M/s. Devichand Misrimal and Company, Bangalore vs The Commercial Tax Officer, III Additional Circle, Bangalore

In this petition for a certiorari the petitioner assails the validity of an assessment order dated 16th October, 1989, passed by the respondent under the provisions of Karnataka Tax on Entry of Goods into Local Areas for Consumption, Use or Sale Therein Act, 1979 insofar as and to the extent the same has brought to tax the import of textiles into the local limits of Bangalore although the textiles so imported were re-exported to dealers outside such limits.

The petitioner is a wholesale dealer and distributor in textiles. In the course of its business it purchases goods from different places and brings them into the local area of Bangalore, some of which are in due course and upon sale to dealers despatched to places outside the said local area. For the assessment period 3-11-1986 to 22nd October, 1987, the petitioner claimed exemption from the payment of entry tax on textiles valuing Rs. 31,78,000/, that were re-exported from the local limits of Bangalore on sale, to dealers outside the said limits. This claim was examined but turned down by the Assessing Authority on the ground that there was no provision for grant of exemption on goods brought into the local limits but exported out of the same for use or consumption beyond such limits. Aggrieved, the petitioner has questioned the correctness of the said order to the limited extent the same denies the exemption claimed.

Mr Gandhi, learned Counsel appearing for the petitioner argued that the Assessing Authority was in error in holding that no exemption was permissible under the Act, even though the goods in question had been sent out of the Bangalore local area for consumption and sale outside the said area. He placed heavy reliance upon a Division Bench decision of this Court in M/s. Siddhagiri Wholesale Dealers and Distributors v Entry Tax Officer, II Circle, Belgaum, 1993(37) Kar. L.J. 482, where this Court has taken the view that levy of entry tax under Section 3 of the Act was impermissible in respect of goods brought within a local area but sold to dealers outside area pursuant to which the goods are actually transported to places outside such areas. The said view it was urged was upheld by the Apex Court in Entry Tax Officer, Bangalore and Others v M/s. Chandanmal Champalal and Company and Others, (1994)95 STC 5 (SC). There is substance in the submission of the learned Counsel. In Siddhagiri''s case, this Court had relying upon Burmah-Shell Oil Storage and Distributing Company of India Limited, Belgaum v Belgaum Borough Municipality, AIR 1963 SC 906 and Hiralal Thakorlal Dalal v Broach Municipality and Others, AIR 1976 SC 1446, declared that goods brought into a local area but eventually transported out of such area for consumption or use beyond the limits of such areas would not be exigible to entry tax under the Act. This view was later upheld even by the Supreme Court in appeal, in Chandanmal Champalal and Company case, supra. In the circumstances therefore the impugned assessment order insofar as the same brought to tax even that part of the petitioner''s turnover as was actually referable to goods sold to dealers outside such local area was not legally sound. The Assessing Authority was in error in holding that a specific provision providing for exemption was essential before goods which were eventually sent out of the local area for consumption or use could be exempted from the levy of the tax under the Act. The Assessing Authority appears to have overlooked the fact that while considering the exigibility of the goods to tax the question whether the goods had been re-exported from the local area had to be considered and in case it was found that the goods or any portion thereof which had been brought into a local area, were re-transported or sent out of the local area on sale to dealers outside such areas, then to that extent the entry of the said goods into the local area could attract no levy under the Act.

That however is not the end of the matter. The next question is whether this Court should only on that basis quash the impugned order with a direction to the Assessing Authority to redo the same and issue any consequential or further directions in the matter for refund of the amount recovered from the petitioner as was done by the Division Bench in Siddhagiri''s case, supra. The Supreme Court had while disposing of the appeal against the judgment of the Court in Siddhagiri''s case, examined the question whether the petitioner could claim a refund of the amount paid by it without alleging and satisfactorily proving that the amount of tax recovered from it, had not been passed on by it to the customers. The Court came to the conclusion that in the absence of any pleading or proof to the effect that the petitioner had not passed on the burden of the tax to the purchaser of the goods outside such local area it was not entitled to claim a refund. The petitioner being only a dealer observed the Court was not entitled to claim restitution of the amount of the duty recovered from it unless it was satisfactorily proved that the duty had not been passed on to the ultimate consumer of the goods. That is true even in the present case, for here also the petitioner is only a dealer in goods and has paid the tax determined against it without setting up any case in these proceedings that it had not actually passed on the burden of the tax to the consumer. The normal presumption is that the burden of the tax is passed on by the trading dealer to the consumer unless the contrary is proved to the satisfaction of the Court. The Supreme Court had in that regard observed thus:-

