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A COMMENT ON MAFATLAL v. UNION OF INDIA *
by Sunil Gupta**
Cite as : (1998) 3 SCC (Jour) 10
The recent nine-Judge verdict of the Supreme Court in Mafatlal Industries v. Union of India1 has decided by a majority of 8:1 as to what rights and remedies are available to a citizen against the State in the matter of refund of unlawfully recovered taxes and imposts. On the one hand, with its seal of approval firmly put on the doctrine of "unjust enrichment", the judgment gives a more passive bent and legally less potent content to the right of an assessee to seek refund of taxes illegally and unauthorisedly collected from him. On the other hand, with its strict and unsparing interpretation of the "ouster" and "limitation" clauses contained in the statutes in question viz. the Central Excises and Salt Act, 1944 and the Customs Act, 1962, it seriously erodes and curtails the remedies hitherto available to an assessee for seeking such refund in different courts and jurisdictions. Be that as it may, after a long wait and an arduous battle before the courts and tribunals, the judgment seeks to set at rest a controversy which had racked the imagination of Judges and economists throughout the country for the last more than two decades.
The majority opinion in Mafatlal1 is rendered by Jeevan Reddy, J. on his own behalf and on behalf of four of his brethren. The one totally dissenting opinion is that of S.C. Sen, J. Two other separate opinions, rendered by Ahmadi, C.J. and Paripoornan, J., reflect the views of the three remaining Judges and more or less concur with the views of Jeevan Reddy, J. However, since the opinion of Jeevan Reddy, J. is the unanimous verdict of as many as five out of the nine Judges (a clear statistical majority), it would not really be wrong to treat that opinion as the real and effective judgment in the case, the one which truly declares the law and binds the country on behalf of the Supreme Court. That being so, it may also not be inappropriate to focus attention mainly on that opinion as the cynosure of the present study.
The right to refund and the remedy for refund are, indeed, the two mainstreams of Mafatlal1. On these two scores the nine-Judge Bench approves and disapproves many a celebrated authority of the past and lays down new and important principles. It may not be inappropriate also then to examine some of the unique facets and features of this landmark judgment under the rubrics of "The right to refund" and "The remedy for refund".
THE RIGHT AND THE REMEDY - THE TWO MAINSTREAMS
The right to refund and unjust enrichment
The doctrine of unjust enrichment, a volatile and elusive judge-made hypothesis till the other day, became a hard and inescapable reality on the statute-book in India in 1991 when Parliament accepted it and enacted the Central Excises and Customs Law (Amendment) Act, 1991. The amendments required every assessee seeking refund of an illegally recovered tax to prove that he had not passed on the burden of the tax to the customer or to any other person for one who had passed on the burden would not be entitled to the refund of money himself. Inevitably, therefore, although the debate on unjust enrichment had started much earlier and the question had been pending consideration in the Supreme Court from long before 1991, the amendments of 1991 provided a new legislative edge and exigency to the controversy and occupied the centre-stage of discussion in Mafatlal1.
The issue of unjust enrichment has not been a matter of concern in this country alone. It has attracted the attention of many a foreign jurisdiction also in recent times. Some foreign decisions approve of the doctrine, some do not. Some others only partly agree with it. The nine-Judge judgment in Mafatlal1 is the Indian answer to a problem which has vexed Judges and lawmen alike throughout the liberal economies of the world. The judgment, of course, draws in great measure upon the wisdom and jurisprudence of various foreign court decisions but it also embellishes and distinguishes itself in the end with an ingenuity and sagacity which is all too native and which has now become synonymous with the extraordinary constitutional thinking and philosophy of this country.
On the question of right to refund i.e. the assessee's substantive right to refund of the illegally recovered tax, the judgment finally bids farewell to the time-honoured notion that the right to refund flows automatically as an absolute right from the mandates of Article 265 of the Constitution of India and Section 72 of the Indian Contract Act, 1872 and that it cannot be diluted or affected by any such equitable plea as "unjust enrichment", "passing on of burden" etc. The new judicial thesis instead rests on the principles of "economic and distributive justice" enshrined in the Preamble and the Directive Principles of State Policy2 . It also attaches significance to the unethical consequences which would flow and the fiscal and financial chaos which would follow if no bar of "unjust enrichment" is applied by the courts before ordering refunds. Article 265 and Section 72 should all be read and understood, says the majority view, in the light of "the philosophy and the core values of (the Indian) Constitution" and in keeping with "equity and good conscience". In the words of Jeevan Reddy, J., the State should refrain from conferring "an unearned and unjustifiable windfall" upon the assessees.
The remedy for refund and three categories of refund claims
On the issue of remedies, all the three substantially concurring opinions in Mafatlal1, namely, those of Jeevan Reddy, J., Paripoornan, J. as well as Ahmadi, C.J., divide the situations in which claims for refund may be preferred by an assessee into three categories, viz.:
First, where the statutory provision ("law") under which the tax is levied is itself challenged by the assessee on the ground of being violative of some provision of the Constitution, i.e., an unconstitutional levy. "In this class of cases, the claim for refund arises outside the provisions of the Act, for this is not a situation contemplated by the Act."
Second, where the tax is collected by the authorities under a statute by misconstruction or wrong interpretation of the provisions of the Act, Rules or Notifications or by an erroneous determination of the relevant facts, i.e., an illegal levy. "In this class of cases, the claim for refund arises under the provisions of the Act. In other words these are situations contemplated by and provided for by the Act and the Rules."
Third, where an assessee, with or without protest and with or without a few litigative steps being taken by him, has ended up paying a tax which he was not legally obliged to pay and which he is seeking refund of at a later point of time on discovering that he had paid the tax on account of a mistaken impression of the law, i.e., a tax paid under a mistake of law. In regard to this category it is noteworthy that the Supreme Court, on the one hand, refers to the mistake of law as one falling "within the meaning of Section 72" of the Indian Contract Act, 1872 and still, on the other hand, confines it to a mistake of law discovered only upon a decision being pronounced by the Supreme Court in some other assessee's case wherein "the Supreme Court holds, in the case of some other manufacturer that the levy of that kind is not exigible in law"; furthermore, even the Supreme Court decision contemplated is one rendered in a case of "unconstitutional levy" and not of "illegal levy"3 . The noteworthiness is owing to the fact that Section 72 of the Contract Act itself is not limited to such a qualified category of refund claims founded upon the ground of "mistake of law".
On the basis of such categorisation, the majority view proceeds to examine, while acknowledging the true intent and import of the ouster and limitation clauses obtaining in the law concerned, as to in what situations and for what periods of limitation different remedies such as:
(1) writ under Article 226 or Article 32 of the Constitution of India;
or
(2) civil suit under the Code of Civil Procedure; or
(3) statutory application under the law concerned
are expected to be available or unavailable to an assessee desirous of seeking refund of an illegally recovered tax.
