Supreme Court of India
Vikram Cement & Anr vs State Of M.P. & Ors on 17 March, 2015Author: A Sikri

Bench: A.K. Sikri, Rohinton Fali Nariman







The bare minimum facts which are required to be mentioned
to decide this appeal are recapitulated, in brief, hereinbelow:

The appellant Nos. 1 and 2 are the units of Grasim Industries Limited,
which carries on manufacture and sale of 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 under M.P. Sthaniya Kshetra Me Mal
Ke Pravesh Par Kar Adhiniyam, 1976 (hereinafter called the ‘Entry Tax
Act’). In the year 1997, the entry tax on the aforesaid items of raw
materials payable under the Act was at the following rates:
COAL – 2.5%

In the year 1999, respondent No.1 – State issued Notification
No. A-3-80-98-ST-V (49) dated 4.5.1999. By this Notification it reduced
the rate of entry tax, namely, coal, gypsum and bauxite by making the entry
tax payable at the rate of 1% only. This Notification remained in force
for a limited period, that is from 1.5.1997 to 30.09.1997. The rate of
entry tax prior to 1.5.1997 and after 30.09.1997 remained the same, namely,
2.5%, 2% and 10% for coal, gypsum and bauxite respectively.

We are concerned here with the aforesaid period when entry tax payable was
@ 1% only. However, while reducing the entry tax to 1%, in the same very
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.
This Explanation is worded in the following terms:
“Explanation – The amount shall not be refunded in any case on the basis
that the dealer had paid the tax at a higher rate.”

As the Notification was issued only in May 1999 and it realted
to the past period, i.e. 1.5.1997 to 30.09.1997 and the entry tax is
payable at the point of entry of the goods into the State, as and when the
appellants were bringing the aforesaid raw material into the State of
Madhya Pradesh, they had been paying the entry tax. During the period
1.5.1997 to 30.09.1997, they had paid the entry tax at the rate which was
prevalent at that time, though reduced to 1% vide the Notification dated
4.5.1999. In this manner, according to the appellants, though they had
paid the entry tax at the higher rate, which was now reduced to 1% vide the
aforesaid Notification, they became entitled to get the refund of the
excess amount paid, but were still deprived of that refund because of the
aforesaid Explanation.

Naturally, being aggrieved by the said Explanation, the appellants
challenged the validity of the Explanation by filing writ petiion in the
High Court of Madhya Pradesh. The challenge was led primarily on two
counts: (i) in the first instance, it was pleaded that this Explanation was
arbitrary and discriminatory being violative of Article 14 of the
Constitution inasmuch as the classification which has carved out because of
the said explanation had the effect of treating the appellants and others
who had paid tax at a higher rate, differently from those who had not paid
the tax at all and were defaulted. It was argued that such a
classification was not based on any intelligible differentia and had no
nexus with any objective sought to be achieved. A number of judgments in
support of this contention were cited in the High Court. (ii) The second
argument raised was that it amounted to exaction of tax at a higher rate,
namely, at the rate of 2.5%, 2% and 10% for coal, gypsum and bauxite
respectively, though the rate fixed ultimately for the period in question
by the Notification dated 4.5.1999 was 1%. Therefore, such an
‘Explanation’ in the Notification was in the teeth of Article 265 of the
Constitution and per se illegal.

The High Court, though took note of the aforesaid arguments, did not deal
with these arguments in the manner in which these submissions were made and
dismissed the writ petition vide impugned judgment dated 11.9.2002 only on
the ground that identical issue had been considered by its own Division
Bench earlier in the case of Century Textiles and Industries Ltd. v. State
of Madhya Pradesh & Ors.[1] To be fair to the High Court, we would also
mention that the High Court has referred to another judgment of this Court
in Indian Oil Corporation v. Municipal Corporation, Jullundhar[2] and
having relied upon the observations in the said case to the effect that
where the octroi duty had already been collected, there was no question of
any equity in favour of the Indian Oil Corporation to claim the refund

Learned counsel appearing for the appellants has placed before us the same
arguments which were advanced before the High Court with the plea that the
High Court did not even consider those arguments appropriately. He
submitted that it was a clear case of discrimination qua the appellants who
had faithfully paid the tax and, therefore, the provisions of Article 14 of
the Constitution will squarely attract in the facts of the present case.
The learned counsel for the State, on the other hand, referred to the
reasoning given by the High Court in the impugned judgment in support of
his submissions while countering the arguments by the learned counsel for
the appellants.

