of SLP (C) No. 28782 of 2009] WITH

CIVIL APPEAL NO.   8246   OF 2010 [Arising out of SLP (C) No. 27208 of 2009]

JUDGMENT

Dr. Mukundakam Sharma, J.

1. Leave granted.

2. Since all these appeals raised similar issues and all of  

them  were  taken  up  together  for  final  hearing,  they  are  

being disposed of by this common judgment and order.

3. The  questions  which  fall  for  consideration  in  these  

appeals are mainly two-fold. The first issue that arises for  

our  consideration  is  whether  in  light  of  the  facts  and  

circumstances  of  the  present  case  and  upon  true  and  

correct interpretation of construction of Note (i) to Schedule  

III under Clause 2(i) of the Haryana Rice Procurement Levy  

Order,  1985 (hereinafter  referred to  as  “Levy  Order”),  the  

appellants/dealers  had  collected  purchase  tax  on  paddy  

from the government or its agencies alongwith procurement  

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price of levy fixed under the said Levy Order and if so, what  

would be the effect of such collection.

4. There  is  a  second  issue  which  arises  for  our  

consideration, i.e., as to whether the State is empowered to  

recover  certain  amounts  as  purchase  tax  in  light  of  the  

scheme  envisaged  under  the  Haryana  General  Sales  Tax  

Act,  1973  (hereinafter  referred  to  as  “the  Act”)  and  also  

keeping in view that no sales tax was paid, as payment of  

the same was specifically excluded.

5. The appellants-companies are engaged in the business  

of  purchase of  paddy and manufacture of  rice therefrom.  

The  assessees  are  registered  under  the  Haryana  General  

Sales Tax Act, 1973 (hereinafter referred to as “the Act”) and  

also under the Haryana Value Added Tax Act,  2003.  The  

assessees  were  granted  exemption  from  the  payment  of  

sales tax under Rule 28A of the Haryana Sales Tax Rules,  

1975 (hereinafter referred to as “the Rules”) for a period of  

seven years with effect from 3.10.1995 to 2.10.2002 under  

Exemption  Certificate,  which  has  been attached  with  the  

appeals.  By  virtue  of  this  Exemption  Certificate  issued  

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under the Haryana Sales Tax Rules, 1975, the appellants  

were exempted from payment of sales tax.    

6. However,  by  virtue  of  Note  (i)  of  the  Haryana  

Government  Notification  dated  17.10.1996,  which  was  

incorporated vide an amendment to clause 2(i) of Schedule  

III  of  the  Rules,  the  appellants  while  supplying  rice  to  

District Food and Supplies Controller (hereinafter referred to  

as “DFSC”)  collected purchase tax among other things by  

way of price received from the DFSC.   The aforesaid Note (i)  

by virtue of which such tax was collected reads as follows:-

“Note (i):  The above prices of rice are for net rate   of  naked  grains  inclusive  of  purchase  tax   (emphasis  added)  and  mandi charges of paddy  and depreciation of gunny bags used for packing  paddy but exclusive of cost of gunny bags and   taxes, if any, after ex-mill stage of rice.”

7. Therefore, although the appellants were exempted from  

the  payment  of  sales  tax,  but  since  they  had  collected  

purchase tax on paddy from the DFSC as part of the price  

received from the  DFSC,  the  respondents  took up a  plea  

that they are required to pay purchase tax so collected as  

tax or as the amount as tax collected and the amount which  

since  collected  was  required  to  be  deposited  in  the  

government treasury.

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8. The contention of  the appellants on the other hand,  

however,  was that the appellants were granted exemption  

from the payment of both sales as also purchase tax which  

would be amply clear from a harmonious reading of Section  

13-B of  the  Act  and also  Rule  28A,  sub-Rule  2(k)  of  the  

Rules.

Section 13-B of the Act reads as follows:-

“Power to Exempt Certain Class of Industries-The  State  Government  may,  if  satisfied  that  it  is   necessary or expedient so to do in the interest of   industrial development of the State, exempt such  class of industries from payment of sales tax, for  such  period  and  subject  to  such  conditions  as  may be prescribed.”

Rule 28-A (2k) reads as follows:-

Sub-rule  2(k)  -  “exemption  certificate  means  a  certificate granted in form S.T.-73 by the Deputy  Excise and Taxation Commissioner of the district   to  the  eligible  industrial  unit  holding  eligibility   certificate  which  entitles  the  unit  to  avail  of   exemption from the payment of sales or purchase  tax or both, as the case may be.”

