Sunday, 19 April 2015



India has a well-developed tax structure with clearly demarcated authority between Central and State Governments and local bodies. The present case examines the validity of a notification issued by the State pertaining to reduction of taxes for a particular period for which the taxes had already been paid. Such a notification has been held to be unconstitutional and in contravention to Article 265 of the Constitution of India.


The Appellant Nos. 1 and 2 are the units of Grasim Industries Limited, which carries on the business of manufacturing and selling cement. It requires raw material in the form of coal, gypsum and bauxite. On the aforesaid raw materials, the Appellants had been paying entry tax for entry of these goods in the territory of the State of Madhya Pradesh. In the year 1997, the entry tax on the aforesaid items of raw materials payable under the Act was Coal at the rate of 2.5%, Gypsum at the rate of 2% and Bauxite at the rate of 10%. In the year 1999, a notification was issued by the Respondent which reduced the entry tax for the aforementioned items to 1% only for the period between 1.5.1997 to 30.09.1997. However, in the same Notification an explanation was also appended stating that the amount which is already paid by the dealer (at the higher rate) shall not be refunded. Since the notification was issued in 1999 and the Appellants had already paid the taxes at the higher rate during the aforementioned period (ie from 1.5.1997 to 30.09.1997), the Appellants demanded refund of the amount and challenged the validity of the notification before the High court. The petition was dismissed by the High court. Against the said order of the High Court, the Appellants have approached the Apex court.


The main issue for adjudication was whether the explanations to the Notification issued by the Respondent state in May 1999 were in violation of Article 14 and Article 265 of the Constitution thereby being unconstitutional.

Decision of the Court
·         The court opined that the Notification dated 5.7.1999, which states that the amount shall not be refunded in any case on the basis that dealer had filed the tax at a higher rate, results in invidious discrimination towards those who have paid the tax at a higher rate, like the Appellants, when compared with that category of the persons who were defaulters and have now been allowed to pay the tax at the rate of 1% for the relevant period.
·         Further, the court also held that such a notification is in clear violation of Article 14 of the Constitution as it separates the tax payers into two different groups even when they are identically situated. There is no nexus between such a classification and the objective sought to be achieved
·         The court concluded that there is no objective behind such an Explanation appended to the Notification dated 4.5.1999 which is sought to be achieved, except that the Government, after collecting the tax from those who had paid at a higher rate, did not intend to refund the same.
·         Lastly, such an explanation to the notification was held to be in violation of Article 265 of the Constitution which imposes a limitation on the taxing power of the State. Hence the explanations to the notification was held to be unconstitutional.


Hence, a reasonable inference can be drawn from the aforementioned decision that if the substantive provision of a statute provides for refund, the State ordinarily by a subordinate legislation could not have laid down that the tax paid even by mistake would not be refunded. If a tax has been paid in excess of the tax specified, save and except the cases involving the principle of 'unjust enrichment', excess tax realized must be refunded.

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