Kanubari Forest Products (P) Ltd. and Others vs State of Nagaland

D.N. Baruah, J.—The above writ appeals involve common questions of law and fact arising out of a common Judgment and order dated 3.12.93 passed by a learned Single Judge in Civil Rule Nos. 2914/91, 2637/91, 2915/91/ 3349/91, 3496/91, 3502/91, 3311/91, 1816/91, 3199/91, 331/92, 3343/91, 3310/91, 3348/91, 3294/91, 3292/91, 3312/91, 3342/91, 124/92, 2913/91, 2815/91, 3309/91, 3200/91, 2918/91, 2916/91, 32(K)92, 4245/91, 3347/91 and 3313/91.

The facts of the case for the purpose of these appeals may, briefly, be stated as follows:

The Appellants carry on business of manufacture and sale of veneers. Their factories are located in the State of Nagaland. After manufacture, the veeners are sent outside of Nagaland for use by the Plywood industries for the purpose of manufacturing plywood. The veeners so manufactured by the Appellants are subject to payment of Centra Excise and only after payment of duties such veneers are sent out of Nagaland. The State of Nagaland imposed ''exit duty'' on veneers, sent out of the State. Such exit duty was levied first by the Govt. of Nagaland vide notification dated 23rd of August, 1985 and later the duly was enhanced by yet another notification. These notification had been issued in purported exercise of the powers conferred u/s 32(2)(H) of the Nagaland Forest Act, 1968.

In exercise of the powers conferred u/s 40 and 68 of the Nagaland Forest Act, 1968, the Governor of Nagaland made Rules, namely, the Rules to reguate the export by road, river or other modes of transport of timbers and any other forest produce from the State of Nagaland to another place outside Nagaland. Section 1(4) of the Act defines "forest produce". This definition of "forest produce", includes the items mentioned therein when they are found in their natural form without losing its nature, character and usefulness, namely, a timber being a forest produce can be used for various purposes. When a thing is made out of timber it loses its natural characteristics and ceases to be a forest produce.

The Appellant companies as well as some other manufacturers felt that veneers was not forest produce within the meaning of the definition of forest produce referred to in Section 1(4) of the Act and therefore, the Government had no right to levy "exit duty". The Government had jurisdiction to levy exit duly only on forest produce.

Veneer manufactured from timber by special process loses its original and natural character of timber. Besides, it cannot be brought back to the original state of timber. Situated thus, the veneer manufacturers submitted several representations to withdraw the levy of "exit duty", but to no avail of. The Appellants, therefore, along with others approached this Court by filing the aforesaid writ petitions praying, inter alia, for issuance of a writ of Mandamus or any other appropriate writ or direction to the Respondents to cancel, recall or otherwise forbear with from giving effect to the impugned notification dated 23rd August, 1985 issued by the Addl. Secretary to the Government of Nagaland and also notification dated 5.2.90 issued by the Commissioner and Secretary, forest. The Writ Petitioners also prayed for a direction to refund the amount of money collected without the authority of law.

The learned Single Judge took up all the Civil Rules at a time and by a common Judgment and order dated 3.12.93 partly allowed the writ petitions quashing both the notifications dated 23.8.85 and 5.2.90 by which the exit duty was imposed on veneer. However, the learned Single Judge rejected the prayer for refund of the amount already paid by way of exit duty. Out of the aforesaid writ Petitioners, either Petitioners have preferred these appeals. The present writ appeals relate to rejection of the prayer for refund of the exit duty paid by the Appellants in pursuance of the notifications dated 23.8.85 and 5.2.90 which were declared ultra vires by the learned Single Judge.

We heard learned Counsel appearing on behalf of the Appellants and Mr. D.K. Misra, learned Additional Advocate General, Nagaland.