While the majority opinion rendered by Jeevan Reddy, J., representing the view taken by as many as five learned Judges, permits only the remedy of a writ or a civil suit in the case of an unconstitutional levy, it recognises the maintainability only of a statutory application or a writ in the case of an illegal levy. Whereas no statutory application lies in the former case, a civil suit stands barred in the latter case. And whereas the ordinary rule of limitation relating to discovery of mistake, namely, Section 17(1)(c) of the Limitation Act, 1963, is applicable in respect of both the remedies permissible in the former case, in the latter case it is the special rule of limitation governing refund claims under the taxing statute concerned which is attracted and also the writ court (High Court or the Supreme Court) is expected to act in conformity with the "legislative intent" expressed in such statute. The idea of an assessee not pursuing or losing his own case and bringing a refund claim later on in the wake of success of another assessee on the plea of mistake of law is so thoroughly denounced that the question of providing him any remedy does not arise at all and all remedies are foreclosed to him4 .
The other two partly concurring opinions on the point of remedy for refund - those of Paripoornan, J. (speaking for Hansaria, J. and himself) and Ahmadi, C.J. - differ in some minor details from the opinion of Jeevan Reddy, J. Being the view taken by only three Judges, they lose their significance and need not be elaborated upon at length. However, in regard to the majority verdict of Jeevan Reddy, J., it need be noted that some apparent self-contradictions and reversals of logic in the learned Judge's rendition do tend to rob an otherwise unquestionably illustrious piece of adjudication of much of its charm.
ARTICLE 265 AS A CONSTITUTIONAL SOURCE AND SECTION 72 AS A STATUTORY ORIGIN OF THE RIGHT AS WELL AS THE REMEDY
The main argument of the assessee before the nine-Judge Bench was founded on Article 265 of the Constitution and Section 72 of the Indian Contract Act, 1872, one as a matter of constitutional imperative and the other as a matter of statutory mandate. The argument was founded on both the substantive as well as the procedural sides, the substantive side enfolding the right to refund and the procedural side enfolding the remedy for refund, the two together constituting the two mainstreams of Mafatlal1.
On the substantive side, the assessee sought to derive an indefeasible and unfettered right to refund from the said two provisions untrammelled by any such equitable considerations as the theories of unjust enrichment, necessity of "loss or injury" for restitution, fiscal chaos, etc. enshrined in any judicial philosophy or statute. On the procedural side, the two provisions were employed to advance the argument that even the ordinary remedy of civil suit (and more so the extraordinary remedy of writ petition) with the ordinary and flexible rule of limitation should continue to remain unflinchingly available to him for refund of an unlawfully recovered tax regardless of the ouster, limitation and other procedural clauses in any statute and any objection such as res judicata, finality of orders, etc.
Article 265 and the right to refund
The argument of the assessee as to the substantive right of refund claimed by him with reference to Article 265 is best summarised in the concurring opinion of Paripoornan, J. as follows:
"The plea was that Article 265 of the Constitution of India contains a mandate to the effect that 'no tax shall be levied or collected except by authority of law'. It was argued that this is a basic feature of the Constitution and cannot be ignored. If no tax can be collected except by authority of law, the same logic would prevail for retention of amounts collected without the authority of law.... [I]f the assessee is denied the refund, the State Government could retain the amount illegally collected, and it would amount to violation of the constitutional mandate enshrined in Article 265 of the Constitution. An equitable principle will not hold good against a constitutional mandate." (p. 709 a-c)
Rejecting the argument of the assessee and agreeing with the counter-thesis on Article 265 advanced by the State, Paripoornan, J. held:
"[T]he persons who have passed on the burden of the levy - middlemen - should not be allowed to profiteer by ill-gotten gains and unjustly enriched.... [I]f Article 265 of the Constitution is literally interpreted and in isolation, and refund ordered, in cases where excise duty has been passed on, it will result in a mockery, totally ignoring the other salient features of the Constitution and the ground realities. As the Preamble states, the Constitution was enacted by the people, to secure to all the citizens, justice - political, social and economic. It is fairly settled by the decisions of this Court, that the Directive Principles contained in Part IV of the Constitution are fundamental in the governance of this country and all organs of the State including the judiciary are bound to enforce those directives. In interpreting the various provisions of the Constitution, the courts have to be realistic and should be alive to the needs of the times. The courts have a responsibility to ensure proper and meaningful interpretation of the Directive Principles and to adjust or harmonise the objectives enshrined in the Preamble, justice - political, social, and economic and the Directive Principles contained in Part IV, with the individual rights. In the process, it is permissible to restrict, abridge, curtail and in extreme cases, abrogate other rights in the Constitution, if found necessary and expedient, in particular situations. In the light of the above, I hold that Article 265 should be read along with the Preamble and Articles 39(b) and (c) of the Constitution, and so construed in cases where the assessee has passed on the liability to the consumer or third party, he is not entitled to the claim of restitution or refund. The fact that the levy is invalid need not automatically result in a direction for refund of all collections made in pursuance thereto." (p. 711 b-f)
Jeevan Reddy, J. speaking for the majority voiced the same concerns when he held as follows:
"Refunding the duty paid by a manufacturer/assessee in situations where he himself has not suffered any loss or prejudice (i.e., where he has passed on the burden to others) is no economic justice; it is the very negation of economic justice. By doing so, the State would be conferring an unearned and unjustifiable windfall upon the manufacturing community thereby contributing to concentration of wealth in a small class of persons which may not be consistent with the common good. The Preamble and the aforesaid articles [Articles 39(b) and (c)] do demand that where a duty cannot be refunded to the real persons who have borne the burden, for one or the other reason, it is but appropriate that the said amounts are retained by the State for being used for public good.... Indeed, even in an economically neutral Constitution, like that of United States of America, such a course has been adopted by the State and upheld by the courts. It would be rather curious - nay ridiculous - if such a course were held to be bad under our Constitution which speaks of economic and distributive justice, opposes concentration of wealth in a few hands and when the Forty-Second (Amendment) Act describes our Republic as a Socialist Republic." (pp. 616f-617a)
The remarks of Jeevan Reddy, J., indeed, are all-encompassing. They lend colour and content not only to constitutional provisions but also to all ordinary laws (including Section 72). In the words of the majority Judge:
"[T]he philosophy and the core values of our Constitution must be kept in mind while understanding and applying the provisions of Article 265 of the Constitution of India and Section 72 of the Contract Act (containing as it does an equitable principle) - for that matter, in construing any other provision of the Constitution and the laws. Accordingly, we hold that even looked at from the constitutional angle, the right to refund of tax paid under an unconstitutional provision of law is not an absolute or an unconditional right." (pp. 617g-618a)
Article 265 and the remedy for refund
