Mafatlal Industries Ltd. v. Union of India

Reported case name: MAFATLAL INDUSTRIES LTD. ETC. ETC. v. UNION OF INDIA ETC. ETC.

Citation: [1996] SUPP. 10 S.C.R. 585; 1996 INSC 1514

Court: Supreme Court of India

Bench: A.M. AHMADI , J.S. VERMA, S.C. AGRAWAL, B.P. JEEVAN REDDY, A.S. ANAND, B.L. HANSARIA, S.C. SEN, K.S. PARIPOORNAN, B.N. KIRPAL

Judgment date: 1996-12-19

Case summary

1996 INSC 1514. Supreme Court of India judgment dated 1996-12-19. MAFATLAL INDUSTRIES LTD. ETC. ETC. v. UNION OF INDIA ETC. ETC. Read the judgment and case...

Judgment text

586 SUPREME COURT REPORTS[1996] SUPP. 10 S. C. R. MAFATLAL INDUSTRIES LTD. ETC. ETC. v. UNION OF INDIA ETC. ETC. DECEMBER 19, 1996 (A:M. AHMADI, 0. , J. S. VERMA, S. C. AGRAWAL, B. P. JEEVAN REDDY, DR. A. S. ANAND, B. L. HANSARIA, S. C. SEN, K. S. PARIPOORNAN AND B. N. KIRPAL, JJ. ] Excise/Customs : Excise/Customs duty levied on misrepresentation/misapplication/erroneous interpretation of the statutory provisions under provisions declared unconstitutional or under mistake of law-Remedies open--Maintain_ability of suit under S. 72 of Contract Act or writ petition under Art. 226 or Art. 32 or other remedies provided in Excise Act or Customs Act-Held, where refund is claimed on the ground that provisions of the Central Excises Act/Customs Act whereunder duty levied is or held to be unconstitutional, suit or writ petition would be maintainable-However, all refund claims must be filed and adjudicated under the Central Excises Act or the Customs Act-In such cases suit invoking S.

72 of Contract Act would be bamd-Writ jurisdiction in such cases to be exercised in accordance with the legislative intent manifested in the Act-fn all situations refund can only be allowed where manufacturer-assessee has not passed on the burden of tax to third parties viz. consumers-Presumption is of passing on the burden to the consumers-Burden on the manufacturer to rebut the presumption by establishing to the contrary-Doctrine of undue enrichment applicable to such assessees but not applicable to State-Contract Act, 1872, S. 72. Excise duty paid under a provision declared unconstitutional----Petitioner failing to assail its constitutionality and the decision becoming final-Declaration of unconstitutionality obtained by another person on another ground-Held cannot be availed of by such petitioner to reopen the decision in his case. Excise duty paid under mistake of law-Refund-Maintainability of suit .

, or writ petition-Held, Once assessment or levy became final in case of manufacturer- assessee, he cannot later file suit or writ petition claiming refund on the ground that decision of Court or Tribunal in another person's case led Jiim to discover the mistake of law under which he paid the duty. In . all cases where suit or writ petition is open, it is necessary for the plaintiff/petitioner to file suit or writ petition within the limitation period under S. 17(1)(c) of Limitation Act and to allege and establish that he has not passed on the burden of tax to the consume1~Where claim has to ? e made under the Central Excises Act or Customs Act, and no suit lies, such claim to be preferred within the period of limitation prescribed under the said Acts--LimitationAct, 1963, S. 17(1)(c).

State can raise plea in defence, of spending away the amount of tax collected under unconstitutional law and/or of financial chaos in administration of the State, as a result of allowing claim of refund-Such plea by assessee not tenable where he has not passed on the burden of duty to others. State cannot reclaim the refunded amounts where no proceedings are pending-All pending matters to be governed by the law declared in the present case notwithstanding any refunds made in such pending proceedings. Excise Law: Central Excises and Salt Act, 1944-Ss. Jl-B, 11-C, 12-A, 12-B, 12-C, 12-~Validity of-Held, valid-S. 11-B not a device to retain illegally collected du~Ss. 11-B and 12-B have the effect of changing the very nature of excise duty. S. 11-B-Retrospective operation-Refund-Tax levied under mistake of law-Limitation-Held, S.

11-B applies to all pending proceedings but not to those proceedings which have become final after appeal period expired before the commencement of the 1991 Amendment Act-Application for refund under S. 11-B to be made within six months from date of payment of du~Since this requirement cannot be complied with in respect of pending decrees or orders, to ensure that such orders and decrees are not frnstrated, it 'G must be deemed that the duties were paid 'under protest' within the meaning of second proviso to S. 11- B(l)-Customs Act. 1962, S. 27. Central Excise Rules, 1944-R. 233-B-<Jrounds for payment of duty under protest-Assessee need not particularise the grounds-Letter of protest acknowledged by the Officer shall be proof of payment of duty under protest MAFA1LALINDS. LTD. v. U. O. I. 587 under S. 11-B of the Central Excises and Salt Act. Constitution of India, 1950 : A1t.

14-Taxing statutes-Discretion of the Legislature-State allowed to pick and choose districts, objects, persons, methods and even rates for . taxation with reasonableness-Courts view laws relating to economic activities I ' with greater latitude than other matters. Arts, 14 and 19--Reasonableness of a statutory provision-Mere possibility of abuse by those in charge of administering it-Not a ground for holding it procedurally or substantively unreasonable-Administrative Law-Judicial Review. Art. 226-rHigh Court to exercise its writ jurisdiction in consonance with the legislative intent manifested by the statutory provisions involved-Jurisdiction under Art. 226 to be exercised to effectuate the regime of law and not to abrogate it. -Maintainability of writ petitio1t-Altemative remedy-Refund claim against tax/duty wrongly paid-Remedy under the relevant Act alone to be pursued-Central Excises and Salt Act, 1944, S. 11: B-Customs Act, 1962, S. 27.

Article 265-Tax levied or collected contrary to law-Refund of-Where taxing statute provides•/or refund, validity of such provision must be examined with reference to other provisions of the Constitution-Where refund is claimed on the groun4 that tax has been paid undet mistake of law, claimant-assessee must plead and prove that he has not passed on the tax burden to I third persons. _Contract Act, 1872: S. 72-Action for restitution under-Based on equity-Person claiming restitution must plead and prove that he suffered loss or injury-Burden of proof on petitioner/plaintiff since the fact whether duty passed on or not is within his special and exclusive knowledge-If assessee passes on the tax burden to third persons, no suit for refund on ground of mistake of law would be maintainabl~vidence Act, 1872 : S. lO(r-Sale of Goods Act. 1930. S. 64-A. Civil Procedure Code, 190&-S.

9-Civil Court's jurisdiction-Bar of by implicatio1t-Suit not maintainable where a complete mechanism for redres- 588 SUPREME COURTREPORTS[1996) SUPP. 10 S. C. R. sal is provided by the statute concerned-Central Excises and Salt Act, 1944, ' S. 11-B-Customs Act, 1962, S. 27. DOCTRINES-Doctrine of unjust enrichment-Doctrine of restitution-Discussed. WORDS AND PHRASES-..! 'Tax''--''Levy''-''lurisdiction''--''lurisdic-tional error''-Meaning of The present appeals and writ petitions raised certain questions concerning the refund of Excise & Customs duty collected contrary to law. These questions related to the correctness of certain earlier decisions of Supreme Court, concept of unjust enrichment, interpretation of Article 265 of the Constitution of India and of the provisions of the Central Excises and Salt Act 1944 and the Customs Act 1962. The main topic of controversy viz. refund of Excise duty was governed by different provisions over the years; viz.

(i) upto August 6, 1977, the refund of duties was governed by Rule 11, as it stood upto that date; (ii) between August 6, 1977 and November 16, 1980 refund of duties was governed by Rule 11 as it obtained during the said period; (iii) from November 16, 1980 upto September 19, 1991 (date of coming into force of 1991 Amendment Act) the refund of duties was governed by Section llB as it stood during the said period; (iv) with effect from September 19, 1991 the refund of duties is governed by Section llB as amended by the 1991 Amendment Act and the allied provisions. Though different provisions governed the subject of refund during different times, there is one feature uniformly common to all of them viz. they purport to be exhaustive on subject of refund and they provided a period of limitation for making such claims.

