Assessee To Claim Refund of Tax Collected By State Without Authority Within 3 Years From The Date of Payment: Madras High Court

The assessee has sought the order to quash the orders passed by the respective Assessing Officers as it relates to reversal of Input Tax Credit (ITC) under the proviso to Section 19 (2) (v) of the TNVAT Act and further direct the respondent/department not to apply Section 2(1) of the Amendment Act, 2013 as they are the manufacturers of goods in the State of Tamil Nadu consequent to the omission of proviso to Section 19 (2) (v) of the Tamil Nadu Value Added Tax (Fifth Amendment) Act, 2015 read with substitution of clause (v) to section 19 (2) of the TNVAT Act.

The assessees preferred writ petitions challenging the orders passed by the assessing officers in which ITC was reversed under section 19(2)(v) of the TNVAT Act.

The issue raised was whether the doctrine of "unjust enrichment" would apply in the absence of an express provision and whether "unjust enrichment" would apply to taxes paid on raw materials and captively consumed in the manufacture of finished goods within the state.

The court held that "unjust enrichment" means the retention of a benefit by a person that was unjust or inequitable. It occurs when a person retains money or benefits that, in justice, equity, and good conscience, belong to someone else. As a result, the doctrine of "unjust enrichment" states that no one can be allowed to enrich inequitably at the expense of another. A right of recovery under the doctrine arises where the retention of a benefit is considered contrary to justice or against equity. The juristic basis of the obligation is not founded upon any contract or tort, but upon a third category of law, namely, quasi-contract or the doctrine of restitution. The doctrine of "unjust enrichment" is based on equity and has been accepted and applied in several cases. The doctrine would apply even in the absence of a statutory provision.

The court relied on the decision of Supreme Court in the case of Union of India and others vs. Solar Pesticides Private Limited in which it was held that the doctrine of "unjust enrichment" would apply to duty paid on raw materials and captively consumed, it was held that "passing of incidence of duty to any other person may be direct such as when the goods imported are themselves sold and the burden of tax is passed on to the buyer or it may be indirect when the goods imported are captively consumed by importer himself and the duty paid is added to the price of the finished goods which are sold to others".

The court held that Article 62 of the Limitation Act, 1908 would appear to imply that the period of limitation would be three years from the date of receipt of tax that has been retained by the Revenue. Therefore, for the assessees to claim a refund of the tax collected or retained by the state, steps must have been taken by them within three years from the date of their payments to the department. Thus, any claim for refund may have to be examined, keeping in view the doctrine of "unjust enrichment."

Case Title: State of Tamil Nadu Versus Deputy Commissioner (CT) (FAC)

Case No: W.A. No. 1260 of 2017

Dated: 31-03-2022

Counsel For Petitioner: Additional Advocate General Haja Nizrudeen

Counsel For Respondent: Advocate Adithya Reddy

Citation: 2022 LiveLaw (Mad) 179

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