On the procedural side also, the assessee sought to derive from Article 265 a certain amount of ease and flexibility in the matter of filing a refund claim. The argument was that since the claim was one for refund of an unlawfully recovered tax, measures resulting in restriction of remedies available under the law such as "ouster" of the civil suit (including a suit under Section 72), prescription of highly restrictive periods of "limitation", etc. only contributed to retention, that is to say, collection of tax without any "authority of law" and, therefore, offended Article 265. By the 1991 (Amendment) Act further and greater procedural and evidentiary restrictions had been imposed upon an application for refund, for instance, preparation and production of certain documents (sale invoice etc.) in a certain manner. (That had been done for checking unjust enrichment of assessees who had passed on the burden to some other person.) The new restrictions were also questioned on a similar reasoning under Article 265. The argument ran as follows:
"[T]hese provisions do not preclude the filing of a suit or the filing of a writ petition claiming refund where the tax has been collected contrary to law by virtue of Article 265 of the Constitution and ... the question of passing on the burden of duty is totally irrelevant in the matter of refund." (p. 578-c)
Jeevan Reddy, J. in his majority opinion dismissed the argument of the assessee by holding that to make a levy or collection of tax valid under Article 265 all that was required was that such levy or collection ought to be under the authority of a law (a statute) but as to whether that law was otherwise valid or not had to be examined with reference to the other provisions of the Constitution. The learned Judge observed:
"Article 265 of the Constitution is declaratory in nature. It says that 'no tax shall be levied or collected except by authority of law'. This no doubt means that taxes collected contrary to law have to be refunded. But where a taxing enactment contains provisions providing for and governing the refund of taxes collected without the authority of law, the validity of such provisions, if and when questioned, has to be examined with reference to other provisions of the Constitution. Article 265 does not itself lay down any criteria for testing the validity of a statute. When it speaks of 'law', it no doubt refers to a valid law but the validity of a law has to be determined with reference to other provisions in the Constitution." (p. 578f-g)
Based on this reasoning, the Court concluded: (SCC at p. 632)
"The said enactments including Section 11-B of the Central Excises and Salt Act and Section 27 of the Customs Act do constitute 'law' within the meaning of Article 265 of the Constitution of India and hence, any tax collected, retained or not refunded in accordance with the said provisions must be held to be collected, retained or not refunded, as the case may be, under the authority of law. Both the enactments are self-contained enactments providing for levy, assessment, recovery and refund of duties imposed thereunder. Section 11-B of the Central Excises and Salt Act and Section 27 of the Customs Act, both before and after the 1991 (Amendment) Act, are constitutionally valid and have to be followed and given effect to." (p. 632b-c)
On that basis the various procedural and evidentiary provisions ousting other statutory remedies, fixing short and limited periods of limitation, prescribing the presumption of "passing on", and requiring various other formalities to be observed and documents to be filed for the rebuttal of that presumption were found to be beyond reproach on the score of Article 265.
In one word, all other remedies apart from the statutory application provided by the taxing statute were permitted to be ousted.
However, the Court agreed that the statutory bar of the taxing statute cannot operate as an embargo on any constitutional remedy. Thus, even in the case of an "illegal levy", the writ remedies under Articles 226 and 32 of the Constitution before the High Court and the Supreme Court respectively were left undisturbed. But the Court hastened to add that even the writ courts were expected to "take note of the legislative intent manifested in the provisions of the Act" and to "exercise their jurisdiction consistent with the provisions of the enactment". (p. 607e-f)
The Court made one more exception. It also recognised that a case of unconstitutional levy "is a situation not contemplated by the Act" and that for such a situation the Act does not provide the consequences. "This can be called the right to refund arising under and by virtue of the constitutional provisions, viz., Article 265" the Court said. Accordingly, in such a case also it allowed the assessee to take shelter under Article 265 for bringing a refund claim by adopting any remedy available outside the taxing statute, i.e., by way of the writ remedy before the High Court or Supreme Court or even by way of a civil suit. (p. 607g-h)
Section 72 and the right to refund
Section 72 of the Indian Contract Act, 1872 requires that "a person to whom money has been paid ... by mistake ... must repay or return it". As noticed above, the majority opinion disapproved the bringing of any refund claim by an assessee on the plea of mistake of law under Section 72 in the wake of success of another assessee in his claim. However, as will be noticed hereinafter, it approved of a refund claim being so brought otherwise i.e. for reasons other than success of another assessee; such a claim may be brought by way of a civil suit or writ in a case of unconstitutional levy only. (pp. 607g-608d) But even in regard to such claims, the right to refund was qualified by the equitable considerations of unjust enrichment.
The argument of the assessee was that "... in an action for restitution under Section 72 of the Contract Act, the question as to whether the incidence of duty or tax has been passed on, is an irrelevant factor. There is no such requirement in the statute". (p. 704c) The assessee also argued that there were cases on right to refund of unlawfully recovered tax under Section 72 which had "stood the test of time for nearly four decades"5 .
Repelling the submission of the assessee and to that extent overruling the earlier decisions, Jeevan Reddy, J. held:
"... whether the right to refund or restitution, ... is treated as a constitutional right flowing from Article 265 or a statutory right arising from Section 72 of the Contract Act, it is neither automatic nor unconditional. ... Section 72 is a rule of equity.... [T]o say that equitable considerations have no place where a claim is founded upon Section 72 is ... a contradiction in terms.... 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. In other words, the person claiming the refund has not really suffered any prejudice or loss. 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 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." (p. 612a-f)
Justifying also the presumption of "passing on" expressly provided by the Amendment of 1991, the learned Judge further observed:
"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 the same. ... 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 requirement flows not only because Section 72 incorporates a rule of equity but also because both the Central excise duties and the customs duties are indirect taxes which are supposed to be and are permitted to be passed on to the buyer." (612g-613b)
Endorsing that point of view and relying on many foreign and Indian authorities, Paripoornan, J. also held in his concurring opinion that restitution presupposes the enrichment of the defendant "at the plaintiff's expense", that a person claiming restitution should have suffered a "loss or injury" himself, that "an accounting by the plaintiff is a condition of restitution from the defendant", and that
"in cases where restitution is claimed under Section 72 of the Contract Act, on the ground of payment due to mistake of law, the person claiming restitution, should plead and prove that 'he has not passed on' the liability to another. That is the nature of 'accounting' in cases falling under Section 72 of the Contract Act." (pp. 702a-704a)
In this context it is pertinent to note that, constitutionally speaking also, the majority ruled that the "economic justice" principles of the Constitution must be kept in mind while construing even Section 72 of the Contract Act and, for that matter, any other law of the land (vide pp. 616c-617g).