In these appeals and writ petitions the appellants/writ petitioners contended that the provisions relating to refund of excise/customs duty did not preclude the filing of a suit or the filing of a writ petition claiming refund where tax has been collected contrary to law by virtue of Article 265 of the Constitution and that the question of passing on the burden of duty is totally irrelevant in the matter of refund; that the law laid down in ~~W~~~~~~~TI~~~~~~ consistently by different Benches of the Supreme Court and that there were MAFATLALINDS. LTD. v. U. 0. 1. 589 no good or compelling reasons to deviate from or to overrule the decision in Kanhaiya Lal; referring.

to the second alternative condition imposed by Section 424 wherein it was provided that if the manufacturer gives a bond undertaking to refund the same to purchaser within a particular period he would be entitled to claim the refund, it was urged that such a condition could have been imposed in the Central Excises and Customs Act as well; that even if it is legitimate for Parliament to prescribe that in case the money was P! lS!

ed on it must be made over to the person from whom it was collected, and this should be done through the medium of manufac· turer/tax payer and not through any other medium; that a claim for refund has to be filed within six months from the relevant date but since appel· late/revision proceedings or for that matter proceedings in High Court/Supreme Court take number of years and by the time the claimant succeeds and asks for refund his claim will be barred and it will be thrown out on the ground that it has not been filed within six months from the date of payment of duty; that Rule 233B which prescribes the procedure to be followed in cases where duty is paid under protest requires the assessee to state the grounds for payment of duty under protest and that it may well happen that the authority to.

whom the letter of protest is submitted may refuse to record it if he is not satisfied with the grounds of protest; that the amended Section llB is prospective in operation and cannot apply to pending proceedings; that Section 12A was also inserted by the 1991 (Amendment) Act and therefore it is not expected of any manufacturer/assessee to maintain the records required by Section 12A prior to its coming into force; that in respect of an application filed before the commencement of the said Act it is not possible to comply with the requirements of sub-section (1) in so far as it requires the filing of documents referred to in Section 12A and this circumstance was urged as a ground for holding that the amended Section llB applies only to refund applications filed after coming into force of the 1991 (Amendment) Act; that tlie right to recover the excise duty paid is both a constitutional and a statutory right; and that all these factors militate against giving retrospective effect to Section llB.

It was also submitted that the real purpose behind Section llB and its allied provisions was not to benefit the consumers by refusing refund to manufacturer (on the ground of passing on the burden) but only to enable the Government to retain the illegally collected taxes; that the creation of the Consumer Welfare Fund is a mere pretence and not an honest exercise; that as per Section 12D even a Consumer who has really borne the burden of tax and is in a position to establish that fact is yet not entitled to apply for refund of the duty since the Rules do not provide for such a situation; that there is no provision in the Act to locate the person really entitled to refund and to make over the money to him; that in a competitive atmosphere and for other commercial reasons it may happen that the manufacture is obliged to sell his goods at less than its proper price and the manufacturer may have to forego not only his profit but also part of excise duty and that in such a case levy and collection of full excise duty would cease to be a duty of excise and it will become a tax on income · or on business; that Section llD provides for double taxation and that sub-section (i) of Section llD makes the manufacturer liable to pay duty which he collects from the buyer as part of the price of goods even where the manufacturer has already paid the duty at the time of removal of the goods.

On behalf of the Union of India it was contended that Kanhaiya Lal has been wrongly decided; that no suit or writ petition lies for refund of duty except in the case of unconstitutional levy and even in such cases the claim is subject to proof that burden of duty has not been passed on to ·the purchaser; that in all other cases claims of refund can be· made only under and in accordance with the provisions of the Act/Rules governing the subject of refund and in no other manner and in no other forum; that in any event since Kanhaiya Lal did not deal with the effect of passing on · _ the duty to a third party it was neither raised nor considered therein; hence it is no authority for the proposition that the manufacturer/payer can recover the duty paid even if he has passed on the burden to others; that the distinction between the constitutional values obtaining in countries like United States of America, Canada and Australia or United Kingdom and the values obtaining under our Constitution are different; that the philosophy and the core values of our Constitution must be kept in mind while understanding and applying the provisions of Art.

265 of the Constitution and Section 72 of the Contract Act that it ill· becomes the manufacturers/assessees to espouse the cause of consumers when all the while they had been making a killing at their expense; that no consumer organisation had come forward to voice any grievance against the relevant provisions; that clause (e) of the proviso to sub-section (2) of Section 118 did provide for the buyer of the good~ to whom the burden of duty has MAFA1LAL INDS. LTD. v. U. O. I.

591 been passed on to apply for refund of duty to him, provided that he has not in his turn passed on the duty to others and therefore it was not correct to suggest that the Act did not provide for refund of duty to the person who has actually borne the burden; that there in no vice in the relevant provisions of the Act; that Rules can not be relied upon to impugn the validity of an enactment, which must stand or fall on its own strength; that the defect in the Rules if any, could always be corrected if the experience warrant it; that the Court may indicate the modification needed in the Rules and that the Government is always prepared to make appropriate changes in the Rules since it views the process as a trial and error method; and that in case a manufacturer is obliged to sell his goods at a price lower than the normal price declared under S. 4 it is always open to him to approach the excise authorities for redetermination of the assessable value. Disposing of the matters, th.

is Court HELD : (Per majority· B. P. Jeevan Reddy, J. for himself and J. S. Verma, S. C. Agrawal, Dr. A. S. Anand & B. N. Kirpal, JJ. ) 1. 1. Applying the proposition enunciated by a seven-Judge Bench of this Court in Kamala Mills, it must be held that Section ll·B of the Central Excises and Salt Act (both befo1·e and after amendment) is valid. and constitutional. So long as Section 11-B is constitutionally valid, it has to be followed and given elTect to. There is no reason to doubt the constitutionality of the said provision. It must also be remembered that Central Excises and Salt Act is a special enactment creating new and special obligations and rights, which at the same time prescribes the procedure for levy, assessment, collection, refund and all other incidental and ancillary provisions. As pointed out in the Statement of Objects and Reasons appended to the Bill which became the Act, the Act along with the Rules was intended to "form a complete central excise code".

The idea was "to consolidate in a single enactment all the laws relating to central duties of excise". The Act is a self-contained enactment. It contains provisions for collecting the taxes which are due according to law but have not been collected and also for refunding the taxes which have been collected contrary to law, viz. , Sections 11-A and ll·B and its allied provisions. Both provisions contain a uniform rule of limitation, viz. , six months, with an exception in each case. Sections ll·A and 11-B are complimentary to each other. Where a statute creates a special right or a liability and also provides the procedure for the determination of the right or liability by the Tribunals constituted in that behalf and provides further that all questions about the said right and liability shall be determined by the Tribunals so constituted, the resort to civil court is not available-except to the limited extent pointed out in Kamala Mills.

Central Excise Act specifically provides for refund, It expressly declares that no refund shall be made except in accordance therewith. The jurisdiction of a civil court is expressly barred · vide sub-section (5) of Section 11-B, prior to its amendment in 1991, and sub-section (3) of Section 11-B, as amended in 1991. It is relevant to notice that the Act provides for more than one appeal against the orders made under Section 11-B/Rule 11. Since 1981, an appeal is provided to this Court also from the orders of the Tribunal. While Tribunal is not a departmental organ, this court is a civil court.

In this view of the matter and the express and additional bar exclusivity contained in Rule 11/Section 11-B, at all points of time, it must be held that any and every ground including the violation of tne principles of natural justice and infraction of fundamental principles of judicial procedure can be urged in these appeals, obviating the necessity of a suit or a writ petition in matters relating to refund. [682-H; 683-A; C-H; 684-A-B] 1. 2. Once the constitutionality of the provisions of the Act including the provisions relating to refund is beyond question, they constitute "law" within the meaning of Article 265 of the Constitution. It follows that any action taken under and in accordance with the said provisions would be an action taken under the "authority of law'', within the meaning of Article 265.

In the face of the express provision which expressly declares that no claim for refund of any duty shall be entertained except in accordance with the said provisions, it is not permissible to resort to Section 72 of the Contract Act to do precisely that which is expressly prohibited by the said provisions. For this reason, a suit for refund would also not lie. Taking any other view would amount to nullifying the provisions in Rule 11/Section 11-B, which it needs no emphasis, cannot be done. It, therefore, follows that any and every claim for refund of excise duty can be made only under and in accordance with Rule 11 or Section 11-B, as the case may be, in the forums provided by the Act, No suit can be filed for refund of duty invoking Section 72 of the Contract Act So far as the jurisdiction of the High Court under Article 226-or for that matter, the jurisdiction of this Court under Article 32 • is concerned, it is obvious that the provisions of the Act cannot MAFATLALINDS . LTD . v.

U. O. I. 593 · bar and curtail these remedies. It is, however, equally obvious that while exercising the power under Article 226/Article 32, the Court would certainly take note of the legiidative intent manifested in the provisions of the Act and would exercise their jurisdiction consistent with the provisions of the enactment. [684-C-G] 1. 3. Where a provision of the Act whereunder the duty has been levied is found to be unconstitutional for violation of any of the constitutional limitations, is a situation not contemplated by the Act. The Act does not contemplate any of its provisions being declared unconstitutional and therefore it does not provide for its consequences. Rule 11/Section 11-B are premised upon the supposition that the provisions of the Act are good and valid. But where any provision under which duty is levied is found to. be unconstitutional, Article 265 steps in.