After giving our thoughful consideration to the issue involved, we are of
the view that there is force in the submission of the learned counsel for
the appellants. The Explanation attached to Notification dated 4.5.1999,
or for that mater 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 period. The
consequence is that it carves out two categories of tax payers who are made
to pay the tax at different rates, even though they are identically
situated. There is no basis for creating these two classes and there is no
rationale behind it which would have any causal connection with the
objective sought to be achieved. It would be pertinent to mention that on
repeated query made by this Court to the learned counsel for the
respondents, he could not explain or show from any material on record as to
what led the authorities to provide such an Explanation. Therefore, it
becomes apparent 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. This can hardly
be countenanced, more so when it results in discrimination between the two
groups, though identically situated.

The law on the scope and meaning of Article 14 of the Constitution has now
been well articulated. We may gainfully refer to the case of D.S. Nakara &
Ors. v. Union of India[3], wherein this Court observed as under:
“10. The scope, content and meaning of Article 14 of the Constitution has
been the subject-matter of intensive examination by this Court in a catena
of decisions. It would, therefore, be merely adding to the length of this
judgment to recapitulate all those decisions and it is better to avoid that
exercise save and except referring to the latest decision on the subject in
Maneka Gandhi v. Union of India[4], from which the following observation
may be extracted:

“…what is the content and reach of the great equalising principle
enunciated in this Article? There can be no doubt that it is a founding
faith of the Constitution. It is indeed the pillar on which rests securely
the foundation of our democratic republic. And, therefore, it must not be
subjected to a narrow, pedantic or lexicographic approach. No attempt
should be made to truncate its all embracing scope and meaning for, to do
so would be to violate its activist magnitude. Equality is a dynamic
concept with many aspects and dimensions and it cannot be imprisoned within
traditional and doctrinaire limits….Article 14 strikes at arbitrariness
in State action and ensure fairness and equality of treatment. The
principle of reasonableness, which legally as well as philosophically, is
an essential element of equality or non-arbitrariness pervades Article 14
like a brooding omnipresence.”

11. The decisions clearly lay down that though Article 14 forbids class
legislation, it does not forbid reasonable classification for the purpose
of legislation. In order, however, to pass the test of permissible
classification, two conditions must be fulfilled, viz. (i) that the
classification must be founded on an intelligible differentia which
distinguishes persons or things that are grouped together from those that
are left out of the group; and (ii) that that differentia must have a
rational relation to the objects sought to be achieved by the statute in
question [See Shri Ram Krishna Dalmia v. Shri Justice S.R. Tendolkar &
Ors.[5]]. The classification may be founded on differential basis
according to objects sought to be achieved but what is implicit in it is
that there ought to be a nexus, i.e. casual connection between the basis of
classification and object of the statute under consideration. It is
equally well settled by the decisions of this Court that Article 14
condemns discrimination not only by a substantive law but also by a law of
(emphasis supplied)”

In Re.: Special Courts Bill, 1978[6], this Court undertook a survey of
plethora of decisions touching upon the ‘Equality’ doctrine enshrined in
Article 14 of the Constitution and culled out certain principles. In
principle No.3, the Court highlighted that though classification was
permissible and it was not for the Courts to insist on delusive exactness
or apply doctrinaire tests for determining the validity of classification
in any given case, but, at the same time, classification would be treated
as justified only if it is not palpably arbitrary. It was also emphasized
that the underlined purpose in Article 14 of the Constitution was to treat
all persons similarly circumstanced alike, both in privileges conferred and
liabilities imposed. Following was the emphatic message given by the
“(4)…It only means that all persons similarly circumstanced shall be
treated alike both in privileges conferred and liabilities imposed. Equal
laws would have to be applied to all in the same situation, and there
should be no discrimination between one person and another if as regards
the subject matter of the legislation their position is substantially the
(emphasis supplied)”

Another principle which was restated was that the
classification must not be arbitrary but must be rational, that is to say,
it must not only be based on some qualities or characteristics which are to
be found in all persons grouped together and not in others who are left
out, but those qualities and characteristics must have reasonable relation
to the object of the legislation.

