Legal principle

A claimant for refund of duty paid under mistake of law who has passed on the burden to the consumer and suffered no loss or injury cannot maintain an action for restitution under Section 72 of the Contract Act, and the presumption is that the taxpayer has passed on the liability, the burden of rebutting it lying on him.

Court decision

The Bench (Paripoornan, J., with Hansaria, J. concurring) held, on the central question, for the Revenue: where the duty paid was passed on to buyers or others and the assessee suffered no loss or injury, an action for restitution under Section 72 of the Contract Act is unsustainable, and a presumption of passing on operates against the taxpayer, who alone can rebut it. However, jurisdiction of civil courts/Article 226 is not barred in entirety — suits or writs remain maintainable to assail levies that are illegal, void, unauthorised or without jurisdiction (the Dulabhai categories outside the Act), governed by general law; Section 11B(2) and (3) cannot apply to refunds already ordered by courts or authorities and become final; and the 1991 Amendment refund scheme (Sections 11B, 12A–D) was upheld as constitutionally valid except to the extent noted in para 38 of the full judgment. The matters were directed to be disposed of by applying these principles to the facts of each case.

Facts

Mafatlal Industries Ltd., a textile mill at Ahmedabad, and other mills manufactured 'blended yarn' captively consumed in making 'art silk' fabric, and paid excise duty on it under Tariff Item 18/18A of the First Schedule to the Central Excises and Salt Act for the period before 16/17 March 1972. After the Gujarat High Court in the Calico Mills case (judgment dated 15.1.1976) declared that levy ultra vires and directed refund for three years prior to the petition, the mills claimed refund of the duty paid 'under mistake of law', which the Revenue refused. The mills then filed civil suits within three years of that judgment; the trial courts decreed them, but the Gujarat High Court (6.4.1984) set aside the decrees, holding that since the duty had been passed on to buyers of the fabric, the assessees suffered no 'loss or injury' and restitution under Section 72 of the Contract Act would not lie. A batch of cases raising common questions came before a Bench of 9 Judges, the refund claims spanning different statutory regimes (unamended and amended Rule 11, Sections 11A/11B, and the 1991 Amendment Act 40 of 1991).

Key provisions

• Section 28A(2), Customs Act, 1962 —  Power not to recover duties not levied or short-levied as a result of general practice
• Section 92, Customs Act, 1962 — Entry of coastal goods
• Section 27(2), Customs Act, 1962 — Claim of refund duty
• Section 28B, Customs Act, 1962 — Duties collected from the buyer to be deposited with the Central Government