Section 72 and the remedy for refund
The assessee also sought to rely on Section 72 of the Contract Act for availing the remedy of civil suit to press refund claims arising out of mistake of law. The assessee did so notwithstanding the express and specific bar in the taxing statute that no other kind of refund claim shall be entertained apart from the lone six-month remedy of statutory application provided in such statute and notwithstanding the finality of such remedy. Jeevan Reddy, J., however, dismissed the submission holding as follows:
"It is necessary to emphasise that the exclusivity of these provisions relating to refund - and conversely the bar to other proceedings created by them - is specific to the subject of refund and is apart from and in addition to the general bar implicit in the Act or expressed in some of its other provisions, as the case may be. Because the Act creates new rights and liabilities and also provides the machinery for assessment and adjudication of those rights and liabilities, a bar to the jurisdiction to civil court arises by necessary implication.... The point to be stressed is that the exclusive nature of the refund provisions expressly declared in Rule 11 and Section 11-B, at all points of time, is an express and specific one contained in a special statute. It is not the usual finality clause found in several statutes; it is much more." (pp. 577g-578a)
The decisions in Kanhaiya Lal5, State of M.P. v. Bhailal Bhai6 were cited in support of this view. Dismissing the argument, the Court reasoned:
"In the face of the express provision which expressly declares that no claim for refund of any duty shall be entertained except in accordance with the said provision, 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. In other words, it is not permissible to claim refund by invoking Section 72 of the Contract Act as a separate and independent remedy when such a course is expressly barred by the provisions in the Act, viz., Rule 11 and Section 11-B. For this reason, a suit for refund would also not lie." (p. 607c-a)
In other words, the Court altogether disallowed the plea of mistake of law in a claim for refund of an "illegal levy". In fact, it robbed the plea of mistake of law altogether of its significance. As discussed later hereinbelow, the plea of mistake of law used to be of avail in earlier times only in cases of time-barred claims which required the bar of limitation to be removed in accordance with the provisions of the Limitation Act viz., Section 17(1)(c)7 . But now, as a result of the majority view, since any refund claim in respect of an "illegal levy" can, in any case, be brought only by means of a statutory application under the taxing statute concerned or by means of a writ petition in the High Court or the Supreme Court within the short and fixed period of limitation prescribed by that statute, there is no particular charm left in the plea of mistake of law.
With regard to an "unconstitutional levy", however, the plea of mistake of law was still kept alive. It has been seen earlier that the Court left open to the assessee either to move a writ petition in the High Court or the Supreme Court or even to bring a civil suit for the refund of such levy under the ordinary law of limitation. Thus, in the context of unconstitutional levy, Jeevan Reddy, J. went on to say:
"It can be said in such a case that the tax paid has been paid under a mistake of law.... 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." (p. 608d)
Thus, only in the event of the claim being one in respect of an "unconstitutional levy" the Court recognised and allowed a Section 72 suit to be filed with the plea of "mistake of law". Further, as regards limitation in such cases the Court clarified:
"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 to adopt a similar rule of limitation in the case of writ petitions seeking refund in such cases." (p. 612a)
That is why, while expressing his disagreement with the dicta of Kanhaiya Lal5 and Bhailal Bhai6 and overruling the same, Jeevan Reddy, J. specifically observed as follows:
"We must reiterate and emphasise that while dealing with this situation we are keeping out the situation where the provision under which the duty is levied is declared unconstitutional by a court; that is a separate category and the discussion in this paragraph does not include that situation." (pp. 608h-609a)
The result then (it appears) is that both Kanhaiya Lal5 and Bhailal Bhai6 remain good law and, in fact, stand affirmed insofar as claims of refund of "unconstitutional levy" are concerned. On their own facts, indeed, both the cases used to be cases of unconstitutional levy. While in Kanhaiya Lal5 the State law was found to be without legislative competence, in Bhailal Bhai6 it was found to be in breach of Article 301 of the Constitution.
A JOURNEY THROUGH THE MAJORITY VERDICT
The right to refund - achievements and pitfalls
The importance of the judgment in Mafatlal1 lies not so much in what it did for the immediate disposal of the sundry Central excise or customs cases then pending before the Court as in what it lays down as a precedent riding high on the pedestal of a nine-Judge Bench for various future purposes. The wider ramifications of the principle of "unjust enrichment" as approved and advanced by the Court in Mafatlal1 can be visualised only when the judgment is allowed to emerge from its immediate tax-borne cocoon and viewed in the light of myriads of other situations arising in the legal matrix. Viewed in that perspective, the ruling will appear as leaving behind a blazing trail with many a milestone becoming visible only by and by with the passage of time. Some of the visibly important and some not so visible but none too less important features of the judgment need to be noticed before the hour arrives to cope with them.
Five considerations for denying unjust enrichment
As many as five broad considerations seem to have weighed with the Court in its unjust enrichment discourse. They are:
(i) Economic justice
The spirit of socio-economic and distributive justice embedded in the Preamble and Directive Principles [Articles 39(b) and (c)] of the Constitution is an all-pervading influence which should deter the State from "conferring an unearned and unjustifiable windfall upon the manufacturing community thereby contributing to concentration of wealth in a small class of persons which may not be consistent with the common good". That is the core philosophy of the Constitution which inheres in and imbues every rule, every law and every provision in the Constitution, even Article 265 itself. In other words, no argument in law, whatever be its source or strength (constitutional, statutory or otherwise) and whatever be the situation or setting in which it is made (Central Excise, Customs or otherwise), is potent enough to withstand the egalitarian thrust and altruistic force of the Constitution. The principle is: He who suffers no loss deserves no gain. That principle then is the underlying principle of Mafatlal1 and it is a good principle to apply as and where required (not merely in tax claims).
(ii) Restitution
The principle "He who suffers no loss deserves no gain" is also a basic norm of the law of restitution to which all refund claims belong. A plaintiff seeking restitution is duty-bound to establish that the defendant has been enriched at his expense. A taxpayer who has "passed on" the burden of tax to his customer can barely hope to do so.
