RAJASHREE POLYFIL (A DIVISION OF CENTURY ENKA LTD) vs. STATE OF GUJARAT

C/SCA/18715/2018 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/SPECIAL CIVIL APPLICATION NO. 18715 of 2018 With R/SPECIAL CIVIL APPLICATION NO. 14975 of 2019

FOR APPROVAL AND SIGNATURE:

HONOURABLE MR.JUSTICE J.B.PARDIWALA and HONOURABLE MR. JUSTICE BHARGAV D. KARIA ================================================================ 1 Whether Reporters of Local Papers may be allowed to see the judgment ? No 2 To be referred to the Reporter or not ? No 3 Whether their Lordships wish to see the fair copy of the judgment ? No 4 Whether this case involves a substantial question of law as to the interpretation of the Constitution of India or any order made thereunder ? No ================================================================ RAJASHREE POLYFIL (A DIVISION OF CENTURY ENKA LTD) & 1 other(s) Versus STATE OF GUJARAT & 2 other(s) ================================================================ Appearance: MR SAURABH SOPARKAR, SR. COUNSEL with UCHIT N SHETH(7336) for the Petitioner(s) No. 1,2 MR CHINTAN DAVE, ASSISTANT GOVERNMENT PLEADER(1) for the Respondent(s) No. 1,2 MR RASESH H PARIKH(3862) for the Respondent(s) No. 3 MR.HEMANG H PARIKH(2628) for the Respondent(s) No. 3 ================================================================ CORAM: HONOURABLE MR.JUSTICE J.B.PARDIWALA and HONOURABLE MR. JUSTICE BHARGAV D. KARIA

Date : 04/03/2020

ORAL JUDGMENT (PER : HONOURABLE MR. JUSTICE BHARGAV D. KARIA) 1. Rule, returnable forthwith. Mr.Chintan Dave, the learned Assistant Government Pleader waives service of Notice of Rule for and on behalf of the Page 1 of 17

C/SCA/18715/2018 JUDGMENT respondent Nos.1 and 2. Mr.Rasesh H. Parikh, the learned advocate waives service of Notice of Rule for and on behalf of the respondent No.3. 2. Having regard to the controversy in a narrow compass, with the consent of the parties, the matter is taken up for hearing. 3. By these petitions under Article 226 of the Constitution of India, the petitioners have prayed for the following reliefs: “A. This Hon'ble Court may be pleased to issue a writ striking down and declaring condition no.2 of remission order dated 5.9.2017 (annexed at Annexure A) issued by State Government of Gujarat as being beyond the competence of the State Government, arbitrary, discriminatory and violating Article 14 of the Constitution of India; B. Without prejudice to the above and in the alternative this Hon'ble Court may be pleased to issue a writ of mandamus or a writ in the nature of mandamus or any other appropriate writ or order to the State Government to act upon the representation made

IOCL

and

give

positive clarification to the effect that availing benefit of remission on local sales under order dated 5.9.2017 will not lead to liability of tax at fully rate on inter- State sales made against C form declarations; C. This Hon'ble Court may be pleased to issue a writ of mandamus or a writ in the Page 2 of 17

C/SCA/18715/2018 JUDGMENT nature of mandamus or any othe appropriate writ or order directing either the State Government or IOCL to grant refund to the Petitioners of tax collected and deposited by IOCL in excess of 6% from the Petitioners because of illegal condition no. 2 of remission order dated 5.9.2017; D. Pending notice, admission and final hearing of this petition, this Hon'ble Court may be pleased to direct IOCL (Respondent No.3) to henceforth collect and pay tax at the rate of 6% on sales of LNG made to the Petitioners; E. Ex parte ad interim relief in terms of prayer D may kindly be granted; F. Such further relief(s) as deemed fit in the facts and circumstances of the case may kindly be granted in the interest of justice for which act of kindness your petitioners shall forever pray.” 4. Since the issue, in both the petitions, is common, the same are heard analogously and are being disposed of by the common judgment. 5. The facts of the Special Civil Application No.18715 of 2018 are considered as main matter for the purpose of deciding these matters. 6. The brief facts of the case are that : 6.1. The petitioner No.1 is a Public Ltd. Company. Petitioners are engaged in the manufacture and sale Page 3 of 17

