Holding

The retrospective tax rate reduction created a legal fiction that repealed the earlier non‑refund clause, obligating the State to refund the excess tax collected with interest.

Summary

Corporation Bank collected sales tax at 1% on gold bullion sold to a dealer between April and December 1999. A later notification (SRO No. 1075/99) reduced the tax rate to 0.5% with retrospective effect from 1 April 1999. The dealer claimed a refund of the excess tax, but the Assistant Commissioner rejected it based on an earlier notification (SRO 1728/93) that tax collected at a higher rate would not be refunded. The High Court directed the bank to refund the excess amount, which the bank appealed. The Supreme Court held that the retrospective notification created a legal fiction that effectively repealed the earlier non‑refund provision, and under the Kerala General Sales Tax Act, 1963 (Section 44) the State must refund the excess tax with interest. The appeal was allowed, directing the State of Kerala to refund the amount to the dealer.

Issues considered

Whether a retrospective reduction of sales tax rate by notification creates a legal fiction that obliges refund of tax collected at the earlier higher rate.
Whether the earlier SRO 1728/93 provision barring refund is repealed by necessary implication.
Whether Section 44 of the Kerala General Sales Tax Act, 1963 mandates refund of excess tax notwithstanding the earlier notification.
Whether the State can deny refund in violation of Articles 265 and 14 of the Constitution.
Whether the appellate court can direct the bank to refund and allow it to claim refund from the tax authorities.

Legislation cited

Kerala General Sales Tax Act, 1963s. 44

Subjects

sales taxrefund of excess taxretrospective legislationlegal fictionpurposive constructionArticle 265Article 14Kerala General Sales Tax Acttax collectionunjust enrichment

Judgment

[2008) 16 S.C.R. 340

A CORPORATION BANK
II.
M/S. SARASWATI ABHARANSALA AND ANOTHER . ,

(Civil Appeal No. 6108 of 2008)

B NOVEMBER 19, 2008

[S.B. SINHA AND CYR.IAC JOSEPH, JJ.]'

KERALA GENERAL SALES TAX ACT, 1963:
c s. 44 - Refund of excess tax collected - Notification SRO
No. 1075199 dated 27.12.1999 reducing rate of sales tax
with retrospective effect - Claim by assessee for refund of
excess tax ~ollected - HELD: By the notification a legal
fiction was created giving it a retrospective effect and
D retrospective operation and if any tax has been paid in
excess, the same must be refunded - If the substantive
provision of a statute provides for refund, State, ordinarily,
by a subordinate legislation could not have laid down that
the tax paid even by mistake would not be refunded, save
E and except in cases of involving principle of 'unjust
enrichment', which is not applicable in the instant case -
Principle of purposive construction should be applied in the
case of this nature to find out the object of the Act -
Administrative Law - Subordinate Legislation - Interpretation
F of statute - Purposive construction - Legal fiction -- Repeal
by necessary implication - Constitution of India, 1950 -
Articles 14 and 265.
Respondent no. 1, a dealer in bullion gold,
purchased gold from the appellant Bank during the
G period 6.4.1999 to December, 1999 and paid sales tax at
the rate of 1% as was prevailing at the relevant time.
Thereafter, by Notification SRO No. 1075199 dated
27.12.1999 the rate of sales tax was reduced to 0.5% with ""
H 340
CORPORATION BANK v. SARASWATI ABHARANSALA 341
ANDANR.

-\ retrospective effect from 1.4.1999. The request of A
respondent no. 1 for refund of excess amount of sales
tax collected from it was rejected by the Assistant
Commissioner, Sales Tax on the ground that the Original
Notification No. SRO No. 1728/93 stipulated that the tax
collected at the higher rate and paid to the Government B
was not to be refunded. The writ petition filed by
r respondent no. 1 was dis111i!?~~~ by the single Judge of
the High Court. But, on appeal, the Division Bench
directed.the Bank to refund the excess amount collected
from respondept no. 1, and granted liberty to the Bank c
to file its claim before sales tax authorities. Aggrieved, the
Bank filed the appeal.
Allowing the appeal, the· court
HELD: 1.1. Article 265 of the Constitution of India
mandates that no tax shall be levied or collected except D
by authority of law. In terms of the said provision,
f- therefore, all acts relating to imposition of tax providing,
inter alia, for the point at which the tax is to be collected,
the rate of tax as also its recovery must be carried out
strictly in accordance with law. Sales tax is leviable on E
sale of goods. It must be collected by the dealer as an
agent of the State at such rate as may be specified.
Neither the State nor the agent is entitled to collect tax at