Learned Counsel appearing on behalf of the Appellants challenged the Judgment of the learned Single Judge refusing to grant refund on two grounds. First, the refund was refused on the ground that the Appellants did not approach the Court on time i.e. immediately after the impugned notification dated 23.8.85. The Appellants approached this Court only after the issuance of second notification. There had been inordinate delay in approaching this Court which disentitled the Appellants to get the order of refund even though ultimately the said two notifications were declared to be ultra vires. Secondly, the burden of the payment of the amount by way of exit duty might have already been passed on to the consumers and, therefore, they were not entitled to get the refund. Contention of the learned Counsel for the Appellants was that the learned Single Judge came to this conclusion without there being any material on record to show that the Appellants had passed on the burden of payment of exit duty to the consumers. They further submitted that even assuming that the Appellants had passed on the burden of payment of exit duty to the ultimate consumers the Government cannot deny the refund inasmuch as no provision had been made for retention of such amount. In the absence of any such provision, the Government was under obligation to refund the money, else there would be unjust enrichment at the hand of the Government.

Mr. D.K. Misra, learned Addl. Advocate General, Nagaland on the other hand, supported the Judgment of the learned Single Judge, He also submitted that the Appellant-Petitioners besides filing representations as claimed, did not challenge the power of the State to levy the said exit duty and paid the same for a period of 6 years i.e. upto 1991. It was only when the levy so imposed by the aforesaid notification dated 23rd August, 1985 was enhanced by 20 paise per Sq. metre, by notification dated 5.2.90, the Petitioners-Appellants approached this Court. Learned Addl. Advocate General also submitted that the payment of amount of "exit duty" by the Appellants during the period from 1985 to 1991 would be deemed to be voluntary payment as the Petitioners-Appellants paid the amount without any protest. Filing of representations, as alleged, would not change the nature of payment which was paid voluntarily. He also submitted that the burden of exit duty had already been passed on to the consumers. The order of refund in an application under Article 226 of the Constitution was not a matter of course. It was a discretionary power, While granting refund it would be the duty of the Court to consider the facts and circumstances and conduct of the parties, unjust enrichment and delay in approaching the Court. According to the learned Addl. Advocate General, learned Single Judge rightly refused grant the consequential relief to the Petitioners -Appellants on the ground of delay and of unjust enrichment, Besides, learned Addl. Advocate General also stressed on the point that none of the Petitioners-Appellants had stated that the exit duty which was paid to the Government on the basis of the notification was not realised from the customers. Mr. Misra strenuously argued that to get such an equitable relief, it was the bounden duty of the Appellants-Petitioners to show that the burden had not been passed on to the customers.

On the rival contentions of the parties it is to be seen whether that portion of the Judgment of the learned Single Judge refusing to grant refund requires interference and whether the Appellants an entitled to got order of refund.

The learned Single Judge rejected the claim on the ground that the exit duty paid by the Petitioners-Appellants were ultimately passed on to the consumers and therefore, refund of the exit duty would amount to unjust enrichment. Besides, the Petitioners-Appellants did not approach this Court for refund at the earliest opportunity. They did not challenge the exit duty when the first notification was issued on 23rd August, 1985. They continued to pay the exit duty till the second notification was issued on 5th of February, 1990. That again they continued to pay the exit duly at the old rate.

After hearing the learned Counsel for the Appellants as well as the learned Addl. Advocate General, the following points fall for determination:

(1) Whether the claim preferred by the Appellants should be rejected as filed at a belated stage.

(2) Whether the refund of the exit duty illegally realised by the Respondents would amount to unjust enrichment and whether they are entitled to.

POINT No. 1;

Money paid under a mistake of fact can be recovered under the provisions of Contract Act The equitable principle embodied in Section 72 of the Contract Act is that a person to whom money has been paid or goods delivered by mistake or under coercion must repay or return it. Section 72 of the Contract Act implies that if one party under a mistake of fact pays to another money which is not due by contract or otherwise, that has to be repaid. The word "mistake" appearing in Section 72 of the Contract Act relates not only to the mistake of fact but mistake of law as well. Similarly, if a lax is levied in excess of the prescribed amount by the authority it is invalid and, as such the amount paid which the authority has no right to levy is liable to be refunded. There were conflicting views in the Indian Courts as to whether money paid under a mistaken law is recoverable. Privy Council in AIR 1949 297 (Privy Council) held that the money paid under the mistake of law was as much as recoverable as a money paid under a mistake of fact. Under the Limitation Act there is no Article, expressly providing for the action for money paid by mistake. In Mahabir Kishore and others Vs. State of Madhya Pradesh, the Supreme Court held that the Money paid under mistake of law is refundable u/s 72 of the Act. Period of limitation would start running from the date of knowledge when the mistake was known to the person concerned. In Mahabir Kishore (supra) the supreme Court held that mistake of law known only after the Court''s decision as to the invalidity of the law.

