# MAFATLAL INDUSTRIES LTD. ETC. ETC v. UNION OF INDIA ETC. ETC

- **Citation:** [1996] Supp. 10 S.C.R. 585
- **Court:** Supreme Court of India
- **Decided:** 1996-12-19
- **Case number:** Civil Appeal No. 3255 of 1984
- **Bench:** A:M. Ahmadi, J.S. Verma, S.C. Agrawal, B.P. Jeevan Reddy, Dr. A.S. Anand, B.L. Hansaria, S.C. Sen, K.S. Paripoornan, B.N. Kirpal
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/mafatlal-industries-ltd-etc-etc-v-union-of-india-etc-etc-14700
- **Pages:** 278

## Headnote

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
A
B
c
or other remedies provided in Excise Act or Customs Act-Held, where refund D
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 manufacturerassessee has not passed on the burden of tax to third parties viz. consumers-Presumption is of passing on the burden to the consumers-Burden
E
on the manufacturer to rebut the presumption by establishing to the contrary-Doctrine of undue enrichment applicable to such assessees but not F
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 G
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 a
manufacturer- assessee, he cannot later file suit or writ petition claiming H
585
586
SUPREME COURT REPORTS[1996] SUPP.10 S.C.R.
A 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
B 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
C 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
D 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,
E
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
F 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
'G
decrees or orders, to ensure that such orders and decrees are not frnstrated, it
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-Le

## Text

_Characters 0–39,890 of 678,559. This is a partial read: ask again with offset=39890 for what follows._

.,
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
A
B
c
or other remedies provided in Excise Act or Customs Act-Held, where refund D
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 manufacturerassessee has not passed on the burden of tax to third parties viz. consumers-Presumption is of passing on the burden to the consumers-Burden
E
on the manufacturer to rebut the presumption by establishing to the contrary-Doctrine of undue enrichment applicable to such assessees but not F
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 G
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 a
manufacturer- assessee, he cannot later file suit or writ petition claiming H
585
586
SUPREME COURT REPORTS[1996] SUPP.10 S.C.R.
A 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
B 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
C 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
D 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,
E
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
F 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
'G
decrees or orders, to ensure that such orders and decrees are not frnstrated, it
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
H 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.
A
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 B
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 C
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 D
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 E
with reference to other provisions of the Constitution-Where refund is
claimed on the groun4 that tax has been paid undet mistake of law, claimantassessee must plead and prove that he has not passed on the tax burden to
I
third persons.
_Contract Act, 1872:
F
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 G
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- H
588
SUPREME COURTREPORTS[1996) SUPP.10 S.C.R.
A 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.
B
WORDS AND PHRASES-..!'Tax''--''Levy''-''lurisdiction''--''lurisdictional error''-Meaning of
The present appeals and writ petitions raised certain questions
concerning the refund of Excise & Customs duty collected contrary to law.
C 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
D 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
E 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
F
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
G 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~~~~~~
H 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 A
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; B
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 C
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 D
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 E
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
F
G
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 H
590
SUPREME COURT REPORTS(1996] SUPP. lOS.C.R.
A 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
B 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
C 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.
D
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
E 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
F 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 ConG stitution 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
H 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 A
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 B
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 C
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
D
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 E
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 F
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 G
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 H
592
SUPREME COURT REPORTS[l996] SUPP. 10 S.C.R.
A 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
B 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
C 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
D 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
E 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
F 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
G 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
H 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 A
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
B
c
to refund it can also be said to flow from it. This can be called the right to D
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
E
.. 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 F
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 a
provision of the enactment can also be looked at as a statutory right of G
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 · H
594
SUPREME COURTREPORTS(l996) SUPP.10 S.C.R.
A 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
B 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]
c
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,
D held inapplicable.
E
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.
F 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.
G 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,
H 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 A
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 C
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 is said to be three years from the date of discovery of mistake of
The incongruity of the situation needs no emphasis. And all this D
.,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 E
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 F
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 G
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 H
596
SUPREME COURT REPORTS(1996] SUPP. 10 S.C.R.
A 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
B 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
C 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
D 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
E 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
F 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
G 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]
H
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. A
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.
B
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 C
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 D
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 a
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- underE
standable 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, F
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 G
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 H
598
SUPREME COURT REPORTS[l996] SUPP.10 S.C.R.
A 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
B 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
C 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
D 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
E 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.
F
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
G 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
H 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) A
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 B
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
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
c,
the amount of tax collected under an unconstitutional law is not a good D
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 E
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
F
any standard of reasonableness, it is difficult to prefer the petitioner- G
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.
H
600
SUPREME COURT REPORTS[1996] SUPP/10 S.C.R.
A
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.
B
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
C 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.
D
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
E 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, ·
F 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
G S.C.R. 725, referred to.
7.1.