The very collection and/or retention of tax without the authority of law entitles the person, from whom it is collected, to claim its refund. A corresponding obligation upon the State to refund it can also be said to flow from it. This can be called the right to refund arising under and by virtue of the Constitutional provisions, viz. , Article 265. But it does not follow from this that refund follows automatically. ·Article 265 cannot be read in isolation. It must be read in the light of the cone«:pts of economic and social justice envisaged in the Preamble and the · guiding principles of State Policy adumbrated in Articles 38 and 39. The very concept of economic justice means and demands that unless the claimant (for refund) establishes that he had not passed on the burden of the duty/tax to others, he has no just claim for refund. It would be a parody .. of economic. justice to refund the duty to a claimant who has already collected the said . amount from his buyers.

The refund should really be made to the persons who have actually borne its burden - that would be economic justice. Conferring an unwarranted and unmerited monetary benefit upon an individual is the very anti-thesis of the concept of economic justice and the principles underlying Articles 38 and 39. Now, the right to refund arising as a result of declaration of unconstitutionality of ·' provision of the enactment can also be looked at as a statutory right of restitution. It can be said in such a case that the tax paid has been paid under · a mistake of law which mistake of law was discovered by the manufacturer/assessee on the declaration of invalidity of the provision by the Court. Section 72 of the Contract Act may be attracted to such a case and a claim for refund of tax on this score can be maintained with reference to Section 72. This too, however, does not mean that the taxes · 594 SUPREME COURTREPORTS(l996) SUPP. 10 S. C. R.

paid under an unconstitutional provision of law are automatically refundable under Section 72 which contains a rule of equity and once it is a rule of equity, it necessarily follows that equitable considerations are relevant in applying the said rule. Thus, whether the right to refund of taxes paid under an unconstitutional provision of law is treated as a constitutional right flowing from Article 265 or as a statutory right/equitable right affirmed by Section 72 of the Contract Act, the result is the same - there is no automatic or unconditional right to refund. [684-H; 685-A-G; 686-A-B] State of Madhya Pradesh & Ors. v. Bhailal Bhai, [1964] 6 S. C. R. 261 overruled. Bengal Immunity Co. Ltd. v. State of Bihar & Ors. , [1955] 2 S. C. R. 603, held applicable. State of Kera/a v. Aluminium Industries Ltd. , (1965) 16 S. T. C. 689, held inapplicable. Kamala Mills Ltd. v. State of Bombay, [1966) 1 S. C. R. 64; Dhulabhai & Ors. v. State of Madhya Pradesh & Anr. , [1968) 3 S. C. R. 662; D.

Cawasji & Co. Etc. v. State of Mysore & Anr. , [1975) 2 S. C. R. 511 and R. S. Joshi v. Ajit Mills , [1978] 1 S. C. R. 338, relied on. Budh Prakash Jai Prakash v. Sales Tax Officer, Kanpur, (1952) A. L. J. 332; Wolf & Sons v. Dadyaba Khimji & Co. , (1919) I. L. R. 44 Born. 631; Appavoo Chettiar v. South Indian Railway, A. l. R. (1929) Mad. 648; Jagdish Prasad Pannalal v. Produce Exchange Corporation Ltd. , A. I. R. (1946) Cal. 245; Shibha Prasad Singh v. Srish Chandra Nundi, (1949) L. R. 76 I. A. 244; Finn & Illuri Subbayya Chetty & Sons v. State of Andhra Pradesh, (1964] 1 S. C. R. 752; K. S. Venkataraman & Co. v. State of Madras, (1966] 2 S. C. R. 229; Raleigh Investment Co. Ltd. v. The Governor General in Counci~ (1947) L. R. 74 I. A. 50; KS. Venkataraman Bharat Kala Bhandar Ltd. v. M. C. •. Dhamangaon, (1965) 3 S. C. R. 499; Tilokchand Motichand & Ors. v. H. B. Munshi &Anr. , (1969] 2 S. C. R. 824; Kantilal Babula/ v. H. C. Patel, 21 S. T. C. 174 and R. Abdul Quader & Co. v.

Sales Tax Officer, Hyderabad, [1964] 6 S. C. R. 867, referred to. 2. 1. One of the important principles of law, based upon public policy, is the sanctity attaching to the finality of any proceeding, be it a suit or MAFATLALINDS. LTD. v. U. O. I. 595 any other proceeding. Where a duty has been collected under a particular order which has become final, the refund of that duty cannot be claimed unless the order (whether it is an order of assessment, adjudication or any other order under which the duty is paid) is set aside according to law. So long as that order stands, the duty cannot be recovered back nor can any claim for its refund be entertained. But what is happening now is that the I B . duty which has been paid under a proceeding which has become final long ago • may be an year back, ten years back or even twenty or more years back • is sought to be recovered on the ground of alleged discovery of mistake of law on the basis of a decision of a High Court or the Supreme Court.

It is necessary to point out in this behalf that for filing an appeal or for adopting a remedy provided by the Act, the limitation generally prescribed is about three months (little more or less does not matter). But according to the present practice, writs and suits are being filed after lapse of a long number of years and the rule of limitation applicable in that behalf issaid to be three years from the date of discovery of mistake of The incongruity of the situation needs no emphasis. And all this . ,ecause another manufacturer or assessee has obtained a decision favourable to him.

What has indeed been happening all these years is that just because one or a few of the assessees succeed in having their inter· pretation or contention accepted by a High Court or the Supreme Court, all the manufacturers/assessees all over the country are filing refund claims within three years of such decision, irrespective of the fact that they may have paid the duty, say thirty years back, under similar provisions • and their claims are being allowed by courts. All this is said to be flowing from Article 265 which basis, is totally unsustainable for the reason that the Central Excises Act and the Rules made thereunder including Section 11· B/Rule 11 too constitute "law" within the meaning of Article 265 and that in the face of the said provisions • which are exclusive in their nature • no claim for refund is maintainable except under and in accordance therewith. (686-H; 687-A-F] 2. 2.

The second basic concept of law which is violated by permitting · the above situation is the sanctity of the provisions of the Central Excises and Salt Act itself. The Act provides for levy, assessment, recovery, refund, · appeals and all incidental/ancillary matters. Rule 11 and section 11-B, in particular, provide for refund of taxes which have been collected contrary to law, i. e. on account of a mis-interpretation or mis-construction of a provision of law, rule, notification or regulation. The Act provides for both the situations represented by Sections 11-A and 11-B. [687-G] 2. 3. The principles enunciated in Kamala Mills in the context of Bombay Sales tax Act and Film & Illuri Subbiah Chetty apply with equal fooce in the case of both the Central Excises and Salt Act and the Customs Act.

Hence it is ununderstandable how an assessment/adjudication made under the Act levying or affirming the duty can be ignored because some years later another view of law is taken by another court in another person's case. Nor is there any provision in the Act for re- opening the concluded proceedings on the aforesaid basis. The provisions of the Central Excise Act also constitute "law" within the meaning of Article 265 and any collection or retention of tax in accordance with or pursuant to the said provisions is collection or retention under "the authority of law" within the meaning of the said Article. In short, no claim for refund is permissible except under and in accordance with Rule 11 and Section 11-B. An order or decree of a court does not become ineffective or unenforceable simply because at a later point of time, a different view of law is taken. If this theory is applied universally, it will lead to unimaginable chaos.

It is, however, suggested that this result follows only in tax matters because of Article 265, as a matter of fact, the situation today is chaotic because of the principles supposedly emerging from Kanhaiyalal and other decisions following it. Every decision of this Court and of the High Courts on a question of law in favour of the assessee is giving rise to a wave of refund claims all over the country in respect of matters which have become final and are closed long number of years ago. It is not shown that such a thing is happening anywhere else in the world. Article 265 surely could not have been meant to provide for this. Therefore, this Court is of the clear and considered opinion that the theory of mistake of law and the consequent period of limitation of three years from the date of discovery of such mistake of law cannot be invoked by an assessee taking advantage of the decision in another assessee's case.

All claims for refund ought to be, and ought to have been filed only under and in accordance with Rule 11/Section 11-B and under no other provision and in no other forum. An assessee must succeed or fail in his own proceedings and the finality of the proceedings in his own case cannot be ignored and refund ordered in his favour just because in another assessee's case, a similar point is decided in favour of the manufacturer/assessee. [688-E-H; 689-A-D] Kamala Mills Ltd. v. State of Bombay, (1966] 1 S. C. R. 64 & Fimi & MAFA1LAL INDS. LtD. v. U. O. I. 597 Illuri Subbayya Chetty & Sons v. State of Andhra Pradesh, [1964] 1 S. C. R. 752, relied on. Sales Tax Officer, Banaras & Ors. v. Kanhaiyalal Mukundlal Saraf, [1959] S. C. R. 1350 and State of Kera/a v. Aluminium Industries Limited, [1965] 16 S. T. C. 689, overruled. 3. 1.