While Jeevan Reddy, J. borrowed from the Canadian decision in Air Canada et al v. Queen in Right of British Columbia et al8 , the dictum that "The law of restitution is not intended to provide windfalls to plaintiffs who have suffered no loss", Paripoornan, J. relied on an authority closer home viz. the Indian Supreme Court decision in Mulamchand v. State of M.P.9 , to hold that "a person who seeks restitution has a duty to account to the defendant for what he has received in the transaction from which his right to restitution arises". Various other foreign texts and authorities were also cited. However, in principle both the Judges reverted to the doctrine of restitution as had been explained more than two hundred years ago by Lord Mansfield in the English decision of Moses v. Macferlan10 . Both rejected the contrary principle enunciated in the more recent - nay, contemporaneous - Australian High Court decision of Commr. of State Revenue v. Royal Insurance Australia Ltd.11 to the effect that "the basis of restitutionary relief is not compensation for loss or damage sustained but restoration to the plaintiff of what has been taken or received from the plaintiff without justification".
Therefore, quite apart from the issue of refundability of taxes, the law of restitution in India itself (in general) has received a new and authoritative look at the hands of the nine-Judge ruling.
(iii) Equity
It is a principle also of equity that "He who suffers no
loss deserves no gain". The Court first ruled that "Section 72 is a rule of equity". Thence, Jeevan Reddy, J. concluded:
"Once it is a rule of equity, it is ununderstandable how can it be said that equitable considerations have no place where a claim is made under the said provision.... Now, one of the equitable considerations may be the fact that the person claiming the refund has not really suffered any prejudice or loss. If so, there is no question of reimbursing him." (p. 612b-f)
Besides, incorporating the rule of presumption of "passing on" also as a part of the "equitable considerations", the learned Judge added:
"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 had not passed on the duty to a third party. This is the requirement which flows from the fact that Section 72 is an equitable provision." (pp. 613a-b)
The moot point is whether the aforesaid principles of "equitable considerations", presumption of "passing on" etc., now that they stand identified under Section 72 of the Contract Act, would not apply also so as to govern all other cases and claims of mistake of law arising under that section. Such a claim may even be a claim between two wholly private parties rather than merely a refund claim in respect of unlawfully recovered taxes against the State.
(iv) Writ jurisdiction
The Court also took into consideration, particularly in the context of claims pending before the writ courts, that the jurisdiction of writ courts was inherently discretionary in nature and that, therefore, a writ court was duty-bound to confront the issue of "unjust enrichment" in right earnest. In the words of Jeevan Reddy, J.:
"[T]he 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." (p. 614f-g)
The above observations, once again, are a recognition of equity and discretion as a latent quality and general attribute of the writ jurisdiction. The observations need not be confined in their application only to a tax refund claim. They are capable of being read in the light of a wider and altogether alien context, in fact, in the context of any money claim coming to the writ jurisdiction of the High Court.
(v) Fiscal chaos
The objection of fiscal chaos against restitution had been raised for the first time by the Canadian Supreme Court in the case of Air Canada8. Jeevan Reddy, J. noticed that in that decision La Forest, J. had held that "even if the Airlines could show that they themselves bore the burden of taxes, recovery of ultra vires taxes should be denied" because of "concerns for the protection of the treasury and the recognition of the reality that if the tax was refunded, modern Government would be driven to the inefficient course of reimposing it either on the same or a new generation of taxpayers to finance the operations of the Government" (p. 599b-d). However, the learned Judge viewed with some reservation the theory of "fiscal chaos" as expounded by the Canadian Court. He found it "paradoxical" that "while taxes collected under an unconstitutional statute need not be refunded (even if the burden of tax has not been passed on to a third party), taxes collected by misinterpreting/misapplying the provisions of a statute ought to be refunded". According to Jeevan Reddy, J. the theory was of little help where the taxpayer had suffered the burden himself and not passed it on to some other person, whether it be a case of "unconstitutional levy" or "illegal levy". Agreeing, therefore, only broadly with the Canadian view in the matter, the learned Judge observed:
"We, on our part, have to evolve appropriate principles to meet the emerging situations, keeping in mind the development of law in our own country, our own circumstances and above all, our own constitutional philosophy." (p. 601b-c)
The learned Judge, Jeevan Reddy, J., also noticed that in the United States of America the Congress had for similar considerations even made a law against restitution and that such law had been upheld by the American Supreme Court in United States v. Jefferson Electric Manufacturing Co.12
As far as Indian precedents go, Jeevan Reddy, J. affirmed the two-Judge view on the point in D. Cawasji & Co. v. State of Mysore13 and rejected the five-Judge and seven-Judge views negativing "fiscal chaos" considerations in Kanhaiya Lal5, Bhailal Bhai6, Aluminium Industries14 etc. (vide pp. 592c-593a, 614g-616a). Indeed, the learned Judge finally made the doctrine of "fiscal chaos" a categorical part of his own ruling by stating in Proposition (vii) of his summary of propositions in para 108 as follows:
"(vii) While examining the claims for refund, the financial chaos which would result in the administration of the State by allowing such claims is not an irrelevant consideration. ... [I]t is bound to prejudicially affect the public exchequer. In case of large claims, it may well result in financial chaos in the administration of the affairs of the State." (p. 634c-d)
These are very wide-ranging considerations. They may come into play in the wake of any other fiscal dispute between the people and the State. They may even succeed in repelling any other kind of challenge to a fiscal law or statute.
The universality of the rule of unjust enrichment
The theory of unjust enrichment as enunciated by the Indian Supreme Court in Mafatlal1 carries with it three such characteristics which help in defining the Indian law of unjust enrichment more fully. They may be briefly examined as given below:
(i) The bar of unjust enrichment dehors statute
The Supreme Court recognised the existence of the principle of unjust enrichment as a part and parcel of the Indian legal and constitutional jurisprudence dehors any new or old statute which may also have been enacted to bring the principle under its statutory cover. Accordingly, while referring to the newly-introduced package of the 1991 (Amendment) Act, the learned Judge said:
"This is the position dehors 1991 (Amendment) Act - and as we shall point out later, the said Amendment Act has done no more than to give statutory recognition to the above concepts. ... It needs to be stated and stated in clear terms that 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 or morality." (p. 614e) (emphasis supplied)
The learned Judge ruled to the same effect when he held in the context of the newly-introduced provision of presumption, viz., Section 12-B as follows:
"Section 12-B does not create a new presumption unknown till then; it merely gives statutory shape to an existing situation.... The obligation to prove that duty has not been passed on to another person is always there as a precondition to claim of refund. It cannot also be said that by giving retrospective effect to Section 11-B (sic 12-B), any vested rights or substantive rights are being taken away. ... A manufacturer had no vested legal right to refund even when he had passed on the burden of duty to others. No law conferred such a right in him - not Article 265, nor Section 11-B." (p. 625d-f)
(emphasis supplied)
(ii) The bar of unjust enrichment in non-tax matters
The bar of unjust enrichment is not confined in its operation only to tax refund claims. It is operative also in respect of various other money claims against the State. While propounding the mightly doctrine of unjust enrichment, the Court in Mafatlal1 recorded agreement with many decisions of its own earlier and smaller benches some of which had employed the principle of unjust enrichment in the past for disallowing money claims against the State other than tax refund claims. These decisions had not only been rendered in cases of levies such as market fee, entry tax etc. but, at least, one of them, namely, State of M.P. v. Vyankatlal15 , had even resulted in denial of claims of sugar factories in respect of price of sugar against the Government. This last-named decision was, indeed, hailed by Jeevan Reddy, J. as "a definite milestone". The Supreme Court in Mafatlal1 put a nine-Judge seal of approval on all such decisions of the past (vide p. 596d) thereby settling that the law of unjust enrichment in India would apply not only to tax refund claims but also to money claims of all hues and shades against the State where the claimant may have recompensated himself from some other source.
