High Court endorses arguments by P. K. Shahi, the Advocate General of Bihar against unjust enrichment
Delay of 12 years after mistaken payment by PSU is inexcusable, PSU suffers loss of Rs.1,17,06,169
Patna High Court's bench of Chief Justice K. Vinod Chandran and Justice Harish Kumar concluded, "We find absolutely no reason to entertain the writ petition and dismiss the same leaving the parties to suffer their respective costs" in Indian Oil Corporation Limited, Barauni Refinery v. State of Bihar (2024).
The petitioner's counsel was S.D. Sanjay, Senior Advocate and the counsel for the respondent was P. K. Shahi, Advocate General, Government of Bihar. The petitioner's counsel submitted that there is unjust enrichment on the part of of the State of Bihar. The Advocate General pointed out that there cannot be any unjust enrichment on the part of the State since a refund would result in unjust enrichment on the part of Indian Oil Corporation Limited, the petitioner. He asserted that the delay stands against the petitioner. On behalf of the State government he argued that the application for refund was neither in the form prescribed nor before the competent authority and the returns too were not filed in accordance with the statute.
The Court recorded that the petitioner is involved in a manufacturing activity, sells its products manufactured using the electricity generated in the captive consumption units. The expenses for generation, which include the duty levied or paid, is also be factored in the price of the products sold by the petitioner. By stating that in such a situation, "the duty paid has already been factored in the price of the goods manufactured, thus passing it over to the end consumer. The petitioner cannot claim any refund, which would lead to unjust enrichment", the Court endorsed the argument of the Advocate General.
The Court observed, "we are of the opinion that the delay stands against the petitioners. The amounts claimed now are those remitted between January 2011 to October 2011. Electricity duty was paid under a notification and the amendment made to the notification was also challenged by the petitioner. The petitioner and its officers were always aware and alive to the duty imposed and its ramifications; the subsequent amendments brought in having been agitated before Court. The contention of the petitioner is that its officers failed to notice an exemption notification, which can only be termed as rank negligence."
It demonstrates that the Indian Oil Corporation Limited has been starved of competent legal advice for long. It has been admitted that there was no legal proceedings initiated for refund and the writ petition is filed almost 12 years after the mistaken payment came to the notice of the petitioner.
The Court observed, "We cannot also ignore the fact that the State, involved in various welfare measures, frames its budget for successive years based on the revenue and deficits of its coffers and the anticipated income and expenditure. It is too late in the day for the State to be asked to refund the amounts, though mistakenly paid."
The Indian Oil Corporation Limited, the petitioner before the High Court was claiming refund of Rs.1,17,06,169/- paid as electricity duty to the State Government between January 2011 to October 2011. The petitioner came before the Court for the first time in 2023, seeking a refund of the amounts mistakenly paid, without noticing the exemption notification, during the period January 2011 to October 2011.
The Court observed, "In addition to the delay occasioned, we are appalled by the gross negligence of the Officers of the Corporation", a Public Sector Undertaking (PSU).
The Court noted that electricity duty was imposed under the provisions of the Bihar Electricity Duty Act, 1948, its schedule and notifications. Under Schedule 3 of the Electricity Duty Act, there was a duty imposed at the rate of 2 paise/unit of energy generated in a captive power plant under the head of agriculture, irrigation and industrial purposes. The petitioner had been paying such duty regularly, the captive power plant having been established for industrial purposes.
The Court recorded that a notification was issued in the year 2005 to amend the schedule incorporating a further entry at Serial No.3 to the effect that 6% of the value of the energy equivalent to the energy tariff as fixed by the Bihar State Electricity Board shall be leviable for consumption of electrical energy generated by captive DG Set/Power Plants.
The petitioner had filed a writ petition challenging the validity of the provisions which stood allowed. The State filed an SLP, which was not successful. The Court referred to this challenge made by the petitioner to emphasize that the petitioner had been diligently prosecuting the amendment made to the Electricity Duty Act before the Court. It is relevant because of the contention raised that an exemption notification under the very same enactment was omitted to be noticed by the officers of the PSU.