.. a rate higher than specified. [Para 18 and 21) [348-F; 349-

- ~
E]
1.2. If the substantive provision of a statute provides
for refund, the ~Jate ordinarily by a subordinate
legislation c_ou.!d ·11ufnave laid down that the tax paid
even by mistake-would not be refunded. If a tax has been
F

paid in excess of the tax specified, save and except the G
cases involving the principle of ·unjust enrichment',
excess tax realized must be refunded. In the instant case,
the doctrine of unjust enrichment has no application as
it is not the case of the respondent/State that the buyer
has passed on the excess amount of tax collected by it H
342 SUPREME COURT REPORTS [2008] 16 S.C.R.

A to the purchasers. The State, furthermore is bound to act J-
reasonably having regard to t~e equality clause
contained in Article 14 .of the Constitution of India. [P~ra
22 and·~23J [~49:-f;-H; 350-A] : .. ,· ._ '-? ... , . • . .
. -' 1~3. 'It ·j5 ttue' that'the· original Notification SR·o 1728/
B 1993 contafned 'a provision for not refun'ding the amount
of tax· collected at a higher rate: But the subsequent
Notification SOR No. 301/1999 reduced the rate;' arid by
SRO No. 1075/1999, a legal fiction was created giving it
retrospective effect and retroactive operation on or frorri
C 1st April, 1999. The effect of a legal fiction is well known:
It must be given full effect. The condition of non-refund
of the excess amount must be held to have been repealed
by necessary implication as the rate of tax so applied to
the transaction of sale of gold bullion was with
D retrospective effect. In view· of the admitted fact that tax
hadbeen collected and paid for the period 6th April, 1999
and 10th December,· 1999 @ 1 ·3 of the· prfoe which having
be~n reduced from 1st April, ·19s9'to o.5 %,:the State is ~
bound. to refund the excess amount ·deposited with it.
E [Para 15,· 16, 24 and_ 27) [348-B~b; 350-8) - .;
1.4.. Furthermore, the.Notification having been given
a .re~rospective . effect must be construed on the
touchstone of .the ,purpose. and .object it s_ought tO
a'chieve. ·Principle of purposive .construction should. be
F applied in a case -of this nature to find out the object' of·
the Act. The statute should be considered in such
-; .. ""'L .... #""•.:~"-;.'·~ ""'· .• ~ ..... ,t ~· .. ~~ .. •
a·
manner so as to hold that it serves to seek a reasonable
• . .; • . ;: 1 ,.. - • ··" . ' • . ' ' { .~ . .f • " ' ~ ,, .... • .. ";. •

result:· Th'e' statute would not be considered
~ ,, • ~ ~ { i ~ :
r .
in· such a ·
••• •••• "_. ' ''I" ·~ .. .- ! • - . ~ # ~

manner so as ·to encourage defaulters and discourage
G those ·who 'abide hy. the' law; .The statute fi.irth'ermore, it
' • i • • ',ft J.,... ·- '>t - 'I·."~ • ~ ~ ~-
is trite; should be read· in the manner so as to do justice
to the parties. '[Pa.ra ·2s
".~ "": •, • j '"
·2s1 [35o~c'j '· ',
f ! ••• c• ~' -'':.· f
·and' I ' "' I • ; ' --. .. f ' .I - J "'::

. ' 1.5. The interest of justice would be·served if instead
H of·the ..a~p~~i~~t.-~-~f?~~~rig the·amo~nl·t~.r~spond:~1t no.
CORPORATION BANK v. SARASWATI ABHARANSALA 343
ANDANR.

-\ 1 and later claiming refund from the authorities, the State A
of Kerala is directed to refund the excess amount of tax
collected to respondent no. 1 with interest at the rates
mentioned in the order. [Para 29] [351-B]

CIVIL APPELLATE JURISDICTION : Civil Appeal No.
B
6708 of 2008.
y
From the final Judgment and Order dated 7.11.2006 of the
High Court of Kerala at Ernakulam in W.A. No. 1162 of 2006.

R. Mohan, ASG., V.B. Joshi, Kailash Pandey, Krishan c
Kumar and Mohd. Yasir Abbasi for the Appellant.

Sreegesh M.K, K.R. Sasiprabhu and R. Sathish for the
Respondents.