The claim for refund is maintainable by virtue of the declaration contained in Article 265 as also under Section 72 of the Contract Act subject to one exception: where a person approaches the High Court or Supreme Court challenging the constitutional validity of a provision but fails, he cannot take advantage of the declaration of unconstitutionality obtained by another person on another ground; this is for the reason that so far as he is concerned, the decision has become final and cannot be re-opened on the basis of a decision on another person's case. In such cases, the plaintiff may also invoke Section 17(1)(c) of the Limitation Act for the purpose of determining the period of limitation for filing a suit. It may also be permissible to adopt a similar rule of limitation in the case of writ petitions seeking refund in such cases.

But whether the right to refund or restitution, as it is called, is treated as a constitutional right following from Article 265 or statutory right arising from Section 72 of the Contract Act, it is neither automatic nor unconditional. Once it is a rule of equity, it is un- understandable how can it be said that equitable considerations have no place where a claim is made under the said provision. What those equitable considerations should be is not a matter of law. That depends upon the facts of each case. Indeed, in Kanhaiyalal, the Court accepts that the right to recover the taxes - or the obligation of the State to refund such taxes -under Section 72 of the Contract Act is subject to "questions of estoppel, waiver, limitation or the like", but at the same time, the decision holds that equitable considerations cannot be imported because of the clear and unambiguous language of Section 72. Certain amount of inconsistency is involved in the aforesaid two propositions.

"Estoppel, Waiver•••• or the like", though rules of evidence, are yet based upon rules of equity and good conscience. So is Section 72. Equitable considerations cannot be held to be irrelevant where a claim for refund is made under Section 72. Now, one of the equitable considerations may be the fact that the person claiming the refund has passed on the burden of duty to another. If so, there is no question of reimbursing him. He cannot be recompensated for what he has not lost, The loser, if any, is the person who has really borne the burden of duty; the manufacturer who is the claimant has certainly not borne the duty notwithstanding the fact that it is he who has paid the duty. Where such a claim is made, it would be wholly permissible for the court to call upon the petitioner/plaintiff to establish that he has not passed on the burden of duty to a third party and to deny the relief of refund if he is not able to establish the same. [689-F·H; 690-A-H] 3. 2.

It is necessary to remember that whether the burden of the duty has been passed on to a. third party is a matter within the exclusive knowledge of the manufacturer. He has the relevant evidence • best evidence· in his possession. Nobody else can be reasonably called upon to prove that fact. Since the manufacturer is claiming the refund and also because the fact of passing on the burden of duty is within his special and exclusive knowledge, it is for him to allege and establish that he has not passed on the duty to a third party. This is the requirement which flows from the fact that Sectjon 72 is an equitable provision and that it incorporates a rule of equity. This requirement flows not only because Section 72 incorporates a rule of equity but also because both the Central Excises duties and the Customs duties are indirect taxes which are supposed to be and are permitted to be passed on to the buyer.

That these duties are indirect taxes, meant to be passed on, is statutorily recognised by Section 64A of_the Sale of Goods Act, 1930 (which was introduced by Indian Sale of Goods. (Amendment) Act, 1940 and substituted later by Act 33 of 1963. (691-A·D] Tilokchand Motichand & Ors. v. H. B. Munshi & Anr. (1969] 2 S. C. R. 824, affirmed. Sales Tax Officer, Benaras & Ors. v. Kanhaiyalal Mukundlal Saraf, [1959] S. C. R. 1350, dissented from. · Union of India v. I. T. C. , [1993) Suppl. 4 S. C. C. 326, referred to. 4. It would be legitimate for the court to presume, until the contrary is established, that a duty of excise or a customs duty has been passed on. It is a presumption of fact which a court is entitled to draw under Section 114 of the Indian Evidence Act.

It is undoubtedly a rebuttable presumption but the burden of rebutting it lies upon the person who claims the refund (plaintiff/petitioner) and it is for him to allege and establish that as a fact he has not· passed on the duty and, therefore, equity demands that his · MAFATLAL INDS. LTD. v. U. O. I. 599 claim for refund be allowed. This is the position de hors 1991 (amendment) Act. The said Amendment Act has done no more than to give statutory recognition to the above concepts. This is the position whether the refund is claimed by way of a suit or by way of a writ petition. The claim for refund by a person who has passed on the burden of tax to another has nothing to commend itself; not law, not equity and certainly not a shred of justice or morality. In the case of a writ petition under Article 226, it may be noted, there is an additional factor; the power under Article 226 is a discretionary one and will be exercised only in furtherance of interests of justice.

This factor too obliges the High Court to enquire and find out whether the petitioner has in fact suffered any loss or prejudice or whether he has c, passed on the burden. In the latter event, the court will be perfectly justified in refusing to grant· relief. The power cannot be exercised to unjustly enrich a person. [692-H; 693-A-D] 5. Kanhaiyalal is not right in saying that the defence of spending away the amount of tax collected under an unconstitutional law is not a good defence to a claim for refund. It is a good defence subject to this rider; where the petitioner- plaintiff alleges and establishes that he has not passed on the burden of the duty to others, his claim for refund may not be refused. In other words, if he is not able to allege and establish that he has not passed on the burden to others his claim for refund will be rejected whether such a claim is made in a suit or a writ petition. It is a case of balancing public interest vis-a-vis private interest.

Where the petitioner- plaintiff has not himself suffered any loss or prejudice (having passed on the burden of the duty to others), there is no justice or equity in refunding the tax (collected without the authority oflaw) to him merely because he paid it to the State. It would be a windfall to him. As against it, by refusing refund, the monies would continue to be with the State and available for public purposes. The money really belongs to a third party--neither to the petitioner/plaintiff nor to the State· and to such third party it must go. But where it cannot be so done, it is better that it is retained by the State. By "' any standard of reasonableness, it is difficult to prefer the petitioner-plaintiff over the State. Taxes are necessary for running the State and for various public purposes and this is the view taken in all jurisdictions. [693-E-H; 694-A] Sales Tax Office1; Benaras & Ors. v. Kanhaiyalal Mulamdlal Saraf, [1959] S. C. R. 1350, dissented from.

The Province of Madras v. M/s. Boddu Paidanna & Sons, (1942) F. C. R. 90; R. C. ! all v. Union of India, [1962] Suppl. S. C. R. 436; Charan Lal Sahu v. Union of India, [1990] 1 S. C. C. 613 and Mahabir Kishore & Ors. v. State of Madhya Pradesh, [1989] 3 S. C. R. 596, relied on. Olieilt Paper Mills Limited v. State of Orissa, [1962] 1 S. C. R. 549 and State of Madhya Pradesh v. Vyankatlal &Anr. , [1985] 3 S. C. R. 561, affirmed. Kewal Klishan Pwi v. State of Punjab & Ors. , [1979] 3 S. C. R. 1217; Newabganj Sugar Mills v. Union of India & Ors. , [1976] 1 S. C. R. 893; Amar Nath Om Prakash v. State of Punjab & Ors. Etc. , [1985] 2 S. C. R. 72; Indian Aluminium Company Ltd. v. Thane Municipal Corporation, [1992] Suppl. 1 S. C. C. 480; Indian Oil Corporation v. Municipal Corporation, Jallandhar, [1993] 1 S. C. C. 333; Entry Tax Officer v. Chandanmal Champa/al, [1994] 4 S. C. C. 460; Union of India & Ors. v. lain Spinner Ltd. & Anr. , [1992] 4 SCC 389 and Union of India v. I. T. C.

, [1993] Suppl. 4 S. C. C. 326, referred to. 6. 1. It is true that some of the concepts now affirmed by this Bench e. g. , effect of passing on and the relevance of our constitutional values in the matter of judging the legitimacy of a claim for refund were not presented to the bench which decided Kanhaiyalal but that can be no ground for not entertaining or accepting those concepts. [696-A] 6. 2. The right to refund of tax paid under an unconstitutional provision of law is not an absolute or an unconditional right. Similar is the position even if Article 265 can be invoked for claiming refund of taxes collected by misinterpretation or misapplication of a provision of law, · rules, notifications or regulation. [697-B] State of Kamataka v. Ranganath Reddy, [1978] 1 S. C. R. 641; Sanjeev Coke Manufactwing Co. v. Bharat Coking Coal, [1983] 1 S. C. R. 1000 and State of Tamil Nadu Etc. Etc. v. L. Abu Kavur Bai & Ors. Etc. , [1984] 1 S. C. R. 725, referred to. 7. 1.