C/SCA/18715/2018 JUDGMENT of nylon textile yarn, nylon chips, nylon industrial yarn, nylon tyre cord fabric and dipped tyre cord fabric etc. 6.2. The petitioners are registered under the Gujarat Value Added Tax Act, 2003 (for short “the Act 2003”) as well as the Central/Gujarat Goods and Services Tax Act, 2017 (for short 'the Act, 2017'. 6.3. The petitioners require Liquefied Natural Gas (for short “LNG”) mainly for heating purpose in the dipped fabric plant for manufacturing nylon tyre cord fabric. The petitioners therefore, entered into an agreement with Indian Oil Corporation Ltd. (for short “IOCL”)-respondent No.3 on 07.10.2016 for supply of LNG from its Dahej terminal located in the State of Gujarat. 6.4. It is the case of the petitioners that prior to coming into force of Goods and Service Tax regime in India, LNG was taxable under the Act 2003 at the rate of 15%, the IOCL-respondent No.3 charged tax at the rate of 15% on sales of LNG to the petitioners. The petitioners under the VAT Act were entitled to claim input tax credit of the tax so charged by the IOCL Page 4 of 17

C/SCA/18715/2018 JUDGMENT after reduction at the rate of 4% under Section 11(3) (b)(iii) of the Act 2003. 6.5. According to the petitioners, after coming into force of GST w.e.f. 01.07.2017, the goods manufactured by the petitioners were covered under the GST regime, but LNG continued to be taxed under the Act 2003 at the rate of 15%. 6.6. The petitioners were therefore, unable to take input tax credit on the tax paid to the IOCL on purchase of LNG under the Act 2003 against the output tax liability of the petitioners under the Act 2017. 6.7. Upon consideration of the representation of the petitioners, the respondent No.1-State issued remission order dated 05.09.2017 in exercise of powers under Section 41 of the Act 2003. As per the said remission order, the tax on sales of natural gas to manufacturers was remitted at the rate of 9% provided such natural gas was used in manufacture of goods covered under the GST regime other than for use in generation of electricity or manufacture of fertilizers. Page 5 of 17

C/SCA/18715/2018 JUDGMENT 6.8. The petitioners were therefore, entitled for the benefit under the remission order dated 05.09.2017 on certain terms and conditions, the first condition was that the selling dealer was required to charge and collect tax only at the rate of 6% on sales of natural gas. 6.9. According to the petitioners, the Condition No.2 of the said remission order prescribed that the selling dealer shall charge and collect full tax applicable as per the rate specified in Schedule III of the Act 2003 on inter-State sales of natural gas. 6.10. However,

the

IOCL-respondent

No.3 interpreted the order of remission to the effect that the IOCL was not entitled to get Form 'C' under the Central Sales Tax Act, 1956 and therefore charged 15% tax on the sale of LNG to the petitioners instead of 6%. 6.11. The petitioners made a representation to the respondent No.3, but the same was not considered. 7. At the outset, Mr.Saurabh Soparkar, the learned senior advocate assisted by Mr.Uchit N Sheth Page 6 of 17

C/SCA/18715/2018 JUDGMENT submitted that in view of affidavit-in-reply filed on behalf of the respondent-State, the petitioners are not pressing prayers A and B and are restricting the petition qua prayer C only. 7.1. He invited the attention of the Court to the following averments made in the Affidavit-in-reply filed on behalf of the State: “9. I say and submit that as far as the remission and the representation seeking remission are concerned, there is no controversy, however, it appears that the petitioner's grievance is with reference to non-granting of such benefits on inter- State sales and leavy as per schedule, which is in view of non availing benefits by IOCL under the remission order. The contention with reference to entry 92A of list 1 of the VIIth Schedule of the Constitution of India would have no bearing, considering the facts that the condition no.2 does not override any of the Central statute or central levy of tax. The present order does not overreach or breach the requirements of Central Sales Tax Act, 1963 as contended by the petitioner. 10. I say and submit that it appears that confusion or controversy is basically with reference

sales,

where

C-form declaration are applicable in view of Section 8 of the Central Sales Tax Act, 1963. I say that on the above issue, IOCL had

sought

clarification

for

the determination of issue before the State Authorities and the State Tax Department vide

its

letter

no.B.No.101

dated Page 7 of 17

C/SCA/18715/2018 JUDGMENT 31.08.2018 has already conveyed to Finance Department by Legal Branch of State Tax Department. The said communication dated 31.08.2018 opines that such remission order does not overreach Central Sales Tax Act, 1963 or Section 8 of the said Act and if C- Form are furnished for the inter State, such sales would be governed by Central Tax Act, 1963, however, sales where C-Form is not furnished, the leviable tax would be the actual payable tax and in such sales, no

