State need not refund tax collected by mistake if payer has recovered the amount from others: Madras High Court
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A recreation club cannot seek the refund of tax collected from it by the State under a mistaken impression, if the club had already passed on the burden of paying that tax to its members and recovered the money from them, the Madras High Court has ruled.
A Division Bench of Justices R. Anita Sumanth and C. Kumarappan held that the plea of unjust enrichment could not be raised against the State, as the retention of mistakenly collected tax would ultimately be used only for the benefit of the people at large.
The verdict was passed while partly allowing a civil appeal filed by the Madras Club seeking refund of ₹15.51 lakh with interest from the Commissioner of GST and Central Excise. The judges ordered repayment of only ₹6.41 lakh with interest, since the club had recovered the rest of ₹9.09 lakh from its members.
Authoring the verdict, Justice Kumarappan pointed out that originally, a demand for ₹29.24 lakh had been raised against the club towards service tax. However, the Commissioner (Appeals) set aside the demand in 2009, and the order was confirmed by the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) too.
In the meantime, the club ended up paying ₹15.51 lakh pursuant to the demand and hence, sought the refund of that amount after the demand was set aside. The CESTAT rejected its plea to order the refund of the service tax in 2020 and therefore, it had approached the High Court with the present civil appeal in 2021.
Disposing of the case now, the Division Bench pointed out that the right to restitution was neither automatic nor unconditional and that the Supreme Court had time and again held that a tax payer would not be entitled to restitution from the State if such tax component had already been recovered from other persons.
The Bench relied upon the top court’s famous judgment in the Mafatlal Industries case, wherein it was held that the State can retain mistakenly collected tax amount and “the doctrine of unjust enrichment is inapplicable to the State. State represents the people of the country. No one can speak of the people being unjustly enriched.”
In the present case, the auditor’s certificate revealed the Madras Club had already collected ₹9.09 lakh from its members. Therefore, it would be entitled to refund of only the rest of ₹6.41 lakh along with interest applicable in terms of Section 11BB of the Central Excise Act, 1944, the judges ordered.
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