As regards the submission that it would be just and proper that the amended Section 11-B is held not to take in refund claims arising as a . consequence of appellate or a superior court order, it is not possible to agree. Such a holding would run against the very grain of the entire philosophy underlying the 1991 Amendment. The idea underlying the said MAFATLALINDS. LTD. v. U. 0. 1. 601 provisions is that no refund shall be ordered unless the claimant established that he has not passed on the burden to others. Sub-section (3) of the amended Section 11-B is emphatic. It leave no room for making any exception in the case of refund claims arising as a result of the decision in ap- '-peal/reference/writ petition. There is no reason why an exception should be made in favour of such claims which would nullify the provision to a substantial degree.

So far as "lack of incentive" argument is concerned, it has no doubt given this Court a pause; it is certainly a substantial plea, but there are adequate answers to it. Firstly, the rule means that only the person who has actually suffered loss or prejudice would fight the levy and apply for refund in case of success. Secondly, in a competitive market economy, as the one embarked upon since 1991-92, the manufacturer's self interest lies in producing more and selling it at competitive prices - the urge to grow. A favourable decision does not merely mean refund; it has a beneficial effect for the subsequent period as well. It is incorrect to suggest that the disputes regarding classification, valuation and claims for exemptions are fought only for refund; it is for more substantial reasons, though the prospect of refund is certainly an added attraction.

It may, therefore, be not entirely right to say that the prospect of not getting the refund would dissuade the manufacturers from agitating the questions of exigibility, classification, approval of price lists or the benefit of exemption notifications. The dis-incentive, ifanywouldnot, be significant. [701-D-H; 702-A-B] f 7. 2. The position was no different under Rule 11, or for that matter Section 11-B, prior to its amendment in 1991. Sub- rules (3) and (4) of Rule 11 (as it obtained IJetween August 6, 1977 and November 17, 1980) read together indicate that even a claim for refund arising as a result of an appellate or other order of a superior court/authority was within the purview of the said rule though treated differently. The same position continued under Section 11-B, prior to its amendmentin 1991. Sub-sections (3) and (4) of this section are in the same terms as sub-rules (3) and (4) of Rule 11; if anything, sub-section (5) was more specific and emphatic.

It made the provisions of Section 11-B exhaustive on the question of refund and excluded the jurisdiction of the civil court in respect of all refund claims. Sub-rule(3) of Rule 11 or sub-section (3) of Section 11-B (prior to 1991) did not say that refund claims arising out of or as a result of the orders of a superior authority or court are outside the purview of Rule 11/Section 11-B. They only dispensed with the requirement of an application by the person concerned which conse-quently meant non-application of the rule of limitation; otherwise, in all other respects, even such refund claims had to be dealt with under Rule 11/Section 11-B alone. That is the plain meaning of sub-rule (3) of Rule 11 and sub-sections(3) and (4) of Section 11-B (prior to 1991 Amendment). There is no departure from that position under the amended Section 11-B.

All claims for refund, arising in whatever situations (except where the provisions under which the duty is levied is declared as unconstitutional), has necessarily to be filed, considered and disposed of only under and in accordance with the relevant provisions relating to refund, as they obtained from time to time. [702-B-G] R. K. Garg v. Union of India, [1981] 4 S. C. C. 675; Keshavananda Bharati v. State of Kerala, [1973] Suppl. S. C. R. 1; Tamil Nadu Education Department Ministerial and General Subordinate Service Association v. State of Tamil Nadu & Anr. , [1980] 1 S. C.. l. 1026; Collector of Customs, Madras v. Nathella Sampathu Chetty & Anr. , [1962] 3 S. C. R. 786; State of Rajasthan v. Union of India, [1978] 1 S. C. R. 1 and Commissioner, Hindu Religious Endowment, Madras v. Lakshmindra Thirtha Swamiar of Shirnr Mutt, [1954] S. C. R. 1005, relied on. 8. 1.

The second proviso to Section 11-B (as amended in 1991) expressly provides that "the limitation of six months shall not apply where any duty has been paid under protest". Now, where a person proposes to contest his liability by way of appeal or revision in the higher courts, he would naturally pay the duty, whenever he does, under protest. It is difficult to imagine that a manufacturer would pay the duty without protest even when he contests the levy of duty, its rate, classification or any other aspect. If one reads the second proviso to sub-section (1) of Section 11-B along with the definition of "~elevant date", there is no room for any apprehension. [703-D-E] 8. 2. Rule 233B no doubt requires the assessee to mention the "grounds for payment of the duty under protest" but it does not empower the proper officer, to whom the letter of protest is given, to sit in judgment over the grounds. The assessee need not particularise the grounds of protest.

It is open to him to say that according to him, the duty is not exigible according to law. All that the proper officer is empowered to do is to acknowledge the letter of protest when delivered to him - and that acknowledgement shall be the proof that the duty has been paid under protest. A reading of the rule shows that the procedure prescribed therein is evolved only with a view to keep a record of the payment of duty under protest. It is meant to obviate any dispute whether the payment is made MAFATLALINDS. LTD. v. U. O. I. 603 under protest or not. Any person paying the duty under protest has to follow the procedure prescribed by the Rule and once he does so, it shall be taken that he has paid the duty under protest. The period of limitation of six months will then have no application to him.

It is clarified at this stage that when the duty is paid under the orders of Court (whether by way of an order granting stay, suspension, injunction or otherwise) pending an appeal/reference/writ petition, it will certainly be a payment under protest; in such a case, it is obvioμs, it would not be necessary to lodge the protest as provided by Rule 233-B. [704-B-F] 9. Sub-sections (1) and (2) of Section 11-B apply to all proceedings . where the refund has not been made finally and unconditionally. Where the duty has been refunded under the order of the court pending disposal of an appeal, writ or other proceedings, it would not be a case of refund finally and unconditionally.

It is, of course, obvious that where the refund proceedings have finally terminated-in the sense that the period prescribed for filing the appeal against such order has also expired - before the commencement of the 1991 (Amendment) Act (September 19, 1991), they cannot be re-opened and/or be governed by Section 11-B (3) (as amended by the 1991 (Amendment) Act). This, however, does not mean that the power of the appellate authorities to condone delay in appropriate cases is affected in any manner by this clarification. So far as _the ditliculty or impossibility of filing the documents referred to in Section 12-A is concerned, it is obvious that the said requirement cannot be insisted upon in cases where the application is filed prior to the commencement of the act or for the period anterior to the commencement of the said Amendment Act, though the burden of proving that the burden of duty has not been passed on by him is -still upon the applicant.

Sub-section (1) of Section 11-B is of general application. It not merely governs the pending applications but also provides for future applications. Reasonably construed and read together, the said provisions mean that in respect of pending applications, the requirement is only to produce such documentary and other evidence as is sufficient to establish that the incidence of duty, refund of which is claimed, has not been passed on by the applicant to any other person. The requirement of enclosing the documents referred to in Section 12-A is obligatory only where the claim of refund pertains to the period subsequent to the commencement of the 1991 (Amendment) Act. [705-E-H; 706-A-C] Commissioner of Sales Tax, Uttar Pradesh v. Mis. Auriaya Chamber of . Commerce, Allahabad, [1986] 3 S. C. C. 50 and Patel India Private Limited v. Union of India & Ors. , [1973] 3 S. C. R. 811, referred to. 10.

Section 12-B does not create a new presumption unknown till then; it merely gives· statutory shape to an existing situation. At the most, it can be said that there were two views on the subject and Section 12-B affirms one of them. Even without Section 12-B, the true position is the same. The obligation to prove that duty has not been passed. on to another person is always there as a pre-condition to claim of refund. It cannot also be said that by giving retrospective effect to Section 11-B, any vested rights or substantive rights are being taken away. The deprivation, if at all, is not read. The manufacturer has already collected the duty from his purchaser and has thus reimbursed itself. By applying for refund yet, he is trying to reap a windfall; deprivation of that cannot be said to be real or substantial prejudice or loss. A manufacturer had no vested legal right to refund even when he had passed on the burden of duty to others.

No Jaw conferred such a right in him· not Article 265, nor Section 11-B. It was only on account of an incorrect view of Jaw taken in Kanhaiyalal and that cannot be treated as a vested legal right. Correction of judicial error does not amount to deprivation of vested/substantive rights, even though a person may be deprived of an unwarranted advantage he had under the over-rnled decision. In cases, where the burden is not passed on, there is no prejudice; he can always get the refund. [706·D·G] 11. Section 12-C which creates the Consumer Welfare Fund and Section 12-D which provides for making the Rules specifying the manner in which the money credited to the Fund shall be utilised cannot be faulted on any ground.