It has been admitted that by notification dated January 4, 2021, the payment of electricity duty on electrical energy generated by generator or captive plants for self-consumption was exempted from the levy.
Notably, despite the exemption, the petitioner continued to pay the levy at the rate of 2% between January 2011 to October 2011. A refund application was filed on December 1, 2011 and then again, a reminder sent on January 21, 2012, after which the issue went into oblivion. It was revived and resumed, as is evident from paragraph 19 of the writ petition with reminders on January 22, 2020, September 28, 2021, February 7, 2022 and September 13, 2022.
Notably, the petitioner continued to pay the electricity duty even after the exemption granted. Subsequently, a half-hearted attempt was made on December 1, 2011 by a mere communication seeking refund, which was also not earnestly followed up by the petitioner or its officers.
Advocate General relied on the judgement of the Supreme Court in Jay Vee Rice and General Mills v. State of Harayana (2010) wherein, purchase tax was collected on paddy by the dealers from the District Food and Supplies Collectors along with procurement price. The tax collected was not deposited with the Government on the contention that an amendment in the taxing statute exempted payment of purchase tax. It was held, that the dealers, who collected the purchase tax along with the price of rice, cannot justify retention of the same with themselves, though purchase tax was exempted. The tax collected had to go to the State, was the finding.
The High Court factored in the judgement of the Supreme Court in Godfrey Philips India Ltd.v. State of U.P. (2005) wherein levy of luxury tax on tobacco was considered. While finding the levy to be not permissible under Entry 62 of List II, the State List as tax on luxuries, the declaration was made prospectively permitting the State to retain the tax already paid to them after collection by the dealers but making it clear that the bank guarantees furnished in lieu of the tax levy were to be discharged. One other issue considered was that despite obtaining interim orders in the writ petitions, the dealers continued to charge tax from consumers/customers. On the principle of unjust enrichment, the collected tax was directed to be paid to the State Government. The duty liability was on the end consumer, who cannot be found out for effecting refund. It may be noted that Entry 62 of List II was inserted by Constitution (Forty-Second Amendment) Act, 1976.
The High Court drew on the the judgement of a Constitution Bench of the Supreme Court in Orient Paper Mills Ltd v. State of Orissa (1961) wherein it was concerned with a provision which interdicted a dealer from seeking refund, who had collected tax under a provision, which was found to be not leviable for reason of the sale being outside the State. It permitted refund only to the person from whom such tax was collected, refusing it to the dealers who collected it and paid it to the Government. The provision was assailed as one depriving the dealer, the common law right to claim refund of amounts paid as tax under an error of law. The Supreme Court repelled the challenge, holding that “if competence to legislate for granting refund of sales tax improperly collected be granted, is there any reason to exclude the power todeclare that refund shall be claimed only by the person from whom the dealer has actually realized the amounts by way of sales tax or otherwise?”. Affirming in the negative, it upheld the provision.
In its penultimate paragraph, the High Court concluded that "The trite principle is that when tax is collected and paid to the State, if the levy is declared illegal or unconstitutional; the dealer who has merely collected the tax and not borne the liability cannot claim a refund; which if granted would lead to unjust enrichment. In such circumstances, where refund is not possible to be made to the end consumer; who had the liability to tax and shouldered the liability to pay, the money be best left with the State for expending on welfare measures for the good of the general public. The same principle applies herein where the products sold by the petitioner, in its sale price would definitely have factored the electricity duty component, which liability arose in the manufacturing process; thus, passing on the liability to the end consumer of the product manufactured." The judgement was authored by Justice Vinod Chandran.
The verdict drives home the message that Indian Oil Corporation Limited must hire permanent lawyers with expertise in business laws to safeguard its resources. The delay of 12 years after the mistaken payment by the PSU is inexcusable and indefensible.
Union Ministry of Petroleum and Natural Gas, the owner of the PSU must constitute a judicial inquiry committee to ascertain the cause of such "gross negligence of the Officers of the Corporation" which led to loss of Rs.1,17,06,169. The dereliction of duty on part of senior officials of the company must be probed to fix responsibility for their failure and in order to avoid similar losses in future.
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