The Judgment of the Court was delivered by D

S.B. SINHA, J. 1. Leave granted.
r
2. First respondent is a dealer in bullion gold. It entered
into transactions of purchase of gold from the appellant herein
during the period 6th April, 1999 and 10th December, 1999. E
The total transactions during the said period were for a sum of
Rs.423748518/-. Indisputably the rate of tax which was
prevailing at the relevant time was 1%. The amount of sales
tax at the said rate was collected from respondent No.1. The
-.... ~ amount so collected, indisputably had been deposited with the F
'
,;' sales tax authorities.

3. On or about 27th December, 1999 vide S.R.O. No.1075/
99 the rate of sales tax was reduced from 1% to 0.5% which
was given a retrospective effect from 1st of April, 1999. The "
G
said Notification reads thus :-
~
"9 Any dealer Sale of bullion and specie
to registered dealer within
the State.
H
344 . SUPREME COURT REPORTS. . [2008] 16 S.C.R.

A This notification shall be deemed to have come into
11
. force,on first day ·of April,· 1999 :

. . ,. .. " ...
n was given .a .retrospective
. . - . "' . . . .. ..
effect.
' '~
· ..· .

• 4.,Thepriginal $RO 1728/93 on the s4bject provided that
1
s· "tax if any collected at the higher rate, shall be paid over to
Government and tax if any paid over to Government shall not
be refunded". ·Clause 9 of Schedule IV of SRO 1728/83 -<
provided as under:-

c •
11
9 Minerals and Metals Sale of bullion to .
Corporation of India and registered dealers in
Banks 'jewellery for
·manufacture of gold
jewell~rv within the
State fer export.
11

D ! .,,,

4. This entry in SRO 1. 728/93 stood amended by SRO
301/99 to read:- · · '· " · · ·

"9 Minerals ahd Metals· · Sale of bullion to
E Corporation of India and 'registered dealers in
Banks jewellery for
m·anufacture of gold
·j~wellery within the
11
State for export.
F
The said entry, as stated above, was furtheramended by
SRO 1075/99. .

5. Appellant on or about 19th January, 2000, in View of the
aforementioned Notification, requested the Assistant
G Commissioner, Sales Tax, Special Circle I, Calicut to refund the
excess amount of sales tax collected from the respondent No.1
amounting to Rs.20,97,763.50. The Assistant Commissioner
Sales Tax, however, rejected the said prayer in terms of its letter
dated 3rd March, 2000, wh.ich reads as under:-
H
CORPORATION BANK v. SARASWATI ABHARANSALA 345
AND ANR. [S.8. SINHA, J.]

-~ "You may please see that the Government as per the A
above mentioned SRO amended the original notification
in SRO 1728/93. According to the said original
notification, tax if any collected at the higher rate shall be
paid over to the Government and tax if any paid over to
the Govt. shall not be refunded. So you may please inform B
your customer accordingly."
~ .
t
6. The first respdnctent ~as communicated the same by
the appellant in terms of its letter dated 6th June, 2000 stating:-

"While referring to your representation on the subject c
matter, it has been informed by our higherups that as per
the letter from the Asst. Commissioner of Commercial
Taxes, Calicut viz: 330111150/99-2000, it has b¢en clarified
that according to the GO., SRO 1728/93 "Any tax· collected
at the higher rate shall be paid over to the Govt. and tax, if D
any paid over to the Govt. shall not be refunded.
~
Kindly note the same for your information."

7. A writ petition was filed by the first resppndent against
the appellant before the High Court of Kerala qwestioning the E
validity of the said order. . . ''
\

"i) declare that the petitioner is liable.to pay sales-tax
at 1/2% for the transactions referred to in Ext. P2
and that collection of any amount in excess thereof F
.
......

-
t
is illegal and is liable to be refunded;

ii) issue a Writ of Mandamus or any other appropriate
writ, order or direction directing the respondent to
refund to the petitions an amount of Rs.20,97,261/
G
- with interest@ 21 % per annum from the date of
collection of the amounts shown in Ext. P2 till the
--'(
date of actual payment;

iii) issue a writ of Certiorari.. or any. other appropriate
writ, order or direction quashing Ext. P3;" H
346 SUPREME COURT REPORTS [2008] 16 ·S.C.R.