(iii) The bar of unjust enrichment upon all remedies
Another important clarification which the Court made was that the bar of unjust enrichment would apply to any and every form of remedy that a person may adopt under the law. It would apply to the statutory application under the Central Excises or Customs Acts, as the case may be (whether before or after the 1991 Amendment). It would apply to the ordinary remedy of a civil suit. And it also would apply to the constitutional remedy of a writ petition in the High Court or the Supreme Court (vide pp. 614-e and 630-f). The exhaustiveness of the dictum pronounced by the Court only underlines once again the universality and unavoidability of the rule of unjust enrichment.
The fate of direct taxes
There is also an exception to the rule of universality of unjust enrichment and that too within the realm of taxation. The rule of unjust enrichment does not apply, as per the ruling in Mafatlal1 itself, to cases of direct taxation. It applies and can apply only in respect of cases of indirect taxes. Thus, distinguishing the English case of income tax in Woolwich Building Society v. IRC16 , as being of no help, Jeevan Reddy, J. held that:
"In the case of a direct tax, there can be no question of passing on the burden of tax to others as in the case of an indirect tax." (vide p. 598d)
The justification for presumption of "passing on" at other places in the judgment was also given only in respect of indirect taxes (for instance, at pp. 613b, 614c-d, etc.). Finally, in Proposition (v) of the summary of propositions in para 108 also the learned Judge ruled upon the doctrine of unjust enrichment only by naming "indirect taxes". (p. 634a)
The fate of captive consumption
Not only this, there is reason for optimism (at least, partially) even for those interested in the refund of indirect taxes and other exactions. That is so for the reason that even in the case of Mafatlal1 itself (i.e. a case involving Central excise and customs duty) both the majority opinions of Jeevan Reddy, J. and Paripoornan, J. have left untouched and undecided the question of applicability of the rule of unjust enrichment insofar as the question of refundability of taxes unlawfully collected on goods meant for captive consumption is concerned. (vide pp. 613d and 741b)
It is, of course, somewhat incongruous that when the two majority Judges did record in their opinions their open approval of earlier decisions of the Supreme Court in even non-tax matters (vide p. 596d), which are far more removed from the implications of a tax refund, they should have declined to decide in the same breath an important and directly connected question of tax refund such as that of refundability of duties collected unlawfully on goods meant for captive consumption.
Apparently, the Apex Court anticipated (anticipates) a different kind of argument to be advanced in respect of captive levies on intermediary goods. Perhaps, an argument that excise duty on an article manufactured by a manufacturer for his own internal use and consumption is in the nature of a direct levy on the manufacturer himself. Or, perhaps, that there never is a price tag or label attached to any goods meant for captive consumption so as to be addressed to any customer and, hence, the very question of passing on of tax on such goods to any customer does not arise; even the 1991 (Amendment) Act, after all, revolves around Section 12-A which contemplates documents such as sales invoice etc. stating to the customer the price at which the goods are sold; in the case of goods meant for captive consumption, no such sales invoice can be raised and evidently, therefore, the scheme of the amendment also does not envisage the denial of refund of duty illegally collected on intermediary goods.
Little wonder then that Mafatlal1 bids farewell to captive consumption from a distance. Be that as it may, that may well be the opening of a Pandora's box which might even result in unwinding the theory of unjust enrichment from all those non-tax claims and exactions with which the theory has otherwise been found to be linked by the majority in Mafatlal1.
No "unjust enrichment" of the State
The judgment of Jeevan Reddy, J. takes care to allay any doubts in the minds of those who may accuse the State itself of getting unjustly enriched on the strength of its doctrine of unjust enrichment. The learned Judge explains:
"The very idea of 'unjust enrichment' is inappropriate in the case of the State, which is in position of parens patrea...." (p. 615e)
Later, it is said:
"State represents the people of the country. No one can speak of the people being unjustly enriched." (vide p. 633f)
It was perhaps this thinking that made the Court support the idea of the State for retaining the tax for public good.
That is how the justification comes eventually for upholding the setting up of the Consumer Welfare Fund under the 1991 (Amendment) Act for depositing all unrefundable excise and customs duties for the welfare of consumers under the control of the State. The learned Judge observes:
"The Preamble and the aforesaid articles do demand that where a duty cannot be refunded to the real persons who have borne the burden, for one or the other reason, it is but appropriate that the said amounts are retained by the State for being used for public good...." (p. 616g)
The thin end of the wedge
It is a pity, however, that in the same context of altruistic concern when Jeevan Reddy, J. is shown the utter impracticability and inconvenience of the provision meant for disposal of the refund claims of "the real persons who have borne the burden" [viz. Section 11-B(2)(e)], the learned Judge has little or no sympathy for the real sufferer viz. the consumer, the small and sundry purchaser, the man on the street. Putting an abrupt and anti-climactic finale to the discussion on "unjust enrichment", the learned Judge chooses to ignore the interests of the very consumer for whose benefit he has allowed the State to hold the illegal levies. The Consumer Welfare Fund, described by the assessee's lawyers variously as a "bluff", "a colourable device", "a dirty trick", "a shabby thing" and so on (vide p. 626b) is, indeed, a paradox which threatens to take the very wind out of the sails of the judgment. Faced with such a paradoxical situation, the learned Judge has no better sops to offer than these:
"True it is that there is this practical inconvenience but it must also be remembered that such claims will be filed only by purchasers of high-priced goods where the duty component is large and not by all and sundry/small purchasers. This practical inconvenience or hardship, as it is called, cannot be a ground for holding that the provisions introduced by the 1991 (Amendment) Act are a 'device' or a 'ruse' to retain the taxes collected illegally and to invalidate them on that ground - assuming that such an argument is permissible in the case of a taxing enactment made by Parliament." (p. 627b-c) (emphasis supplied)
To some it may appear to be a volte-face, to some the end of justice, to some the thin end of the wedge.