In Salonah Tea Co. Ltd. and Others Vs. Superintendent of Taxes, Nowgong and Others, , Supreme Court had the occasion to deal with the point of limitation in a similar matter, The Court observed that under Article 113 of the Limitation Act, 1963, limitation was for a period of three years from the date when right to sue accrued, In the said case the Supreme Court dealt with the Assam Taxation (on Goods Carried by Road or Inland Waterways) Act, 1961. Section 23 of the said Act provided the manner of refund to a producer or a dealer any sum paid or realised in excess of the sum due from him under the Act. The Supreme Court observed that normally in a case where tax or money had been realised without the authority of law, the same should be refunded and in an application under Article 226 of the Constitution, the Court had power to direct refund unless there had been avoidable laches on the part of the Petitioner, which indicated either the abandonment of his claim or which was of such nature for which there was no probable explanation or which would cause any injury either to Respondent or any third party, In some cases the period of three years was normally taken as a period beyond which the Court should not grant relief but again the Supreme Court observed that it was not an inflexible rule, depending on facts of each case. This Court in the said case refused to grant relief on the ground that when the section was declared ultra vires originally that was the time when refund should have been claimed. However, the Supreme Court observed that it was only when the case of Loong Soong was decided by the High Court in 1973, the Appellants became aware of his crystal right of having the assessment declared ultra vires and in that view of the mailer it was only October, 1973 when the Appellant became aware of the mistake in paying tax and, thus, it was held that the Appellant was entitled refund of the amount. Therefore, the period of limitation as per the decision of the Apex Court began to run from the date of knowledge and the claim for refund should always be grained if there was no inordinate delay, laches, etc.

The Appellants had given explanation that they submitted representation before the Government and they earnestly hoped that the Government would favourably consider their case. Only when the second notification was issued they were sure that their representation had not been considered. They were thus compelled to approach this Court only then. This explanation cannot be rejected under the facts and circumstances of the case. Besides, the Appellants even might not be well aware about the illegality in imposing the levy. Legal position became known to the Appellants very clearly only when the learned Single Judge finally held that the levy was contrary to the provisions of law and ultra vires. The Appellants and other manufacturers might have also realised the mistake in paying the exit duty from the date when the order was passed. However, before that, at the time of filing of the writ petitions the Appellants and other writ Petitioners claimed for refund. That being so the time actually began to run only from the date of decision given by the learned Single Judge. As held by the Supreme Court in the case of Salonah Tea CO. Ltd. (supra) that normally in a case where tax or money had been realised without the authority of law the same could be refunded and in an application under Article 226 of the Constitution the Court had power to direct refund when the parties claimed for refund of money by a writ of Mandamus with a prayer for consequential relief. Exactly in this case also the Petitioners-Appellants prayed for a writ of Certiorari as well as Mandamus for quashing the notifications levying exit duly and along with the prayer for a writ of Mandamus for refund of the money. Therefore, in our opinion, the claim cannot be rejected on the ground of delay.

POINT No. 2

The Appellants and other manufacturers of veneer claimed refund of the amount towards "exit duty" from the State Government. These claims had been made by the Appellants and other writ Petitioners in the writ petitions, Learned Single Judge rejected the prayer also on the ground of unjust enrichment. The learned Single Judge held that the amount of exit duty paid by the manufacturers of veneer could not be refunded as the burden had already been shifted to the consumers. Any refund made to the writ Petitioners, according to the learned Single Judge, would amount to unjust enrichment.