A 8. The said writ petition was dismissed by a learned
Single Judge of the said Court by his order dated 4th April,
2006 holding :-

"There cannot be any dispute that the petitioner is entitled
to move the Commissioner. Whether the petitioner had to
B
pay any tax in excess of the due rates and if so what is
the fate of such excess payment is certainly a dispute. The
petitioner has to move the Commissioner for appropriate
orders; It will be open to the petitioner to take all available
contentions on the claim for refund before the
c Commissioner. Accordingly, without expressing any
opinion as to the merits of the case, this writ petition is
disposed of as follows:-

ln the event of the petitioner moving the Commissioner
D . (Commercial Taxes), government of Kerala,
Thiruvananthapuram within a period of two months from
today, the Commiss·ioner shall consider the issue with
notice to the petitioner and the first respondent and take
appropriate action in accordance with law in the matter
E within another four months."

9. An intra court appeal was filed by the first respondent
and a Division Bench of the High Court by reason of the
impugned judgment dated 7th, November, 2006 allowed the
F said writ appeal opining :

"When the legislature or the government had given that 1
relief with retrospective effect, necessarily, that relief shall
reach the· concerned elig'tble citizen. ·The bank had
opportunity to file the return' showing the real tax liability
G based on Ex.P1 and claiming refund in terms of Section
. 33 and could pay over the amount tq the appellant, the
customer of the first respondent. If that had been claimed,
necessarily, the assessing authority would have refunded
it with 10% interest as provided in Section 44(4)."
H
· CORPORATION BANK v. SARASWATi ABHARANSALA 347
--I
AND ANR. [S.B. SINHA, J.]

~I 10. Mr. R. Mohan, learned Additional Solicitor General, A
appearing on behalf of the appellant-bank at the outset submits
that the writ petition for refund of tax was not maintainable. It
was contended that in any event it was not permissible for the
Division Bench of the High Court to direct the appellant to
refund the excess amount collected and granting liberty to it to B
file a claim application thereafter with the sales tax authorities,
r which is per say unjust.

11. Mr. R. Sathish, learned counsel appearing on behalf
of the respondent No.2/State of Kerala would submit that
despite amendment the original condition attached with SR
c
No.1728/93 i.e. the tax if any collected at the higher rate, shall
be paid over to Government and the tax, if any paid over to
Government shall not be refunded, having remained un-
amended, the State is not liable to refund the amount. It was
urged that although the High Court has taken note of the said D
condition laid down in SOR No. 1728/1993, but failed and/or
neglected to consider the same in its proper perspective.

12. Mr. M.K. Sreegesh, learned counsel appearing on
behalf of the first respondent, however, would submit that the E
Notification should be construed keeping in view the objective,
it seeks to achieve as would appear from Notification dated
27th December, 1999.

· 13. It was contended that the amendment had been brought
-.. into force with retrospective effect. The condition laid down F
t
" therein must be held to have been repealed.

14. Indisputably the gold in bulk quantity was sold by the
Bank within the State. Purchase was required to be effected
at least worth Rs.25 lakhs at a time. It was, however, felt that G
the intermediary dealers, who normally buy gold from the banks
.)( and primarily cater to the requirements of local goldsmith and
jewellers, would not be in a position to carry out their activity
since they would not be eligible for the reduced rate of 0.5%
when they buy the material from banks or other first sellers H
348 SUPREME COURT REPORTS [2008] 16 S.C.R.

A within the State. In the aforementioned situation, the
Government had taken a decision to make the said rate of tax
applicable when the bullion and specie are sold to any
registered dealer within the Sate.

15. The aforementioned objective on the part of the State
8
would appear from the note appended to SOR No. 1075/99
dated 27th December, 1999. It is true that the original
Notification SRO 1728/1993 contained a provision for not
refunding the amount of tax collected at a higher rate.

C 16. Subsequent Notification, namely SOR No. 301/1999,
however, reduced the rate provided the sale is effected within
the State for manufacture of ornaments. SRO 1728/1993, as
noticed hereinbefore, was further amended by SRO No. 1075/
1999, in terms whereof a legal fiction was created giving it a
D retrospective effect and retroactive operation on or from 1st
April, 1999.

17. The rate of tax which was applicable on 1st April, 1999 \
by reason of the said legal fiction was, therefore, 0.5 %.
E The effect of a legal fiction is well known. It must be given full
effect. It must be taken to its logical conclusion.