Now, coming to the Rules, it is true that these Rules by themselves do not contemplate refund of any amount credited to the Fund to the consumers who may have borne the burden; the Rules only provide for "grants" being made in favour of consumer organisations for being spent on welfare of consumers. But, this is perhaps for the reason that clause (e) of the proviso to sub-section (2) of Section ll·B does provide for the purchaser of goods applying for and the obtaining the refund where he can satisfy that the burden of the duty has been borne by him alone. Such a person can apply within six months of his purchase as provided in clause(e) of Explanation-B appended to Section llB. It is, therefore, not MAFATLALINDS. LTD. v. U. 0. 1. 605 -.. : correct to contend that the impunged provisions do not provide for refunding the tax collected contrary to law to the person really entitled thereto. Certain practical difficulties.

may arise as pointed out by the appellants-petitioners: (i) the manufacturer would have paid the duty at the place of "removal" or "clearance" of the said goods but the sale may have taken place elsewhere; if the purchaser wants to apply for refund, he has to go to the place where the duty has been paid by the manufacturer and apply there; (ii) purchasers may be spread all over India and it is not convenient or practicable for all of them to go to the place of "removal" of goods and apply for refund. True it is that there is this practical inconvenience but it must also be remembered that such claims will be filed only by purchasers of high priced goods where the duty component is large and not by all and sundry/small purchases.

This practical inconvenience or hardship, as it is called, cannot be a ground for holding that the provisions introduced by the 1991 (Amendment) Act are a "device" or a "ruse" to retain the taxes collected illegally and to invalidate them on that ground -assuming that such an argument is permissible in the case of a taxing · . enactment made by Parliament. [707-H; 708-A-F] 12. Ordinarily, no manufacturer will sell his products at less then the cost-price plus duty. He cannot survive in business if he does so. Only in case of distress sales, such a thing is understandable but distress sales are not a normal feature and cannot, therefore, constitute a basis for judging the validity or reasonableness of a provision. Similarly, no one will ordinarily pass on less excise duty then what is exigible and payable. A manufucture may dip into his profits but would not further dip into the excise duty component. He will do so only in the case of a distress sale again.

Just because duty is not separately shown in the invoice price, it does not follow that the manufacturer is not passing on the duty. Nor does it follow therefrom that the manufacturer is absorbing the duty himself. The manner of preparing the invoice is not conclusive. Generally speaking, every manufacturer will sell his goods at something above the cost-price plus duty. There may be a loss-making concern but the loss occurs not because of the levy of the excise duty • which is uniformly levied on all manufacturers of similar goods - but for other reasons. No manufacturer can say with any reasonableness that he cannot survive in business unless he collects the duty from both ends. The requirement complained of (prescribed by Section 11-B) is thus beyond reproach· and so are Sections 12-A and 12-B.

All that Section 12-A requires is that every person who is liable to pay duty of excise on any goods, shall, at the time of clearance of · the goods, prominently indicate in all the relevant documents the amount of such duty which will form part of the price at which the goods are to be sold, while Section 12- Braises a presumption oflaw that until the contrary is proved, every person who has paid the duty of excise on any goods shall be deemed to have passed on the full incidence of such duty to the buyer of such goods. Since the presumption created by Section 12-B is a rebut· table presumption of law-and not a conclusive presumption-there is no basis for impugning its validity on the ground of procedural unreasonableness or otherwise. This presumption is consistent with the general pattern of commercial life. It indeed gives effect to the very essence of an indirect tax like the excise duty/customs duty.

A manufacturer who has not passed on the duty can always prove that fact and if it is found that duty was not leviable on the transaction, he will get back the duty paid. Ordinarily speaking, no manufacturer would take the risk of not passing on the burden of duty. It would not be an exaggeration to say that whenever a manufacturer entertains a doubt, he would pass on the duty rather than not passing it on. It must be remembered that manufacturers as a class are knowledgeable persons and more often than not have the benefit of legal advice. And until about 1992, at any rate, Indian market was by and large a sellers' market. [709-B-H; 710-A-B] 13. Any recoveries or refunds consequent upon the adjustment under sub-rule (5) of Rule 9-B will not be governed by Section 11-A or Section 11-B, as the case may be.

However, ifthe final order passed under sub-rule (5) are appealed against - or questioned in a writ petition or suit, as the case may be, assuming that such a writ or suit is entertained and is allowed/decreed - then any refund claim arising as a consequence of the decision in such appeal or such other proceedings, as the case may be, would be governed by Section 11-B. It is also made clear that if an independent refund claim is filed after the final decision under Rule 9-B(5) re-agitating the issues already decided under Rule 9-B - assuming that such a refund claim lies - and is allowed, it would obviously be governed by Section 11-B. It follows logically that the position would be the same in the converse situation. [712-C-E] MAFATLAL INDS. LTD. v. U. O. I. 607 14.

Section 11-B of the Central Excises and Salt Act and Section 27 of the Contract Act, whether before or after 1991 Amendment - as interpreted now - make every refund claim subject to proof of not passing-on the burden of duty to others. Even if a suit is filed, the very same condition · operates. Similarly, the High Court while examining its jurisdiction under Article 226 - and this Court while acting under Article 32 - would insist upon the said condition being satisfied before ordering refund. Unless the claimant for refund establishes that he has not passed on the burden of duty to another, he would not be entitled to refund, whatever be the proceeding and whichever be the forum. Section 11-B/Section 27 are constitutionally valid and they have to be applied and followed implicitly wherever they are applicable. [712-H; 713-A] 15. There are no words in Section 11-D which provide for payment of duty twice over.

All that the section says is this : the amount collected by a person/manufacturer from the buyer of goods as representing duty of excise shall be paid over to the state; even if the tax collected by the manufacturer from his purchaser is more than the duty due according to law, the whole amount collected as duty has to be paid over to the State; if on the assessment being made it is found that the duty collected and paid over by the manufacturer is more than the duty due according to law, such surplus amount shall either be credited to the Fund or be paid over to the person who has borne the incidence of such amount in accordance with the provisions of Section 11-B. It is obvious that if in a given cases, the manufacturer has collected less amount as representing the duty of excise then what is due according to law, he is not relieved of the obligation to pay the full duty according to law. This is the general purport and meaning of Section 11-D.

There may be cases where goods are removed/cleared without effecting their sale. In such a case, Section 11-D is not attracted. It is attracted only when goods are sold. The purport of this section is in accord with Section 11-B and cannot be faulted. However, the situation in the case of captive consumption has not been dealt with now and that question is left open. [713-B-F] Per Ahmadi, CJI (Broadly in agreement with the conclusions recorded in the Judgment delivered by Jeevan Reddy, J. except (i) in regard to the extent to which the jurisdiction of ordinary courts is ousted in respect of claims for refund of taxes illegally levied and 608 SUPREME COURTREPORTS[l996] SUPP. 10 S. C. R. collected, and (ii) on the issue of retrospective application of the amended provisions of the Excise Act) : 1. 1. Actions by way of suit or petitions under Article 226 of the Constitution cannot be completely eliminated.

The claims for refund can arise under three broad classes and the issue of ouster of jurisdiction of civil courts can be under-stood by focussing on the parameters of these classes which are as a follows : [721-E] (i) Unconstitutional levy" - where claims for refund are founded on the ground that the provision of the Excise Act under which the tax was levied is unconstitutional. Cases falling within this class are clearly outside the ambit of the Excise Act. In such cases assessees can either file a suit under Section 72 of the Contract Act, 1872 or invoke the writ jurisdiction of the High ~ourt under Article 226 of the Constitution. [721-F-G] (ii) "Illegal levy" -- where claims for refund are founded on the ground that there is misinterpretation/misapplication/erroneous interpretation of the Excise Act and the Rules framed thereunder.

Ordinarily, ,, all such claims must be preferred under the provisions of the Excise Act and the Rules framed thereunder by strictly adhering to the stipulated procedure. However, in cases where the authorities under the Excise Act arrogate to themselves jurisdiction even in cases where there is clear want of jurisdiction, the situation poses some difficulty. In cases where the authorities under the Excise Act initiate action though lacking in inherent p jurisdiction, the remedy by way of a suit under Section 72 of the Contract Act or a writ under Article 226 of the Constitution, will lie. Such a conclusion will not frustrate the exclusion of jurisdiction of civil courts by the Excise Act because the areas where an authority acting under a statute is said to lack inherent jurisdiction have been clearly demarcated by service decisions of this Court.

[721-H; 722-A-E] (iii) "Mistake of Law" - where claims for refund are initiated on the basis of a decision rendered in favour of another assessee holding the levy to be : (1) unconstitutional; or (2) without inherent jurisdiction. Ordinarily, no assessee can be allowed to reopen proceeding that have been finally concluded against him on the basis of a favourable decision in the case of MAFATLALINDS. LTD. v. U. O. I. 609 another assessee. This is becanse an order which has become final in the case of an assessee will continue to stand until it is specifically recalled or set aside in his own case. In cases where the levy of a tax has been held to be (1) unconstitutional; or (2) void for want to inherent jurisdiction, it is open for the assessees to take advantage of the declaration of the law so made and claim refunds on the ground that they paid the tax under a mistake of law. This is because such claims are outside the ambit of the Excise Act.