Under Article 205 of the Constitution, no tax shall be levied except by the authority of law. The tax within the meaning of Article 265 not only means the tax but also includes duties, cesses, fees, etc. Therefore, the "exit duty" can also be regarded as tax within the meaning of Article 265. The remedy available for violation of Article 265 is also available by way of an application under Article 226 for issuance of a Writ of Mandamus for quashing an imposition of tax or duties without authority of law or declare ultra vires the law. The question whether the tax or a levy paid by an Assessee when declared illegal or ultra vires can be ordered for refund in an application under Article 226 of the Constitution. Section 72 of the Contract Act payment made under mistake of law and that payment of tax which is ultra vires or unconstitutional comes under the scope of an application under Article 226. Therefore, when the tax is subsequently declared by a Court to be ultra vires or unconstitutional, the party is entitled to have a refund from the Government, whether he paid it under protest or not. Opinion of the High Courts on the point whether refund should be made when tax or a duty is declared ultra vires or unconstitutional is not uniform. Some of the High Courts are of opinion mat normally in such indirect taxes, the burden is passed on to the customers and, therefore, any payment made to the Assessee or dealer would amount to unjust enrichment. Such amount, therefore, should not be refunded. Other High Courts have taken a contrary view.

Calcutta High Court in Assistant Collector of Central Excise and Ors. v. Madura Coats Ltd. 1988 (33) ELT 29 (Cal) held that the doctrine of "Unjust enrichment" was not only to be applied against the Department, but also against the Assessee. Merely because the Assessee had paid the money that by itself was no ground for directing payment to the Assessee. In fact, the Assessee had not paid out of his pocket, but the barden was passed on to the purchaser.

Bombay High Court also in Roplas (India) Ltd. and another Vs. Union of India and another, , held that the duty paid under mistake of law and recovered by the manufacturer from the customers could not be refunded to them as the burden of payment of duty had been passed on to the consumer. Such refund would amount to fraud on consumers and the society. Any indulgence in their favour would amount to helping them to enrich themselves unjustly. They were not entitled to claim refund even u/s 72 of the Contract Act. Therefore they could not have invited Court to exercise its extraordinary, equitable and discretionary writ jurisdiction under Article 226 of the Constitution.

The Andhra Pradesh High Court in Tungabhadhra Machinery and Tools Ltd. Vs. Union of India (UOI), held that the duty realised without me authority of law could not be refunded where the claimant had not suffered any loss or prejudice, he having passed it to the consumers. The said High Court further held that the funds of the State belonged to the people, while the funds of the dealers and manufacturers belonged to themselves. Public Policy demanded that the Court should not exercise its powers to justly enrich any one at the cost of the State, or the cost of the consuming public.

However, Calcutta, Bombay and Madras High Courts in some other cases took the view that the doctrine of "Unjust enrichment" could not be pressed into service in the absence of any provisions in the Act to retain the money so collected and refund of money could not be denied, See Dayapara Tea Co. Ltd. Vs. Assistant Collector of Central Excise and Others, ; Dilichand Shreelal Vs. Collector of Central Excise and Others, ; Union Bank of India and others Vs. Arphi Incorporated, ; Mahindra and Mahindra Limited Vs. Union of India and others, ; Maharashtra Vegetable Products Pvt. Ltd and Anr. v. Union of India and Ors. 1981 ELT 468 (Bom); Wipro Products v. Union of India 1981 ELT 531 ; Camlin Private Ltd. Vs. Union of India and another, ; Miranda Limited and Another Vs. Union of India (UOI) and Others, and Tube Products of India Vs. Union of India,

In Tube Products of India v. Union of India (Supra), Madras High Court held that the refund could not be denied on the ground of collection from the consumer in view of the statutory provisions u/s 11B of the Central Excise and Salt Act.

