Dr. George Jacob v. State of Kerala and Others

## **IN THE HIGH COURT OF KERALA AT ERNAKULAM** **PRESENT:** ## **THE HONOURABLE MR.JUSTICE P.R.RAMACHANDRA MENON** ## **WEDNESDAY, THE 1ST DAY OF AUGUST 2012/10TH SRAVANA 1934** ## **WP(C).No. 25491 of 2010 (J)** ## **---------------------------** **PETITIONER(S):** ## **---------------------------** **DR.GEORGE JACOB, PROPRIETOR, WYNAD RESINS, PUNNAPPALA P.O., ERIYAD, WANDOOR, MALAPPURAM DISTRICT.** ## **BY ADV. SRI.R.RAMADAS** ## **RESPONDENT(S):** **-----------------------------** **1. STATE OF KERALA, REPRESENTED BY** - **THE SECRETARY TO GOVERNMENT, TAXES DEPARTMENT, SECRETARIAT, THIRUVANANTHAPURAM.PIN-695 039** **2. THE COMMISSIONER OF COMMERCIAL TAXES,** - **GOVERNMENT OF KERALA, THIRUVANANTHAPURAM.PIN-695 039** **3. THE ASSISTANT COMMISSIONER (KVAT),** - **DEPARTMENT OF COMMERCIAL TAXES, MALAPPURAM.PIN-676 505** **R1 TO R3 BY GOVERNMENT PLEADER SRI.SHAIJ RAJ.T.K.** **THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON 16-07-2012, THE COURT ON 01-08-2012 DELIVERED THE FOLLOWING:** **sts** ## **WP(C)NO.25491/2010** ## **APPENDIX** ## **PETITIONER'S EXHIBITS:** - **P1 COPY OF THE ORDER DATED 17/12/2009 FOR THE PERIOD 1997-98** - **P2 COPY OF THE ORDER DATED 20/03/2010 FOR THE PERIOD 1999-2000** - **P3 COPY OF THE MODIFIED ASSESSMENT ORDER FOR THE PERIOD 2003-2004 DATED 16/12/2009** - **P4 COPY OF THE ORDER DATED 20/03/2010 FOR THE PERIOD 2004-05.** - **P5 COPY OF THE REVENUE RECOVERY NOTICE DATED 21/04/2010** - **P6 COPY OF THE REVENUE RECOVERY NOTICE DATED 30/04/2010** - **P7 COPY OF THE NOTIFICATION S.R.O. 695/2003** - **P8 COPY OF THE NOTIFICATION S.R.O. 316/2005.** - **P9 COPY OF THE NOTIFICATION S.R.O.123/2010.** ## **RESPONDENT'S EXHIBITS: NIL** ## **/TRUE COPY/** ## **P.A.TO.JUDGE** **sts** ## **P.R.RAMACHANDRA MENON, J.** - - - - - - - - - - - - - - - - - - - - - ## **W.P.(c) No. 25491 OF 2010** - - - - - - - - - - - - - - - - - - - - - - - - - - Dated this the 1[st] day of August , 2012 ## **JUDGMENT** Denial of the claim for refund of the excess tax remitted by the petitioner in respect of the assessment years 1999-2000 and 2003-04, vide Exts.P2 and P3 assessment orders, forfeiting the excess amount to the accounts of the government, in view of the stipulation contained in Exts.P7 to P9 notifications is under challenge. The said notifications, while granting exemption from the liability to pay purchase tax in respect of the concerned commodity, also specify that the tax already paid will not be refunded, which forms the basis for grievance, contending that the said stipulation is beyond the provisions of the statute and in violation of the constitutional provisions. 2. The petitioner is a registered dealer on the rolls of the third respondent and assessment for the different assessment years 1997-98, 1999-2000 , 2003-04 and 2004-05 was completed as per Exts.P1 to P4 orders. As per Ext.P2 order, it has been held that, a sum of WPC.No.25491/2010 2 Rs. 3,79,324/- has been paid as excess tax, while Ext.P3 modified assessment order for the period 2003-04 confirms that the petitioner has paid excess tax of Rs. 65,41,230/-. The request for refund, contending that the petitioner has not actually collected the tax from the customers has however been rejected, referring to the specific clause in the very same notification, whereby exemption is granted, stipulating that the tax once paid will not be refunded. 3. Coming to the subsequent assessment year 2004-05, Ext.P4 order casts a liability upon the petitioner to satisfy the balance tax due as Rs. 3,25,897/- and interest thereof to an extent of Rs. 2,24,200/-. The case of the petitioner is that, the liability in respect of 2004-05 under Ext.P4 order is liable to be set off against the excess tax satisfied by the petitioner, as held in Ext.P2 and P3 orders, in respect of the previous assessment years and the balance is to be refunded. Being aggrieved of Ext.P5 and P6 demand notices and the coercive steps apprehended, the petitioner has approached this Court with the relief sought for, as mentioned above. 4. The third respondent has filed a counter affidavit pointing WPC.No.25491/2010 3 out that, the case projected by the petitioner is per se wrong and unfounded. The tax paid by the petitioner at the relevant time was based on the liability to pay tax under Section 5 A of the KGST Act on the purchase of latex. But by virtue of the subsequent notifications issued in the year 2003 and thereafter, in order to provide necessary marketing assistance and facilitate competitive sales, the Government, as a matter of policy, decided to grant exemption from payment of purchase tax and it was accordingly, that the relevant notifications were issued and reiterated in the course of time, as borne by Ext.P7 to P9. By virtue of the very nature of instance of tax liability and the nature of exemption given, it was specifically stipulated in the relevant notifications, particularly Ext.P7 - SRO 695/03 that the tax, if remitted to the government, will not be refunded under any circumstance. Such a clause was incorporated to ensure that there shall not be any unlawful enrichment to the dealer. 