18. Sales tax is leviable on sale of goods . .It :must be
collected by the dealer as an agent of the State at such· rate
as may be specified:
F
19. Neither the State nor the agent is entitled to collect tax -\ .-
at a rate higher than specified. The Kerala General Sales Tax
Act, 1963 also contains a provision for refund in Section 44 .
thereof which reads as under :-

G "Refund:- ( 1) When an assessing authority finds at the· time
of final assessment, that the dealer has paid in excess of
what is due from him, it shall refund the excess to the
dealer.

H (2) When the assessing authority receives an order from
CORPORATION BANK v. SARASWATI ABHARANSALA 349
AND ANR. [S.B. SINHA, J.]

~.+ any appellate or revisional authority to make refund of tax A
or penalty paid by a dealer it shall effect the refund.

(3) Notwithstanding anything contained in sub-section (1)
·and (2), the assessing authority shall have power to adjust
the amount due to the refunded under sub-section (1) or
B
sub-section (2), towards the recovery of any amount due
on the date of adjustment, from the dealer.

(4) In case refund under sub-section (1) or sub-section (2)
or adjustment under sub-section (3) is not made within
ninety days of the date of final assessment, or as the case c
may be, within ninety days of the date of receipt of the
order in appeal or revision or the date of expiry of the time
for preferring appeal or revision, the dealer shall be entitled
to claim interest at the rate of ten percent per annum on
the amount due to him from the date of expiry of the said D
period upto the date of payment or adjustment."

20. Article 265 of the Constitution of India mandates that
n~ tax shall be levied or collected except by authority of law.

21. In terms of the said pro'..:ision, therefore, all acts relating E
to the imposition of tax providing, inter alia, for the point at
which the tax is to be collected, the rate of tax as also its
recovery must be carried out strictly in accordance with law.

... J
22. If the substantive provision of a statute provides for F
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. The G
State, furthermore is bound to act reasonably having regard to
the equality clause contained in Article 14 of the Constitution
of India.

23. It is not ev~n a case where the doctrine of unjust
H
350 SUPREME COURT REPORTS · [2008] 16 S.C.R.

A enrichment has any application as it· is not the case of the (---
respondent//State that the buyer has passed on the excess
amount of tax collected by it to the purchasers.

24. In view of the admitted fact that tax had been collected
and paid for the period 6th April, .1999 and 10th December,
8
1999 @ 1 % of the price which having been reduced from 1st
April, 1999 to 0.5 %, the State, in our opinion, is bound to refund
the excess amount deposited with it.

25. Furthermore the Notification having been given a
c retrospective effect must be construed on the touchstone of the
purpose and object it sought to achieve. Principle of purposive
construction should be applied in a case of this nature to find
outthe object oUhe Act. When a statute cannot be considered
in such a manner which would defeat its object, the legislature
D is presumed to be aware of the consequences flowing
therefrom. The statute should be considered in such a manner
so as to hold that it serves to seek a reasonable result. The
statute would not be considered in such a manner so as to
encourage defaulters and discourage those who abide by the
E law.

26. The statute furthermore, it is trite, should be read in the
manner so as to do justice to the parties. If it is to be held,
without there being any statutory provision that those who have
deposited the amount in time would be put to a
F disadvantageous position and those who were defaulters would r
1 ,1.i

be better placed, the same would give rise to an absuraity.
Construction of the statute which leads to confusion must be
avoided.

G 27. Thus the condition of non refund of the excess amount
must be held to have been repealed by necessary implication
as the rate of tax so applied to the transaction of sale of gold
bullion was with retrospective effect.

28. As all the facts are admitted and the State had refused
H
CORPORATION BANK v. SARASWATI ABHARANSALA 351
AND ANR. [S.B. SINHA, J.]

--4 to refund the excess amount of tax realized from the appellant, A
in our opinion, the writ petition was maintainable.

29. We are, therefore, of the opinion that the interest of
justice would be served if instead of the appellant refunding the
amount to the first respondent and later claiming refund from B
the authorities, if the State of Kerala is directed to refund the
amount of tax collected with interest at the rate of 10% per
annum to the first respondent at an early date, and not later than
four months from the date of communication of this order. It is
ordered accordingly. If, however, the amount is not paid within c'
the aforementioned period, the outstanding amount shall carry
interest@ 15 % per annum.

30. The appeal is allowed with the aforementioned
observations and direction. In the facts and circum.stances of
the case, however, there shall be no order as to costs. D

R.P. Appeal allowed.