In such cases, the limitation period applicable will be that specified in Section 17(1)(c) of the Limitation Act. [722-E-H; 723-A] 1. 2. Since the levy of tax has been held to be unconstitutional (which would lead to the conclusion that it should never have been levied in the first place) such an interpretation would be unfair to an assessee who had the foresight to discern the unconstitutionality of the provision (albeit on a different ground) but was unfortunate in not being able to convince the concerned court of the unconstitutionality of the provision. Considering the gravity of the case, it should be left open to such an assessee to use · such legal remedy as may be available to him to have the earlier order reviewed or recalled on the basis of the order made in the subsequent case. If he succeeds, well and good; if he fails, he must take the consequence, of an adverse order against him. [723-C-E] Dhuiabhai and others v. State of Madhya Pradesh and another,. [1968] 3 S. C. R.

662, relied on. 2. The decrees and orders which have become final but have not been executed the procedure and conditions prescribed in Section llB will have to be complied with. However, under the scheme of the amended Excise Act, the application for refund which is a pre-requisite for invoking Section 11B(2), is required to be made within six months from the payment of duty. It is obvious that this requirement cannot be complied with in respect of pending decrees and orders. But_ it must at the same time be realised that in such a case, the assessee was protesting against the recovery of the excise duty from him for which he had even initiated legal proceedings. It ' ... would therefore be in order to assume that he had paid the duty even though he was protesting its recovery.

To ensure that such orders and decrees are not frustrated, it must be deemed that the duties of excise in such cases were paid "under protest"· within the meaning of the second proviso to clause (1) of Section llB. This would enable the assessees in such cases to file fresh applications under Section 11B(2), thereby comply· ing with the scheme of the amended Excise Act. [723-H; 724·A·CJ Per paripoornan, J. (for himself and Hansaria, J. ) partly concurring with the majority judgment delivered by Jeevan Reddy, J. but on different reasoning and giving his own views and conclusions on the other issues): 1. 1. The High Court was justified in law in holding that since the excise duty paid by the appellant was ultimately passed on to the buyers of the fabric, and that the appellant has suffered no loss or injury, the action for restitution based on Section 72 of the Contract Act, was unsus· tainable. [732-E-F] 1. 2.

A person who seeks restitution, has a duty to disclose or account for what he has received in the transaction. An accounting is a condit. ion 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 Contract Act, on the ground of payment due to mistake of law, the person claiming restitution, should plea 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 Contract Act. [730-F-G] Mulamchand v. State of Madhya Pradesh, AIR (1968) S. C. 1218, relied on. p Nelson v. Larhold, (1948) 1 KB 339, referred to. Pollock & Mulla Indian Contract and Specific Relief Acts (10th Edi· tion) page 598; Lord Goff of Chieveley and Gareth Jones: "The Law of Restitution" (3rd Edn. ) 1986, Cheshire Fifoot & Funnston's "Law of Contract" (12th Edn.

) 1991, page 649; Peter Birks (Professor of Civil Law, University of Edinburgh) : "Introduction to the Law of Restitution"; Endrew Bwrows : The Law of Restitution (1993), Restatement of the Law of Restitution', American Law Institute, 1937 Edn. , P. 634, referred to. 2. 1. It is apparent that in Kanhaiya Lat's case there was no plea by the Revenue that since the assessee has passed on the tax, the claim for MAFATLALINDS. LTD. v. U. 0. 1. 611 refund is unsustainable. Such a question was not posed before this Court for consideration. One of the main aspects to be proved in a claim for restitution, that the person claiming restitution should have suffered a loss or injury in order to sustain an action, was not urged and was not considered. [737-A-B] State of Orissa v. Sudhansu Sekhar Misra, [1968) 2 SCR 154 and 01ie11t Paper and Industries Ltd. and Another v. State of 01issa & Othe1~·, [1991) Supp. 1 SCC 81, relied on. Tilokchand Motichand & Ors. v. H. B. Munshi & Anr.

, [1969) 2 SCR 824; D. Cawasji & Co. Etc. Etc. v. 1he State of Mysore & Am:, [1975) 2 SCR 511; Dhanvalakshmi Rice Mills Etc. v. The Commissioner of Civil Supplies and Another, [1976] 3 SCR 387; Shiv Shanker Dal Mills Etc. Etc. v. State of Haryana & Ors. Etc. , [1980) 1SCR1170, 1173; State of Madhya Pradesh v. Vyankatlal &Anr. , [1985) 3 SCR 561, 566, 568; M/s. Amar Nath Om Prakash and Ors. Etc. v. State of Punjab and Ors. Etc. , [1985) 2 SCR 72; llldian Aluminium Company Limited v. Thane Municipal Corporation, [1992) Supp. 1 SCC 480; State of Rajasthan & Others v. Novelty Stores Etc. , AIR (1955) SC 1132 and Messrs Budh Prakash Jai Prakash v. Sales Tax Office1; Kanpur & Ors. , (1952) A. L. J. 332, referred to. S. P. A. Case (1985) 2 C. M. L. R. 658; Woolwich Building Society v. Inland Revenue Commissioner (No. 2), (1992) 3 All ER 737; Air Canada Case, 59 D. L. R. (4th series 161); Commissioner of State Revenue v. Royal I11SUrance Australia Ltd. , (1994) 69 A. LJ. 51; United States v.

Jefferson Electric Manufactwing Co. , 78 Lawyer's Edition 859 and Quinn v. Leathern, (1901) A. C. 495, referred to. 2. 2. The persons claiming refund who were only middle-men, should not be unjustly enriched and allowed to make a "fortune" as it were, at the expense of innumerable unidentifiable innocent consumers and that "public interest" requires that such persons claiming refund should not be unduly or unjustly benefited; and, public interest is better. served, if the State is allowed to retain the collection of tax, which could be made/spent, for the benefit of the "public". [740-A·B] State of Kamat aka and Anr. Etc. v. Shri Ranganatha Reddy & Anr. Etc. , [1978) 1 SCR 641; Sanjeev Coke Mfg. Co. v. Bharat Coking Coal Ltd. & Anr. , [1983] 1 SCR 1000; State of Tamil Nadu Etc. Etc. v. L. Abu Kavur Bai & Ors. , AIR (1984) SC 326, 343 = [1984] 1 SCR 725; Mis. Amar Nath Om Prakash and Ors. Etc. v. State of Punjab and Ors. Etc. , [1985] 2 SCR 72; Shiv Shanker Dal Mills Etc. v.

State of Haryana & Ors. Etc. , [1980] 1 SCR 1173 and Walaiti Ram Mahabir Prasad v. State of Punjab & Ors. , AIR (1984) P & H 120, relied on. Rayalaseema Constmctions v. Dy. Commercial Tax Officer, 10 STC 345; Dy. Commercial Tax OffiCCI; Madras v. Rayalaseema Constmctions, 17 STC 505; R. C. ! all v. Union of India, [1962] Snppl. 3 SCR 436 and The Province of Madras v. Mis. Boddu Paidanna and Sons, (1942) F. C. R. 90, referred to. 2. 3. It is open to the Court to deny the equitable remedy of refund (restitution) in such cases. The attempt of persons who have passed on the liability in claiming refund is only to strike at a bargain -- to make a fortune at the expense of innumerable unidentifiable consumers. Such 1 persons have suffered no loss. On the other hand, if the State is allowed to retain the amount, it will be available to the community at large and could be made use of for public purposes. On this basis as well, the denial of refund or restitution is valid.

There is nothing abhorent or against public policy if refund or restitution is withheld in such a situation. It should also be stated that in cases of indirect levy of tax which was passed on, this Court has negatived the claim for refund in a few cases. [742-C-D] Orissa Cement Ltd. v. State of Orissa, [1991 Supp. 1 SCC 430, relied on. Shiv Shanker Dal Mills v. State of Haryana, [1980] 1SCR1170; State of Madhya Pradesh v. Vyankatlal &Anr, [1985] 3 SCR 561; Mis. Amar Nath Om Prakash and Ors. v. State of Punjab and Ors. , [1985) 2 SCR 72; Indian Aluminium Company Limited v. Thane Municipal Corporation, [1992] Supp. 1 SCC 480 and State of Rajasthan & Ors. v. Novelty Stores Etc. , AIR (1995) SC 1132, referred to. 2. 4. Ordinarily, 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 MAFATIALINDS. LTD. v. U. O. I. 613 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 in·depth analysis in the innumerable cases to ascertain and find out whether the taxpayer has passed on the liability. The matter being within the exclusive knowledge of the taxpayer, the burden of proving that the liability has not been passed on should lie on him. [747-C-E] D. Cawasji & Co. v. State of Mysore, [1975) 2 SCR 511, referred to. Peter Birks, Public Law (1992) page 580; J. Beatson : Law Quarterly Review, Vol. 109 (1993) page 401; "Restitution of Overpaid Tax, Discretion and Passing-on" - by J. Beatson, Law Quarterly Review, Vol. 111 (1995) page 375 Notes; "Unjust Enrichment" - by Steve Hedley.