5. The scope of the notification is also discernible from the contents in Ext.P9, whereby the Government found it necessary to stipulate that manufacturers of centrifuged latex and crumb rubber in WPC.No.25491/2010 4 any form used in the manufacture of centrifuged latex and crumb rubber produced therefrom should have suffered tax atleast at one point, either at the level of filed latex or at the level of centrifuged latex. The claim of the petitioner is sought to be rebutted in the following manner as discernible from paragraphs 6, 7 and 8 of the counter affidavit, which reads as follows: “ The claim of the petitioner that the tax excess paid by the petitioner as per Ext.P2 and P3 assessments towards sales tax due for the period 1998-1999 and 2004-2005 and also due for future years is not entertainable. It is most respectfully submitted that the above notifications clearly stipulated that tax already paid shall not be refunded. It is also submitted that the petitioner never suffered any loss by the above said stipulation because the ultimate sufferer will be the customer and the petitioner has already passed over the purchase tax to the customer by fixing price of the finished products taking into consideration the purchased tax already paid by him. Therefore, if any refund is made to the petitioner he will get undue WPC.No.25491/2010 5 enrichment. Hence the legislature with an abundant caution included above said stipulation in the said notification. Therefore, it is most respectfully submitted that the claim of the petitioner is not at all entertainable. It is most respectfully submitted that, even though tax liability under Section 5 A of the KGST Act is not directly leviable from the customer, the manufacturer as well as dealer will fix the price of the goods taking into consideration the amount paid as purchase tax. Therefore, there cannot be any loss either to the manufacturer or the dealer. The contention of the petitioner that in view of the finding of the Honourable Supreme Court in Corporation Bank v. Saraswathi Abharanasala they are entitled for refund is also not correct. The petitioner has not actually paid tax from his pocket. Even though he has paid it initially the burden of payment was put to the shoulder of the purchaser of finished products at the time of fixing price of the goods. Therefore the above dictum is not at all applicable in this case. It is also to be noted that the contention of the petitioner that Article 265 of WPC.No.25491/2010 6 the Constitution of India restricted the collection of tax without authority of law, it is fact that the purchase of payment shall also an element for consideration for fixing the price of the final products. No manufacturer or dealer pay tax from his pocket without collecting it in either way from the customer. Therefore concept of the petitioner is not at all correct.” 6. The petitioner has filed a reply affidavit seeking to reiterate the contents of the writ petition asserting that the petitioner has not collected the tax from the customers and that the purchase tax was paid from his pocket, as a result of which, the petitioner is entitled to have the benefit of refund. An opportunity is also sought for to substantiate the facts and figures in this regard with reference to the verdict rendered by a Division Bench of this Court in S.T.Rev. No.138/2010 and connected cases i.e. to establish that the tax paid on the raw materials has not passed on to the purchaser by including it in the product price. 7. Heard the learned counsel for the petitioner as well as the learned Government Pleader appearing for the respondents at length. WPC.No.25491/2010 7 8. During the course of hearing, it was brought to the notice of this Court by the learned Government Pleader that, the validity of the notifications, particularly Ext.P7 and P8 has already been upheld by this Court as per the judgment dated 9.12.2011 in W.P.(C) No.11661/2006 reported in **Supersonic Industrial Complex v. Assistant Commissioner** (2012 (1)KLT SN 98). The learned counsel for the petitioner, however, submits that, by virtue of the law declared by the Apex Court in **Corporation Bank v. Saraswati Abharanasala and another** (2009 19 VST 84 (SC), the petitioner is entitled to have refund and that the petitioner might be given an opportunity to substantiate that the petitioner has not collected the tax from the customers, passing on the liability in respect of the purchase tax already remitted, more so, in the light of the verdict passed by the Division Bench in S.T. Revision No.138/2010 and connected cases. 