remission

would

permitted. Therefore, in view of said communication dated 31.08.2018 made by the Joint Secretary (Tax), Finance Department, Gandhinagar. The whole controversy is resolved and the grievance would not further survive. However if at all there is any confusion or miscommunication on the part of IOCL, the petitioner is required to seek clarification with IOCL. The copy of communication dated 31.08.2018 is annexed herewith and marked as Annexure R I.” 7.2. Referring to the aforesaid averments, it was submitted that now the state has clarified that remission order does not overreach the Central Sales Tax Act, 1956 or Section 8 of the said Act and if Form 'C' for sale made in the inter-State are furnished, then such sales would be governed by Central Tax Act, 1956. 7.3. Thereafter, the learned senior advocate invited attention of the Court to the Affidavit filed on behalf of the petitioners to point out that the respondent No.3-IOCL has started charging tax at the Page 8 of 17

C/SCA/18715/2018 JUDGMENT rate of 6% on sales of LNG w.e.f. August, 2019 in terms of the remission order dated 05.09.2017 by giving credit note of the remitted amount of tax. It was therefore, submitted that now the grievance of the petitioners in the present petition is only restricted to direction for refund of the excess tax collected from the petitioner by the respondent No.3 from 05.09.2017 till July, 2019. 7.4. It was submitted that in view of the aforesaid fact situation, the petitioners are entitled to refund of the amount of 9% of tax charged by the respondent No.3 as per the Schedule III without giving benefit of remission order dated 05.09.2017. 7.5. It was therefore, prayed that the respondent- State may be directed to issue refund of difference of 9%, which was collected by the respondent No.3- IOCL between 05.09.2017 and August, 2019 from the petitioners

and

deposited

with

respondents authorities. 7.6. Learned senior counsel placed reliance upon the decision rendered in the case of J.K. CEMENT LTD. Page 9 of 17

C/SCA/18715/2018 JUDGMENT v. STATE OF GUJARAT passed in Special Civil Application No.15333 of 2019 dated 18.12.2019 in support of his contention wherein the Co-ordinate bench of this Court recorded the submissions of the petitioner in para 11, which read thus : “11. Mr. Uchit Sheth, learned advocate for the petitioners in both the petitions, submitted that the respondent authorities have erred in refusing to refund the amount of excess tax collected and deposited with them even though C form declarations in respect of such transactions have been duly furnished and the Rajasthan High Court has specifically

directed

the

concerned authorities to refund the excess tax within twelve weeks of the refund claim. Reference was made to section 11B of the Central Excise Act, 1944 and more particularly to clause (e) of sub-section (2) thereof, which provides that the amount of duty of excise and interest, if any shall instead of being credited to the fund be paid to the applicant if such amount is relatable to the duty of excise and interest, if any, paid on such duty borne by the buyer, if he has not passed on the incidence of such duty and interest, if any, paid on such duty to any other person.” 7.7. The submissions of the State are recorded in para 12 of the aforesaid judgment, which read thus : “12. Opposing the petitions, Ms. Maithili Mehta,

learned Assistant

Government Pleader,

submitted

that

while

the respondents are not disputing the fact that the amount collected towards tax in the absence of C form declarations is required to be refunded if the C form declarations Page 10 of 17

C/SCA/18715/2018 JUDGMENT are furnished; however, such refund can be granted to the seller - Reliance Industries Limited and not to the petitioners. It was submitted that the transactions in question being

interstate

transactions,

the Commercial Tax Department of Rajasthan was required to issue C forms to the petitioners, which were then required to be forwarded to Reliance Industries Limited, but as the Rajasthan Commercial Tax Department refused to grant C forms to the petitioners, they were liable to pay tax @ 20 % which was deposited with the Gujarat Commercial Tax Department. It was submitted that since the assessment proceedings qua Reliance Industries Limited are still pending for the assessment years in question, the respondent authorities are still to process the application for grant of refund. It was further submitted that the refund shall be paid to Reliance Industries Limited which in turn shall forward the amount to the petitioners. However, the respondent authorities would not be in a position to directly grant refund to the petitioners as it is Reliance Industries Limited who has deposited the tax qua the said transactions. It was submitted that the respondent authorities will process the refund in accordance with law on completion of the assessment proceedings of Reliance Industries Limited for the assessment years in question and grant refund thereafter, which may then be paid over to the petitioners. It was urged that at this stage no cause of action arises in favour of the petitioners and that the petition being devoid of merits deserves to be dismissed.” 7.8. Thereafter, the ultimate findings are recorded as under : Page 11 of 17