The remedy for refund - the clouds and the confusions
There has been occasion above to highlight the decisive features of the judgment in regard to the three categories of refund claims and the three kinds of remedies provided by law, the three categories being "unconstitutional levy", "illegal levy" and "mistake of law" and the three remedies being writ, civil suit and a statutory application. The three remedies discussed in the judgment need no comment. But, the manner in which the refund claims have been divided into three categories as delineated above is far from convincing. Also the ruling of Jeevan Reddy, J. on the point leaves many a doubt to be resolved because of what has been described above as "some apparent self-contradictions and reversals of logic".
Under categorisation on "mistake of law"
At the very outset, as pointed out above, it is not clear as to how Jeevan Reddy, J. while carving out the category of refund claims founded upon discovery of mistake of law referable to Section 72 confines the category only to a case where "the Supreme Court holds, in the case of some other manufacturer that the levy of that kind is not exigible in law" (vide p. 579h). Section 72 itself does not carry any such qualification as to the circumstances in which and owing to which the mistake in question is discovered. It can even be a mistake discovered out of self-realisation, or upon perusal of an author's article or jurist's opinion or, indeed, upon the delivery of a judgment in another assessee's case by merely a High Court (which too after all, is a sovereign court). Thus, in the first place, the categorisation done by Jeevan Reddy, J. with reference to mistake of law is really an instance of under categorisation when viewed from the point of view of Section 72.
The three categories - imprecise and overlapping
Moreover, the category of "mistake of law", in any case, seems to be somewhat vague and imprecise. The three categories are projected in all the three majority opinions as being mutually exclusive of one another but, truly speaking, they are incapable of presenting themselves as water-tight compartments, each being separate and distinct from the other. Between the first and the second categories, on the one hand, and the third category, on the other, there is bound to be direct and palpable overlapping.
It is clear that a tax paid by way of either unconstitutional levy (first category) or illegal levy (second category) would at all times be a tax paid only in one or the other of the following three situations:
- paid with the knowledge of its unlawful nature and under protest,
- paid with the knowledge of its unlawful nature but without protest,
paid without the knowledge of its unlawful nature and, therefore, also without protest, that is to say, paid under a mistake of law.
Although the first and second categories of refund claims ("unconstitutional levy" and "illegal levy" respectively) can be expected, at least, in principle, to be distinct and removed from each other, the third category pointed out in the majority opinion does not really enfold a separate and distinct kind of refund claim but one which is only another species of either the first or the second kind (category) of refund claims. The reason is that even a refund claim arising out of mistake of law is founded, after all, upon a mistaken impression either of the unconstitutionality or the illegality of a levy. It would not be a mistake dehors the ground of unconstitutional levy and also of illegal levy. It is different from the two other categories only in that it is characterised by a late realisation of such ground of unconstitutionality or illegality, as the case may be. The late realisation marks the end of a period tainted by mistake of law and the beginning of a new era which no more suffers from such mistake. The mistake part of "mistake of law" is no ground by itself for refund of a tax. The ground at all events is either the unconstitutionality or the illegality which is the subject-matter of the mistake (mistake of law).
"Mistake of law" was evolved as a theory and came to be used over the decades as a plea in defence by the assessee only for overcoming the discomfiture arising in cases where his claim was otherwise barred by time; the date of discovery or knowledge of the mistake in such cases either due to self-realisation or (more commonly) due to success in another assessee's case provided the point of time from which the period of limitation would run for the former assessee maintaining a refund claim in any court of law or other legal forum. The author of the majority opinion, Reddy J., himself recognises the raison d'etre of that theory in the context of refund claims of unlawfully recovered taxes while holding 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". (vide p. 611-d, emphasis supplied)
Thus, whereas the dividing line between the first and second categories of refund claims is the ground on which the refund claim is founded (namely, unconstitutional levy or illegal levy) and the purpose of such division is the determination of the jurisdiction in which the respective claim should be preferred, the differentia on which the third category is founded (namely, mistake of law) is essentially a circumstance meant for mitigating the delay factor in the filing of the claim. The third category is neither a ground for refund nor, indeed, is it meant for determining the jurisdiction itself. From this point of view, the categorisation made by the majority is somewhat inartistic, confusing and uncalled for.
Ratio on the "mistake of law" category - self-contradictory
Even the ostensible purpose behind the introduction of the third category seems to be defeated on account of a curious self-contradiction in the otherwise profound opinion of Jeevan Reddy, J.
After all, the whole object of the Court in introducing "mistake of law" as a third and separate category was to pronounce that no assessee shall bring a refund claim upon discovery of such mistake as a result of decision of the Supreme Court in some other assessee's case. In that context Jeevan Reddy, J. not only approved and acclaimed the Constitution Bench decision of the Supreme Court in the case of Tilokchand Motichand v. H.B. Munshi17 but also ruled in specific terms as follows:
"Where a person approaches the High Court or the Supreme Court challenging the constitutional validity of a provision but fails, he 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 reopened on the basis of a decision on another person's case; this is the ratio of the opinion of Hidayatullah, C.J. in Tilokchand Motichand17 and we respectfully agree with it." (pp. 611g-612a)
Not only this, even in Proposition (iv) of the propositions summarised in para 108, the learned Judge specifically held as follows:
"(iv) It is not open to any person to make a refund claim on the basis of a decision of a court or tribunal rendered in the case of another person. He cannot also claim that the decision of the court/tribunal in another person's case has led him to discover the mistake of law under which he has paid the tax nor can he claim that he is entitled to prefer a writ petition or to institute a suit within three years of such alleged discovery of mistake of law. A person, whether a manufacturer or importer, must fight his own battle and must succeed or fail in such proceedings. Once the assessment or levy has become final in his case, he cannot seek to reopen it nor can he claim refund without reopening such assessment/order on the ground of a decision in another person's case. Any proposition to the contrary not only results in substantial prejudice to public interest but is offensive to the several well-established principles of law. It also leads to grave public mischief. Section 72 of the Contract Act, or for that matter Section 17(1)(c) of the Limitation Act, 1963, has no application to such a claim for refund." (pp. 633g-634a)
However, as opposed to these crystal-clear remarks and unmistakable final Proposition (iv) of the learned Judge, stand his own observations at p. 608c-d running in a completely different direction, viz.