Article 14 eschews arbitrariness in any form. This principle was
eloquently explained in EP. Royappa v. State of Tamil Nadu[7] holding that
the basic principle which informs both Articles 14 and 15 is equality and
inhibition against discrimination. We would like to quote the following
passage from that judgment as well, which is as under:
“From a positivistic point of view, equality is antithetic to
arbitrariness. In fact, equality and arbitrariness are sworn enemies; one
belongs to the rule of law in a republic while the other, to the whim and
caprice of an absolute monarch. Where an act is arbitrary it is implicit
in it that it is unequal both according to political logic and
constitutional law and is, therefore, violative of Article 14, and if it
affects any matter relating to public employment, it is also violative of
Article 14. Article 14 and 16 strike at arbitrariness in State action and
ensure fairness and equality of treatment.”

On the application of the aforesaid principles to the facts of
the present case, the irresistible conclusion is that the Explanation is
highly discriminatory in nature.

The matter can be looked into from another angle as well, which will yield
the same results.

We have to keep in mind that vide Notification dated 4.5.1999, it is the
rate of entry tax on the aforesaid raw materials which is reduced to 1%.
The effect of that would be that any person bringing raw materials, viz.
coal, gypsum and bauxite, within the State of Madhya Pradesh was liable to
pay the entry tax only at the rate of 1%. Once this aspect is kept in
mind, the legal effect thereof has to be that all the persons including the
appellants, who had already paid the tax, were supposed to pay the tax at
the rate of 1% only. Therefore, if they had paid the tax at a higher rate,
they were entitled to the refund of excess amount of tax paid. No reasons
are coming forth in the counter affidavit filed by the State either in the
High Court or in this Court or in any other form as to why there was a
necessity of adding such an Explanation for not refunding the excess amount
paid by the dealer in excess of 1% which was the entry tax legally payable
for this period. Once we consider the matter from this angle, it also
becomes clear that as the entry tax payable was at the rate of 1% only,
asking any person to pay at a higher rate would be clearly violative of
Article 265 of the Constitution.

Article 265 of the Constitution has to be read along with Article 14 in the
given context. This co-relation between the two provisions is beautifully
brought out in Kunnathat Thathunni Moopil Nair v. State of Kerala & Anr.[8]
as under:
“10. The most important question that rarises for consideration in these
cases, in view of the stand taken by the State of Kerala, is whether Art.
265 of the Constitution is a complete answer to the atack against the
constitutionality of the Act. It is, therefore, necessary to consider the
scope and effect of that Article. Article 265 imposes a limitation on the
taxing power of the State in so far as it provides that the State shall not
levy or collect a tax, except by authority of law, that is to say, a tax
cannot be levied or collected by a mere executive fiat. It has to be done
by authority of law, which must mean valid law. In order that the law may
be valid, the tax proposed to be levied must be within the legislative
competence of the Legislature imposing a tax and authorising the collection
thereof and, secondly, the tax must be subject to the conditions laid sown
in Art. 13 of the Constitution. One of such conditions envisaged by Art.
13(2) is that the Legislature shall not make any law which takes away or
abridges the equality clause in Art.14, which enjoins the State not to deny
to any person equality before the law or the equal protection of the laws
of the country. It cannot be disputed that if the Act infringes the
provisions of Art.14 of the Constitution, it must be struck down as
unconstitutional. For the purpose of these cases, we shall assume that the
State Legislature had the necessary competence to enact the law, though the
petitioners have seriously challenged such a competence. The guarantee of
equal protection of the laws must extend even to taxing statutes. It has
not been contended otherwise. It does not mean that every person should be
taxed equally. But it does not mean that if property of the same character
has to be taxed, the taxation must be by the same standard, so that the
burden of taxation, may fall equally on all persons holding that kind and
extent of property. If the taxation, generally speaking, imposes a similar
burden on everyone with reference to that particular kind and extent of
property, on the same basis of taxation, the law shall not be open to
attack on the ground of inequality, even though the result of the taxation
may be that the total burden on different persons may be unequal. Hence,
if the Legislature has classified persons or properties into different
categories, which are subjected to different rates of taxation with
reference to income or property, such a classification would not be open to
the attack of inequality on the ground that the total burden resulting from
such a classification is unequal. Similarly, different kinds of property
may be subjected to different rates of taxation, but so long as there is a
rational basis for the classification, Art. 14 will not be in the way of
such a classification resulting in unequal burdens on different classes of
properties. But if the same class of property similarly situated is
subjected to an incidence of taxation, which results in inequality, the law
may be struck down as creating an inequality amongst holders of the same
kind of property. It must, therefore, be held that a taxing statute is not
wholly immune from attack on the ground that it infringes the equality
clause in Art. 14, though the Courts are not concerned with the policy
underlying a taxing statute or whether a particular tax could not have been
imposed in a different way or in way that the Court might think more just
and equitable. The Act has, therefore, to be examined with reference to
the attack based on Art. 14 of the Constitution.”