9. Coming to the scope of the impugned notifications, this Court finds that exactly similar challenge was raised by the petitioner in W.P.(C)No.11661/2006 before this Court earlier. The decision rendered by the Apex Court in **Saraswati Abharanasala's** case ( cited WPC.No.25491/2010 8 supra) was also specifically considered and held as not applicable to the case in hand. Placing reliance on the decision rendered by this Court in **Kokkala Arecanut Commission Agents' Association v. The Commissioner of Commercial Taxes** (2003 (11) KTR 316 ( Ker.) and also taking note of the mandate under Section 22(2)(b) of the KGST Act and other relevant provisions of law, this Court held that the claim for refund was devoid of any merit and if the same was to be granted, it would only result in unjust enrichment and the writ petition was dismissed accordingly. 10. To understand the actual nature of grievance projected in the said case, it is worthwhile to extract paragraphs 5 and 6 of the said decision which reads as follows : “5. The case of the petitioner is that, the petitioner had not collected any tax, though he had effected the payment. As such, the petitioner claims to have refund, more so, in view of the clarification issued by the Government in the subsequent notification i.e. Ext. P3, to the effect that uncollected tax was given exemption. As such, the stipulation WPC.No.25491/2010 9 that the tax if any already paid, shall not be refunded will be attracted, only if such tax is already collected, resulting in any unlawful enrichment. It is also stated that, the State, having no right to collect the tax for the period in question, by virtue of the exemption granted as per Exts. P2 and P3 notifications, is not authorised to have the amount retained at their hands; more so, in view of the mandate under Article 265 of the Constitution of India, which stipulates that, no tax shall be collected without the authority of law. So also, it is contended that Section 10 of the KGST Act, confers the power under the Government, only to provide exemption or to reduce tax liability and as such, the notifications issued in exercise of the said power cannot be made as a tool indirectly, to levy / collect any tax. It is pointed out that, alternate remedy by way of appeal is not effective, as the departmental authorities are always bound by the contents of the notifications, which hence necessitates interference of this Court, as sought for in this WPC.No.25491/2010 10 ## Writ Petition. 6. The first respondent has filed a counter affidavit, pointing out that, the liability to pay tax is very much there under the Statute and it was only by virtue of the exemption given as per Exts. P2 and P3 notifications, that the petitioner could put forth the claim. When the petitioner claims for the benefit of the notifications, it has to be taken as it is, which in turn contains a specific clause, that the tax, if any already paid, will not be refunded. The petitioner having satisfied the tax, they are bound by the notification stipulating that the notification will not enable the assessee to have refund, once the tax is already paid. Reliance is also sought to be placed on the decision rendered by the Division Bench of this Court in **Kokkala Arecanut Commission Agents' Association Vs. The Commissioner of Commercial Taxes [(2003) (11) KTR 316 (Ker.)].”** 11 It was contended on behalf of the petitioner before this WPC.No.25491/2010 11 Court that the liability to satisfy purchase tax cannot be passed on to the customers, by virtue of the prescription under Section 22(2)(b) of the KGST Act, which otherwise would attract penalty under the relevant provisions of law and as such, there was no question of any collection of tax from the customers. It was also contended that the relevant clauses in Ext.P2 and P3 notifications therein ( Exts.P7 and P8 herein) stipulating that, the tax, if paid, shall not be refunded, had necessarily to be read and understood, as 'the tax, if collected and paid, will not be refunded'. 12. Coming to the decision of the Division Bench in **Kokkala's** case ( cited supra), a similar clause was there, stipulating that, tax, if any paid, will not be refunded, as incorporated in the concerned notification SRO 127/2000 dated 5/2/2000. It was contended in the said case as well that, the clause 'tax if paid shall not be refunded' should be read and understood as 'tax if collected and paid shall not be refunded' . The Bench observed that the intention of the notification, as clarified by the Commissioner of Commercial Taxes, was to see that the retrospective operation providing reduction of the rate shall not WPC.No.25491/2010 12 result in outflow of money from the Government exchequer. If the interpretation as put forth by the appellant (“if collected and paid to the