9. It is the case of the appellants that since there was a  

difference between the original Section 13-B of the Act as  

inserted  on  08.09.1988,  and  Rule  28A(2k)  of  the  Rules,  

Section  13-B  was  subsequently  amended  by  deleting  the  

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word  “sales”  and  consequently  the  new Section  reads  as  

under:-

“Power to Exempt Certain Class of Industries-The  State  Government  may,  if  satisfied  that  it  is   necessary or expedient so to do in the interest of   industrial development of the State, exempt such  class of industries from payment of tax, for such  period and subject to such conditions as may be  prescribed.”

10. Relying on the said amendment, the learned counsel  

appearing for the appellants submitted that by use of the  

word “tax” instead of the words “sales tax”, the legislature  

intended  to  declare  that  the  exemption  was  available  on  

both sales as well as purchase tax.

11. It  is  interesting  to  note  that  while  the  Act  and  the  

Rules were so amended, due to a legislative omission, the  

statutory  Forms  ST-72  and  ST-73  relating  to  grant  of  

exemption remained unchanged. Eligibility in Form ST-72  

was granted to the appellants for a period of 9 years and  

upto a total benefit of 41.95 lakhs.

12. Assessment for the years 1996-97 was completed by  

the assessing authority.  While doing so, no purchase tax  

was levied but in the assessment  order,  it  was held that  

since payment of the rice received from the government was  

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inclusive  of  purchase  tax  which  was  received  by  the  

assessees  but  was  not  deposited,  the  same  should  be  

deposited by the assessees.

13. Being aggrieved by the aforesaid order of assessment,  

a first appeal was filed which was dismissed, holding that  

the amount sought to be recovered by the department has  

not  been levied as purchase tax,  but the said amount is  

being recovered since the assessees had received a price of  

rice inclusive of purchase tax.

14. On further appeal filed by the assessees, the Haryana  

Tax Tribunal dismissed the appeals holding that since the  

exemption certificate was only for sales tax and the same  

was not amended, the liability to pay purchase tax would  

arise  and  would  continue.   While  holding  that  the  

appellants  should  restitute  the  amount  which  they  had  

received from the DFSC as purchase tax, the Tribunal also  

made an observation and sent to the Government, a request  

to  provide  relief  to  them  in  the  exercise  of  its  sovereign  

power. The said request was however, not acceded to by the  

Government.

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15. Being aggrieved by the aforesaid order, the appellants  

filed writ petitions in the High Court, which were dismissed  

under the impugned judgment and order out of which the  

present appeals arise.

16. The  aforesaid  facts  would  clearly  indicate  that  the  

Assessing Officer as also the First Appellate Authority did  

not decide the liability of the appellant to pay the purchase  

tax, but had held that since the payment of the price of rice  

received from the government was inclusive of purchase tax,  

the same was required to be deposited with the government  

exchequer.  Therefore,  since  the  amount  had  not  been  

deposited by the appellants, they could be recovered by the  

assessing authorities.    The Tribunal,  however,  held  that  

since the exemption certificate was only for sales tax and  

the same was not amended, the liability to pay purchase tax  

would continue.  The High Court,  moreover,  held that the  

appellants were liable to pay purchase tax as there was no  

exemption  granted  to  the  appellants  from  payment  of  

purchase tax at any point of time.

17. We  have  already  referred  to  the  aforesaid  note  

appended  to  the  Notification  dated  17.10.1996.   The  

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aforesaid note leaves no room for doubt that the assessees,  

while  supplying  rice  to  DFSC,  collected  purchase  tax  

amongst other things by way of the procurement price.

18. Since they had collected the purchase tax, they were  

required to deposit the same in the government exchequer  

and there could be no justification for them to retain the  

purchase tax and appropriate the same to their  own use.  

Retention of such purchase tax collected by the appellant  

amounts to unjust enrichment which is not permissible in  

view of the law laid down by the Constitution Bench of this  

Court in the case of  Mafatlal Industries Ltd. and Others  

Vs. Union of  India And Ors., reported in  (1997) 5 SCC  

536.  

This Court in the said case held as under:-

“254…………..The  Excise  Officer  cannot  tax  more  than what is permitted by the statute. If the levy is  in excess of the statute,  then its  retention  by the   State  is  unauthorised  by  law.  What  is  being  retained  is  not  in  enforcement  of  the  charging   section but something else. Such illegally collected  tax is not the property of the State and is not within   the disposing power of the State…………..”