"In the circumstances, we are inclined to indeed have no option but to affirm the decision of the Karnataka High Court on the meaning of the words "sale therein" in Section 5 of the Karnataka Act. At the same time, we find it not possible to agree with the Karnataka High Court insofar as it directed refund of the amount, which may be found to have been paid in excess of the legal liability, to the respondents. Any such direction would amount to unjust enrichment of the respondents who are merely dealers and have passed on the burden to the purchasers/consumers. The dealers themselves have not suffered any loss. They merely passed on the liability. In such cases, this Court has been refusing to refund the tax - State of Madhya Pradesh v Vyankatlal, (1987)64 STC 6 (SC) and M/s. Amarnath Om Prakash and Others v State of Punjab and Others, (1986)62 STC 130".

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"In this case also, it is not brought to our notice that the respondents have alleged and/or established that they have not passed on the duty to the purchasers/consumers. The normal presumption is that they have done so. If they say otherwise, it is for them to allege and establish the same. In the absence of any such allegation and proof, the direction of refund is not called for".

The instant case is therefore similar to Siddhagiri''s case, supra, in which the Supreme Court set aside the directions issued by this Court in identical circumstances for re-doing the assessments and refund of the amount of tax paid.

Mr Gandhi however placed reliance upon an earlier decision of the Supreme Court in Salonah Tea Company Ltd. and Others v Superintendent of Taxes, Nowgong and Others, (1988)1 SCC 401 and argued that once it is found that recovery of tax from the petitioner was illegal, the Court must direct refund of the same unless the petitioner is guilty of avoidable laches which may indicate abandonment of his claim. It was contended that an order directing refund of the amount, as a consequence of a declaration that the assessment made and the recovery effected was illegal, will be in consonance with justice, equity and good conscience.

In Salonah Tea Company''s case, supra, the petitioner had been assessed under Assam Tax (on goods carried by Road or inland, water ways) Act. The assessments under the Act, were declared to be without jurisdiction by the High Court in a connected writ petition. Relying upon the said judgment, the petitioner filed a writ petition for a similar declaration insofar as its own assessments were concerned. A Division Bench of the High Court allowed the writ petitions to the extent that the assessment orders were set aside but refused relief of refund claimed by the appellant. In appeal, the Supreme Court, held that the tax in question had been recovered without the authority of law and that the same should be refunded unless there were avoidable laches on the part of the petitioner indicating abandonment of his claim or a delay which was likely to cause injury to the respondent or any other cause injury to the respondent or respondent or any other third party. The question whether a "refund" should be granted even in a case where the person seeking the same had passed on the burden of tax, to the consumers, did not fall for consideration of their Lordships, nor did the Court consider whether a "refund" in a situation which may result in an undue enrichment to the party claiming the same should be directed. That aspect of the matter was specifically considered by the Supreme Court in Chandanmal''s case, supra. In the circumstances, while it is true that where a tax is found to have been collected without the authority of law, the Court can direct its "refund" in the circumstances, described in Salonah Tea Company''s case, yet, that would not justify or warrant a refund even in situations where the tax burden has been passed on by the assessee to the ultimate consumer so that any refund to the assessee/dealer would result only in an undue enrichment of the assessee without the consumer tax payer deriving any benefit from the same.

Confronted with this situation Mr Gandhi, argued that the petitioner would like to amend the writ petition to plead that it had not actually passed on the duty to the consumer. This request I was not inclined to consider as the same was not only a belated attempt to provide some justification for the refund of the amount recovered, but also because a case set up at this stage was bound to present a totally distorted picture of the true facts. Mr Gandhi then submitted that the petitioner has not and would not ask for refund in these proceedings and would reserve its right to do so before the authorities below. I see no good reason to grant even that much. Permitting the petitioner to start a new round of litigation on a basis which it would and ought to have set up in these proceedings, does not appear to me to be either fair or otherwise feasible especially when no explanation is forth coming from the petitioner as to why it could not have pleaded and proved the case it now proposes to build. In the result, while the petitioner might have succeeded in showing that the levy of tax was improper, it would be entitled to no relief on account of its failure to make out any case for a consequential order of either fresh assessment or refund of the amount already paid by it.

The writ petition is accordingly disposed of with the above observations leaving the parties to bear their own costs.