Mysore Plywoods Ltd., Bangalore Vs. Assistant Collector of Central Excise, Bangalore and Others, held that in the absence of any plea and proof that duty had been recovered from the customers High Court could not, as a matter of law, hold that the Petitioner had passed on the burden to the consumer and was not entitled to refund.

In D. Cawasji and Co. and Others Vs. State of Mysore and Another, the Supreme Court held thus:

A tax is intended for immediate expenditure for the common good and it would be unjust to require its repayment after it has been in whole or in part expended, which would often be the case, if the suitor application could be brought at any time within three years of a court declaring the law under which it was paid to be invalid, be it a hundred years after the date of payment. Nor is there any provision under which the court could deny refund of tax even if the person who paid it has collected it from his customers and has no subsisting liability or intention to refund it to them or for any reason, it is impracticable to do so.

The Orient Paper Mills Ltd. Vs. The State of Orissa and Others, ; Shiv Shankar Dal Mills and Others Vs. State of Haryana and Others, and State of Madhya Pradesh Vs. Vyankatlal and Another, the Supreme Court refused refund on the ground that in those cases the burden of tax had already been passed on to the consumer. In Orient Paper Mills Ltd. and M/s Shiv Shankar Dal Mills (supra), the reasons for refusal to refund the money were based on specific provision in the Acts under which the orders were passed.

In Vyankatlal''s case the Supreme Court applied those principles to the facts of the said case inasmuch as in that case also the burden of the tax was passed on to the consumer, But in Sales Tax Officer, Banaras and Others Vs. Kanhaiya Lal Mukundlal Saraf, a Constitution Bench of the Supreme Court ordered for refund of the tax realised under mistake. Their Lordships held-

...Merely because the State of U.P. had not retained the monies paid by the Respondent but had spent them away in the ordinary course of the business of the State would not make any difference to the position and under the plain terms of Section 72 of the Indian Contract Act the Respondent would be entitled to recover back the monies paid by it to the State of U.P. under mistake of law.

In Mahabir Kishore and others Vs. State of Madhya Pradesh, the Supreme Court held that tax paid under mistake of law was refundable u/s 72 of the Contract Act and refusal to refund might result in unjust enrichment depending upon the facts and circumstances of the case. However, money might not be recoverable if the parties were guilty of laches, etc.

From the decisions cited above the law regarding refund of money paid by way of tax or levy, may be summarised as follows:

(1) Normally, if tax or duty is realised by mistake from a dealer or a manufacturer, manufacturer is entitled to receive back the money so realised by the authority under mistake.

(2) High Court under Article 226 of the Constitution may grant consequential relief by way of refund of money within the period of limitation prescribed for recovery of the money in a suit.

(3) If, however, money was realised under a particular Act and there is a provision for retention of the said tax or duty though recovered by mistake and if any provision is made under the particular Act for utilisation of the said money, refund may be refused for certain purpose which may benefit a section of the public. Even if there is no such provision for retention of money, but it is clearly established that the burden has been shifted to the consumer in that case also the refund may be refunded.

In the present cases, imposition of exit duty was declared ultra vires by the learned Single Judge. Thereafter, the Appellant and other manufacturers demanded refund which the authority refused. From the record it does not appear that the burden of payment of exit duty had been passed on by the Appellants and other manufacturers to the consumers. The fore refusing to make the refund by the authority, the authority did not make any attempt to ascertain whether the burden had been actually shifted. We feel, the authority ought to have directed the Appellants and other manufacturers to produce documents to show that the burden had not been shifted. There is no provision under the Act for retention of the money by the Government which was realised by mistake. That being the position, the retention of the money at the hand of the Government would also amount to unjust enrichment. In the absence of any plea and proof that the exit duty so paid by the Appellants and other manufacturers had already been recovered from the customers, thee State Government was not justified in refusing refund. In this respect we are in respectful agreement, with the views expressed by Kerala High Court in Mysore. Plywood Ltd (supra).

In view of the above, we respectfully disagree with the learned Single judge about the refusal to grant refund. Accordingly, we allow the writ appeals and direct the Respondents to make the refund as early as possible, at any rate, within a period of two months from today.