Government, will not be refunded”) was accepted, it would lead to a position discriminating the dealers paying tax at the point of sale, against the dealers who are paying tax at the point of purchase, attracting violation of Article 14 of the Constitution of India. It was held by the Bench, that there was no justification for reading the last two paragraphs of the notification in conjunction, as they contemplate two different situations; one regarding the 'tax collected' and the other regarding the 'tax paid' and hence, the Bench was not in a position to read into the latter clause, the word “collected” occurring in the first clause, when that clause did not warrant such an interpretation. Thus interference was declined in the appeal and the contention of the assessee was turned down, answering the position in favour of the revenue. 13. With regard to the law laid down by the Apex Court in **Saraswati Abharanasala's** case, sought to be relied on by the petitioner herein, it is to be noted, that was a case where the first WPC.No.25491/2010 13 respondent dealer in bullion gold purchased gold from the appellant Bank during the period from 06.04.1999 to 10.12.1999 and paid the sales tax at the prevailing rate of 1 % and the amount collected by the Bank/seller as sales tax was duly remitted with the sales tax department. Subsequently, the State of Kerala, as per notification SRO 1075/99 dated 27.12.1999, reduced the rate of sales tax from 1 % to ½ %, which was given retrospective effect from 01.04.1999. In view of the said notification, the first respondent before the Supreme Court (Saraswati Abharanasala) put forth a claim before the appellant Bank to refund the excess collection amounting to Rs. 20,97,763.50 with interest, which made the appellant Bank to place a claim for refund before the sales tax authority. The Assistant Commissioner, Sales Tax rejected the request, referring to the relevant clause under the concerned notification that, the tax, if any, paid over to the Government shall not be refunded and the Bank was instructed to inform the customer (first respondent) accordingly. On getting the communication from the Bank as to the rejection of the claim, the first respondent approached the High Court of Kerala by filing the Writ Petition, WPC.No.25491/2010 14 wherein interference was declined and the party was relegated to approach the Commissioner, Commercial Taxes for appropriate reliefs. This was challenged by the first respondent by filing appeal before the Division Bench, wherein the Bench observed that, when the Legislature of the Government had given relief with retrospective effect, it should reach the concerned eligible citizens, observing further that, the Bank had opportunity to file the return, showing the sales tax liability and claim refund in terms of Section 44. The liability was mulcted upon the Bank to effect refund with interest @ 10 % and to claim it later from the department. This made the Bank to approach the Apex Court, which led to the decision in _**Corporation Bank Vs. Saraswati Abharanasala and another**_ (cited supra). 14. Referring to the factual position, the Apex Court observed that, the rate of tax which was applicable on 01.04.1999, by reason of the legal fiction created by the notification, was therefore ½ %. The effect of a legal fiction was held as to be given full effect and to be taken to its logical conclusion, more so, when the sale tax was leviable on sale of goods and it must be collected by the dealers as an 'agent' of WPC.No.25491/2010 15 the State, at such rate, as may be specified. Neither the State nor the agent was entitled to collect the tax at a higher rate than the rate specified, in view of the mandate under Article 265 of the Constitution of India, that no tax shall be levied or collected except by authority of law. If tax was paid in excess of the tax specified, except the cases involving the principle of 'unjust enrichment', excess tax paid was held as liable to be refunded. It was also observed that, it was not a case where the 'doctrine of unjust enrichment' had any application, as the respondent State had no case that the buyer had passed on the excess amount of tax collected by it to the purchasers. This being the position, this Court finds that there is absolutely no merit in the contentions raised by the petitioner that the petitioner's case is covered by the decision of the Apex Court in **Saraswati Abharanasala's** case and that the petitioner is eligible to have refund of the excess tax, by virtue of the statutory prescription under Section 44. 