"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 restitution. It can be said in such a case that the tax 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." (p. 608c-d) (emphasis supplied)
Contradiction within a contradiction
Even the afore-quoted Proposition (iv) of Jeevan Reddy, J. seems to suffer from a self-contradiction - nay, confusion - of such serious dimension that it threatens to alter radically what may generally be perceived to be the true ratio of the learned Judge's judgment. On a broad understanding of the proposition, one may have no doubt left in his mind that the learned Judge intends in right earnest to denounce, disapprove and disallow any semblance of effort by an assessee to rechallenge a settled position of tax-payability in his own case merely because of success of another assessee in his case. But the true objection of the learned Judge seems to be only to assessees freely bringing fresh refund claims while the original assessment order is still standing and without getting that original order set aside. That appears to be the gravamen of the observations:
"One of the important principles of law, based upon public policy, is the sanctity attaching to the finality of any proceeding, be it a suit or any other proceeding. Where a duty has been collected under a particular 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." (p. 609d-e)
(emphasis supplied)
But what if the said order falls or is made to fall? What if the assessee applies for a reopening of the order? The learned Judge (Jeevan Reddy, J.) gives profound reasonings for denouncing any claims of the kind, viz., "public policy", "sanctity attaching to the finality of any proceeding", "incongruity of the situation", and so on. But the final words in the final Proposition (iv), namely,
"Once the assessment or levy has become final in his case, he cannot seek to reopen it nor can he claim refund without reopening such assessment/order on the ground of a decision in another person's case."
(emphasis supplied)
tend to completely throw the opinion of the learned Judge off the gear. The very soul and purpose of the legal finding and Proposition (iv) (- with considerations of finality, sanctity, fiscal chaos, public interest, public mischief and what not all going into its making -) would stand defeated if the reopening of the assessment/order is left open as an escape route to an assessee. This is no mean contradiction or confusion. Indeed, Ahmadi, C.J., in his partly dissenting opinion begs to differ from the opinion of Jeevan Reddy, J. precisely on the point of permissibility of a review or recall ("reopening") of the old assessment/order. Sympathising with the plight of the luckless assessee and purporting to differ from the apparent and ostensible view of Jeevan Reddy, J., the learned Chief Justice expressed his own point of view as follows:
"However, in my opinion, since the levy of tax has been held to be unconstitutional (which would lead to the conclusion that it should never have been levied in the first place) such an interpretation would be unfair to an assessee who had the foresight to discern the unconstitutionality of the provision (albeit on a different ground) but was unfortunate in not being able to convince the court concerned of the unconstitutionality of the provision. Considering the gravity of the case in my opinion, it should be left open to such an assessee to use such legal remedy as may be available to him to have the earlier order reviewed or recalled on the basis of the order made in the subsequent case. If he succeeds, well and good; if he fails, he must take the consequence of an adverse order against him." (pp. 568h-569b)
Ahmadi, C.J., therefore, reels under the impression that Jeevan Reddy, J. does not allow even the reopening of an assessment/order on the ground of another assessee's decision and tends to differ from Jeevan Reddy, J. on the point. But the reality seems to be different.
One ground and another ground
Lastly, there is confusion once again in the words "on another ground" in the remarks made by Jeevan Reddy, J.: (SCC at pp. 611-12)
"Where a person approaches the High Court or the Supreme Court challenging the constitutional validity of a provision but fails, he 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 reopened on the basis of a decision on another person's case; this is the ratio of the opinion of Hidayatullah, C.J. in Tilokchand Motichand10 and we respectfully agree with it." (pp. 611h-612a) (emphasis supplied)
In Tilokchand Motichand17, of course, the Supreme Court did hold that an assessee who "moved the High Court but did not come up in appeal to (the Supreme) Court" was not entitled upon the statute being struck down in another assessee's case to plead that: (See the observations as reproduced at SCC pp. 590-92)
"... the ground on which his petition was dismissed was different and the ground on which the statute was struck down was not within his knowledge and therefore he did not know of it and pursue it in this Court." (emphasis supplied)
But that was all in the context of an assessee who stopped the contest at the High Court level and that too having been fought on a different ground. (Such an assessee was naturally liable to the charge of acquiescence in the High Court's judgment and also to the bar of res judicata.) Two questions arise from the afore-quoted remarks of Jeevan Reddy, J. (SCC at pp. 611-12). First, does the learned Judge mean to penalise even an assessee who has diligently pursued the battle all the way up to the Supreme Court on a right ground of unconstitutionality and wrongly lost the same? As distinct from the case of Tilokchand Motichand17, Jeevan Reddy, J. has prohibited even an assessee who has fought up to the Supreme Court from reopening the issue. Second, does the qualification of the words "on another ground" imply that the ire of the learned Judge is directed only at those assessees who are not intelligent enough to perceive all the cogent grounds of attack or is it that he would disallow even those who have lost their cases on the selfsame grounds from reopening the issue? The matter acquires significance, once again, in the light of Ahmadi, C.J.'s partly dissenting opinion because in the very passage afore-quoted from pp. 568g-569b, the learned Chief Justice fully sympathises with an assessee who has approached both the Supreme Court and the High Court but has been "unfortunate in not being able to convince the court concerned of the unconstitutionality of the provision". Even in such a case of "different grounds" in play, the learned Chief Justice expressed his approval to allow the luckless assessee to reopen the issue "albeit on a different ground".
All in all, in brief, the humble submission is that, at least, on the question of remedy of refund, the additional riders and frills put every now and then by Jeevan Reddy, J. in his otherwise profound judgment are far from being perspicacious or productive. They do anything but help in deciphering the true and simple ratio of the decision rendered by the Apex Court after such a long wait on a question of such colossal magnitude. It is a pity because the judgment of Jeevan Reddy, J. is not only his judgment but the unified and all-important judgment of as many as five out of the nine learned Judges constituting the majority. Indeed, it alone is the law laid down by the Apex Court on the issue for all future guidance. The question, however, is "Will the judgment itself be able to stand scrutiny of the future?"
- (1997) 5 SCC 536
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- Articles 39(b) and (c) of the Constitution of India
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- vide the clarification in parenthesis in Reddy, J.'s opinion at pp. 579g-580a
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- vide paras 77 to 80 in supra n-1 at pp. 605b-612a
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- See STO v. Kanhaiya Lal, 1959 SCR 1350 (5-Judge); State of Kerala v. Aluminium Industries Ltd., (1965) 16 STC 689 (7-Judge) etc. No such requirement was mentioned in these decisions.
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- (1964) 6 SCR 135
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- S. 17(1)(c) is meant for discounting the period characterised by "mistake" from the period of limitation.
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- (1989) 59 DLR (4th) 161 (Can SC)
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- AIR 1968 SC 1218
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- (1558-1774) All ER Rep 581
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- (1995) 69 Aus LJ 51 : 182 CLR 51
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- 78 L Ed 859 : 291 US 386 (1933)
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- (1975) 1 SCC 636
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- State of Kerala v. Aluminium Industries, (1965) 16 STC 689
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- (1985) 2 SCC 544
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- (1992) 3 All ER 737 (HL)Return to Text
- (1969) 1 SCC 110
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