At this stage, we would like to refer to another judgment of this Court
which is quite proximate to the situation at hand, namely, Corporation Bank
v. Saraswati Abharansala & Anr.[9] That was case where rate of Sales Tax
was reduced from 1% to 0.5% vide SRO No. 1075/99 dated 27.12.1999, which
was given retrospective effect from 1.4.1999. The respondent in that case,
who had paid the sales tax @ 1% for the period 6.4.1999 to 10.12.1999,
claimed refund of the excess tax paid, i.e. over and above 0.5%. This
request was rejected by the Assistant Commissioner, Sales Tax. The
assessee filed the writ petition challenging the order of the Assistant
Commissioner, which was dismissed by the Single Judge of the High Court.
However, the assessee’s intra-court appeal was allowed by the Division
Bench directing the authorities to refund the excess amount collected. The
said decision of the Division Bench was upheld by this Court in the
aforesaid judgment holding that non-refund would not only offend equality
clause contained in Article 14 of the Constitution, it would also be in the
teeth of Article 265 of the Constitution which mandates that no tax shall
be levied or collected, except by authority of law. Following passages
from the said judgment are worth a quote:
“20. Article 265 of the Constitution of India mandates that no tax shall be
levied or collected except by authority of law.

21. In terms of the said provision, therefore, all acts relating 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.

22. 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.
The 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 even a case where the doctrine of unjust enrichment has any
application as it is not the case of the respondent/Setate 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, 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.”

It is possible, as was sought to be argued by the learned counsel for the
State, that while adding this Explanation the Government had kept in mind
the principle of unjust enrichment. Presumably because of this reason, the
High Court also referred to the judgment in the case of Indian Oil
Corporation (supra). However, on such a presumption alone, there cannot be
any justification for adding the Explanation of the nature mentioned above.
In order to determine as to whether a particular dealer is in fact
entitled to refund or not, the Government can go into the issue of unjust
enrichment while considering his application for refund. That would depend
on the facts of each case. It cannot be presumed that the burden was
positively passed on to the buyers by these dealers and, therefore, they
are not entitled to refund.

For all the aforesaid reasons, we are of the opinion that the impugned
Explanations in the Notifications dated 4.5.1999 and 5.7.1999 are
unconstitutional. We, accordingly, allow the appeal and quash the said
No costs.



MARCH 17, 2015

[1] Writ Petition No. 2917 of 2000
[2] (1993) 1 SCC 333
[3] (1983) 1 SCC 305
[4] (1978) 1 SCC 248
[5] 1959 SCR 279, 296
[6] (1979) 1 SCC 380
[7] (1974) 2 SCR 348
[8] (1961) 3 SCR 77
[9] (2009) 1 SCC 540


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