15. Coming to the opportunity sought for, to produce materials to show that the petitioner has not collected any tax from the customers as granted by the Division Bench of this Court in S.T.R.No.138/2010 WPC.No.25491/2010 16 and connected cases, it is relevant to note the observations of the Bench in paragraph 2 of the said verdict as extracted below: “ After hearing both sides, what we notice is that the fundamental basis on which the Tribunal decided the issue based on the decision of the Supreme Court in Corporation Bank v. Saraswati Abharanasala and another, is wrong. In this case, tax was paid by the respondent voluntarily and the tax paid is on raw material which normally goes to add to the cost of raw material and is passed on to customer along with produce price. So much so, the tax remitted by the respondent on which refund is claimed is the tax collected when the product is sold as part of price. It is in this context only, the State has relied on the notification issued by the State namely, S.R.O.No.695/2003 to the effect that the tax paid on field latex which is raw material for the respondent should not be refunded” 16. The Bench also observed that the normal accounting practice does not justify the manufacture to fix the manufacturing cost WPC.No.25491/2010 17 without including the tax component on raw material. If at all the contrary is to be established, it has to be with reference to the profit and loss account, balance sheet and pattern of recovery of tax on raw material, if the dealer is engaged in any other way of recouping tax on raw materials, other than by including it in the product price. The observation of the Bench in paragraph 3 is also relevant, which reads as follows : “ Law settled by various decisions of Supreme Court such as **Mafatlal Industries Ltd. v. Union of India & others ( 1998 III STC 467)** and **State of Maharashtra & others v. Swanstone multiplex Cinema (P) Ltd 2010(18 KTR 453 (SC)** is to the effect that refund of tax should not be granted if it results in unjust enrichment. In other words, if tax paid forms part of price and is passed on to the purchaser, then the respondent is not entitled to unjustly enrich themselves by getting refund of tax remitted voluntarily that is passed on along with product price to the purchaser. In order to consider these WPC.No.25491/2010 18 matters, we remand these assessments to the Assessing Officer.” Coming to the case in hand, it is to be noted that the assessment in respect of the assessment years 1999-2000 and 2003-04 was finalised accepting the turn over declared by the assessee. At the time of effecting the purchase, liability was very much there to have satisfied tax under Section 5 A on the purchase value and the benefit of exemption was not available, which was brought in, by virtue of the SRO 695/2003 only much later. As mentioned herein before and as observed by the Division Bench in **Kokkala's** case and elsewhere, the total turn over declared by the petitioner is in respect of the purchase and sales effected by the petitioner. No reasonable and prudent man can infer that a dealer would effect purchase satisfying the purchase tax from his pocket, fixing the product price in such a manner to sustain loss by way of some 'pious obligation' or otherwise. The very purpose of business stands on the foundation of reasonable profit, fixing appropriate sale price, which takes in all the incidental cost including the purchase price, freight, taxes, manufacturing/dealing cost, salary of WPC.No.25491/2010 19 staff, advertisement cost, if any, and all other ingredients including reasonable profit. There is no case for the petitioner that the petitioner has suffered any loss in the transaction. The assessment is on the basis of the declared turn over and the tax payment is effected by the petitioner voluntarily. There is no point in contending that the petitioner has not collected the 'purchase tax' from the customers, more so, when there is a statutory bar under Section 22 (2)(b) in this regard. The passing of liability to the customer is not by way of collection of purchase tax, but by including the same as part of the cost of production to be adequately compensated, while fixing the sale price. That apart, the petitioner has not produced any profit and loss account or the balance sheet before this Court to arrive at a different conclusion. This being the position, this Court does not find it necessary to relegate the petitioner to approach the assessing officer with opportunity to prove such aspects, more so, when no such case with reference to the profit and loss account, balance sheet, etc. was ever projected before the assessing authority as well, when the assessment was finalised as per Exts.P2 and P3. This being the position, this Court finds that there WPC.No.25491/2010 20 is absolutely no merit or bonafides in the writ petition. The issue is squarely covered by the judgment passed by this Court in W.P.(C) No.11661/2006. In the above circumstances, interference is declined and the writ petition is dismissed. ## **P.R.RAMACHANDRA MENON JUDGE** sv. WPC.No.25491/2010 21