By April 19, 2015 December 20th, 2019 No Comments

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
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
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.


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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