(Cambridge Law Journal 1995 (578- 599)" Unjust Enrichment Claims: A Comparative Overview" - by Brice Dickson Cambridge Law Jouma~ (1995) (100-126); "The Law of Taxation is not an Island - Overpaid Taxes and the Law of Restitution:" by Graham Virgo; British Tax Review, (1993) (442-467); "Payments of Money under Mistake of Law; A Comparative View" - by Gareth Jones, Cambridge. Law Jouma~ (1993) Comment (225); "Restitution, Misdirected Funds and Change of Position" - by Ewan McKendrick, Modem Law Review, (1992) Vol. 55 (377-385); "The Law of Taxation is not an Island - Overpaid taxes and the Law of Restitution'~ pages 462 and 463; Article by J. Beatson, (1993) 109 L. Q. R. 401 and Law Commission's Report in England, Law Consultation Paper No. 120 "Restitution of Payments made Under a mistake of law" - & Graham Virgo; article in British Tax Review, (1993) pages 458-459, referred to. 3. 1.

It is settled law that exclusion of the jurisdiction of the civil courts is not to be readily inferred, but that sucb exclusion must either be explicitly expressed or clearly implied. [756"F] 3. 2. 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 118 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. 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 jurisdiction and/or claim refund, in cases covered by propositions 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 no application. [764-A-C] Dulabahi Etc. v. State of Madhya Pradesh & Anr. , AIR (1969) SC 78; Kamala Mills Ltd. v. State of Bombay, AIR (1965) SC 1942; Ram Swarup v. Shikar Chand, AIR (1966) SC 893; Raja Kandregula Srinivasa Jagannadharao Panthulu Bahadur Guru v. The State of Andhra Pradesh and Others, AIR (1971) SC 71; Collector of Central Excise, Chandigarh v. Mis. Doaba Co-operative Sugar Mills Ltd. , Jalandhar, [1988] Supp. SCC 683 andEscorts Ltd. v. Union of India & Ors. , [1994] Supp. 3 SCC 86, relied on. Secretary of State v. Mask & Co. , AIR (1940) P. C. 105; Finn of llluri Subbayya Chetty and Sons v. State of Andhra Pradesh, AIR (1964) SC 322 and Secretary of State v. Jatindra Nath Choudhry, AIR (1924) PC 175, referred to. 4. 1.

Where the levy is unconstitutional • outside the provisions of the Act or not contemplated by the Act, the jurisdiction of the civil courts is not barred. The aggrieved party can invoke. Section 72 of the Contract Act, file a suit or a petition under Article 226 of the Constitution, and pray for appropriate relief inclusive of refund within the period of limitation provided by the appropriate law. [764-E] 4. 2. Where the levy is based on misconstruction or wrong or er· roneous interpretation of the relevant provisions of the Act, Rules or Notifications; or by failure to follow the vital or fundamental provisions of the Act or by acting in violation of the Fundamental principles of judicial procedure, every error or fact or law committed by the statutory authority or Tribunal, irrespective of its gravity, or nature of infirmity will not be covered.

It is confined to exceptional cases, ''where the provisions of a particular Act have not been complied with or the statutory tribunal has not acted in conformity with fundamental principles of judicial proce· dure". [764-F-H] 4. 3. Where the levy or imposition was unconstitutional or illegal or not exigible in law (i. e. without jurisdiction) and, so found in a proceeding initiated not by the particular assessee, but in a proceeding initiated by MAFATLALINDS. LTD. v. U. O. I. 615 some other assessee, either by the High Court or the Supreme Court, and as soon as the assessee came to know of the judgment, (within the period of limitation) he initiated action for refund of the tax paid by him, due to mistake of law, the assessees who initiated proceedings and impugned the assessments/claimed refund,/or any reason, either by way of suit or petition under Article 226 of the Constitution, and the action was dismissed on merits, they cannot maintain an action over again.

If the levy or imposition was held to be unconstitutional or illegal or not exigible in law, in a similar case filed by some other person, the assessee who had already lost the battle in a proceeding initiated by him or has otherwise abandoned the claim cannot, take advantage of the subsequent declaration rendered in another case whether the levy is held to be unconstitutional, illegal or not exigible in law. The claim will be unsustainable and barred by res judicata. (765-H; 766-AJ Tilokchand Motichand and Ors. v. H. B. Munshi, Commissioner of Sales Tax, Bombay & Anr. , AIR (1970) SC 898, relied on. 4. 4. Subject to the above, if a levy or imposition of tax is held to be unconstitutional or illegal or not exigible in law i. e. without jurisdiction, it.

is open to the assessee to take advantage of the declaration· of the law so made, and pray for appropriate relief inclusive of refund on the ground that tax was paid due to mistake of law, provided he initiates action within the period oflimitation prescribed under the Limitation Act. Such assessee should prove the necessary ingredients to enable him to claim the benefit under Section 72 of the Contract Act read with Section 17 of the Limitation Act. (766-C) 4. 5. It should be borne in mind, that in all the three categories of cases, the assessee should prove the fundamental factor that he has not" "passed on" the tax to the consumer or third party and that he suffered a loss or injury. This aspect should not be lost sight of, in whatever manner, the proceeding is initiated •• suit, Article 226, etc. (766-E) 5.

Jurisdiction of civil courts is not barred in entirety regarding the attack against the levy and/or claim for refund; in those cases, coming within the three categories as above mentioned, the jurisdiction of the ordinary courts will not be ousted. [775-F] "I j ... I "" Union of India v. Tarachand Gupta & Bros, AIR (1971) SC 1658; A. R. Antulay v. R. S. Nayak and another, [1988] 2 SCC 602; M/s. R. R. Shreeram Durga Prasad and Fatehchand Nursing Das v. Settlement Commission, (IT & WT) and Another, [1989] 1 SCC 628; N. Parthasarathy Etc. Etc. v. Controller of Capital Issues & Am: Etc. Etc. , [1991] 3 SCC 153; Associated Engineering Co. v. Govf! mment of Andhra Pradesh and Anr. , AIR (1992) SC 232; Shiv Kumar Chadha v. Municipal Corpn. of Delhi & Ors. , [1993] 3 SCC 161; Shri M. L Sethi v. Shri R. P. Kapur,AIR (1972) SC 2379 andHari Prasad Mulshankar Trivedi v. V. B. Raju and Ors. , AIR (1973) SC 2602, referred to. Anisminic Ltd. v.

Foreign Compensation Commission, (1969) 2 AC 147 = (1969) 1 All ER 208 (H. L. ); In Re: Racal Communications Ltd. , (1981) AC 374; O'Reilly & Ors. v. Mackman & Ors. , (1983) 2 AC 237; Regina v. Hull University Visitor, (1993) AC 682 and Council for Civil Service Unions & Ors. v. Minister for the Civil Service, (1985) 1 AC 374, referred to. De Smith, Woolf and Jowell - Judicial Review of Administrative Action, (1995 Edn. ) p. 263; Halsburry's Laws of England, (4th Edn. ) P. 114 - para 67 - foot note (9); Sir William Wade: Administrative Law, (7th Edn), 1994 p. 299, De Smith on ''Judicial Review of Administrative Action" - edited by Lord Woolf and Jowell, Q. C. (Professor of Public Law) (Fifth edition) - (1995), Chapter, 5; Halsbury Laws of England 4th edition (Reissue), 1989, volume 1 (1) p. 113; H. W. R. Wade and Co. F. Forsyth in their book -Administrative Law, Seventh Edition, (1994) "Principles of Statutory Interpretation", 6th edition, (1996) at page 475, referred to. 6. 1.

Section 118(2) and Section 118 (3) go together. The applications for refund made before the commencement of the Amendment Act, 1991, shall be deemed to have been made under Section 118(1) of the Act as amended and it shall be dealt with in accordance mth 'Section 118(2) of the Act. The Section contemplates disposal of the applications pending on the date of the Amendment Act as also fresh applications filed after the Amendment Act, 1991, as per the amended provisions. [777-E] 6. 2. It is obvious that in cases where (i) 'Refund' made or due as per orders passed by Courts, in a suit or in a petition under Article 226 of the Constitution of India, which have become final; MAFATLAL INDS. LTD. v. U. O. I. 611 (ii) refund orders by the statutory authority concerned which have become final, [777-F-H] no application can or will be deemed to be pending on the date of the commencement of the Amendment Act. No application praying for refund is to be filed in such _cases, either.

No further probe, regarding the requisites for obtaining refund specified in the Amendment Act, 1991, is called for in such cases. The above aspects are fairly clear. Section 118(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 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 coming into force of the Amendment Act or

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