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19.  In  Sahakari  Khand  Udyog  Mandal  Ltd.  v.  CCE  &  

Customs,  reported  at  (2005)  3  SCC 738,  this  Court  (at  

page 748) elaborated upon the aspect of unjust enrichment  

thus:  

“31. Stated  simply,  “unjust  enrichment”  means   retention of a benefit by a person that is unjust or   inequitable.  “Unjust  enrichment”  occurs  when a  person retains money or benefits which in justice,   equity  and good conscience,  belong to  someone  else. 32. 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….

…….34. In  the  leading  case  of  Fibrosa v.  Fairbairn, Lord Wright stated the principle thus:   (All ER p.135 H)

“[A]ny  civilised  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  recognised to  fall  within  a third category of the  common  law  which  has  been  called  quasi- contract or restitution.” The above principle has been accepted in India.   This  Court  in  several  cases  has  applied  the   doctrine of unjust enrichment.”

20. In Orient Paper Mills Ltd.  v. State of Orissa & Ors.,  

reported at  AIR 1961 SC 1438, this Court did not grant  

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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.

21. The law laid down in  Orient Paper Mills Ltd. (supra)  

was  quoted  with  approval  by  this  Court  in  Mafatlal  

Industries Ltd. (supra), and the relevant portion of the said  

judgment has been quoted hereinabove.

22.  A  reference  may  also  be  made  to  a  decision  of  the  

Constitution Bench in  Godfrey Phillips India Ltd. & Anr.  

v. State of U.P & Ors.  reported at  (2005) 2 SCC 515. In  

that case, the constitutional validity of the Uttar Pradesh  

Tax  on Luxuries  Act,  1995 as  also  other  State  Acts  was  

challenged inter alia on the ground of legislative competence  

of the State Legislatures. The Court allowed the petition and  

held  that  the  State  Legislatures  were  not  competent  to  

impose luxury tax on tobacco and tobacco products and the  

Acts were declared  ultra vires and unconstitutional. In the  

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intervening  period,  however,  tax  was  collected  by  the  

appellants  from  consumers  and  also  paid  to  the  State  

Governments. In certain cases, interim relief was obtained  

by the appellants from this Court against recovery of tax  

and as alleged by the  State  Governments,  the appellants  

continued  to  charge  tax  from consumers/customers.  The  

Court held:

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.”

23. The  learned  counsel  appearing  for  the  appellants  

would not dispute the position that the payment made to  

them by DFSC also included the element of purchase tax.  

That  being  the  position  and  they  having  collected  the  1

purchase tax on paddy from the buyer, the same has to go  

to the government exchequer.   If  however, such tax was  

found to be legally not payable after its collection from the  

purchaser, it either has to go back to the purchaser from  

whom it was collected or has to be surrendered to the State  

exchequer  and a dealer  cannot retain it  as otherwise  the  

same  will  amount  to  unjust  enrichment  which  is  legally  

impermissible.

24. In the present case, since the aforesaid purchase tax  

was collected by the appellants, the same is now required to  

be paid back to the State exchequer in terms of the orders.   

25. Since  we  have  held  that  the  appellants  are  now  

required to pay back the purchase tax element which was  

collected by them to the respondents, all the appeals could  

be disposed of on the aforesaid ground alone. We have seen  

from the decision in  Godfrey Phillips India Ltd. (supra)  

that even when the legality  of  a tax has been challenged  

successfully, there can be no question of the said tax being  

retained  by  the  dealer/manufacturer,  notwithstanding  its  

illegality.  In the present instance,  it  is beyond doubt and  

clear  from  the  appellants’  own  admission  that  the  

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procurement  price  included  the  element  of  purchase  tax.  

That there may be an issue relating to the levy of purchase  

tax  does  not  in  any  way,  affect  the  conclusion  that  the  

appellants, who have been unjustly enriched, must deposit  

the purchase tax element with the State.  

26. Therefore,  in  the  facts  and  circumstances  of  the  

present case, we are not required to go into the other issue  

as to whether or not there could have been levy of purchase  

tax on the purchase of paddy in case of exempted units. We  

keep that  question open to  be decided in  an appropriate  

case.   

27. The present appeals are dismissed.  

…...........………………........J. [Dr. Mukundakam Sharma]

       .....…………………… …........J.

    [Anil R. Dave] New Delhi, September 23, 2010.

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