C/SCA/18715/2018 JUDGMENT “14. In the backdrop of the facts and contentions noted hereinabove, it is an undisputed position that the petitioners have borne the burden of tax as the CST authorities at Rajasthan had refused to issue C forms after the coming into force of the GST regime. On account of non- issuance of C forms, the petitioners were not in a position to submit C form declarations in respect of the diesel purchased by them for their mining activity, as a result whereof, the petitioners could not purchase diesel at concessional rate of tax from the seller - Reliance

Industries

Limited,

which collected tax at the rate of 20 % from the petitioners and deposited the same with the respondent authorities. Now, on account of the directions issued by the Rajasthan High Court in the decisions referred to hereinabove, the CST authorities at Rajasthan have issued C form declarations in respect of the transactions in question. The respondent authorities do not dispute that against the C form declarations, the tax collected from the petitioners and deposited by Reliance Industries Limited is required to be refunded. The sole refrain of the respondent authorities is that such refund can be made to the seller – Reliance Industries Limited after its assessment for the period in question is concluded and not to the petitioners who are not registered as dealers in Gujarat. 15. In the opinion of this court, while adopting the above stand, the respondents have failed to take into consideration the fact that insofar as Reliance Industries Limited is concerned, it has already collected the tax from the petitioners, and hence, if Reliance Industries Limited seeks refund of the amount against the C form declarations, it would not be entitled to such refund as such claim would be hit by the principles of unjust enrichment. As held by the Supreme Court in State of Page 12 of 17

C/SCA/18715/2018 JUDGMENT Madhya Pradesh v. Vyankatlal (supra), only the persons on whom lay the ultimate burden to pay the amount would be entitled to get a refund of the same. The petitioners having borne the ultimate burden in this case, it is only they who would be entitled to refund of the same. 16.Besides the Rajasthan High Court in the petitioners’ own case has held that the authorities at Rajasthan were liable to issue ‘C’ forms in respect of high speed diesel procured for mining purpose through interstate trade. The court has further held that in the event of the petitioners having had to pay any amount on account of the respondents’ wrongful refusal to issue ‘C’ forms, the petitioners shall be entitled to refund and/or adjustment from the concerned authorities who had collected excess tax. The court further directed the concerned authorities to process such claim within twelve weeks of the same being made by the petitioners in writing and the petitioners furnishing the requisite documents/forms. 17. In the present case, in the absence of ‘C’ forms having been issued by the Rajasthan authorities, the respondent authorities have collected excess tax from the seller – Reliance Industries Limited, who in turn has collected the same from the petitioners. Therefore, in terms of the above order passed by the Rajasthan High Court, once the Rajasthan authorities issue C forms against the sales made by Reliance Industries Limited to the petitioners and the petitioners produce the requisite documents/forms before the respondent authorities, the respondent authorities are required to process such claim within twelve weeks of the same being made in writing by the petitioners. 18. Pursuant to the above order passed by Page 13 of 17

C/SCA/18715/2018 JUDGMENT the Rajasthan High Court, the petitioner in Special Civil Application No.15333 of 2019 has made an application dated 19.4.2019 to the second respondent for refund of Rs.2,12,09,162/- charged by Reliance Industries Limited. Along with the application, the petitioner has furnished a copy of the order of the Rajasthan High Court, a statement showing the details of high speed diesel purchases, Form 'C' Quarter IIIrd and IVth (F.Y. 2017-18), copy of the letter from Reliance Industries Limited to the Deputy Commissioner of Gujarat Sales Tax and copy of sample invoice. The petitioner in Special Civil Application No.16288 of 2019 has made an application dated 31.8.2019 to the second respondent

seeking

refund

of Rs.1,97,32,644/-.

Along

with

such application, the said petitioner has furnished a statement showing details of purchases, tax charged and submission of ‘C’ forms against such purchases as well as copy of sample invoice, etc. Thus, the petitioners had duly complied with the direction issued by the Rajasthan High Court and in case the respondents required the petitioners to furnish any other details, it was always open for them to call upon the petitioners to furnish the same. However, the respondent authorities have taken a stand that since it is Reliance Industries Limited which has deposited the tax, such refund application has to be made by it and upon refund being made to Reliance Industries Limited, it can pay the same to the petitioner. However, as noted earlier, Reliance Industries Limited cannot make an application for refund inasmuch as such claim would be barred by the principle of unjust enrichment. Moreover, as stated by the respondents, in the case of Reliance Industries Limited, the refund claim would be processed during the course of its assessment for the period in question, which may take years together Page 14 of 17

C/SCA/18715/2018 JUDGMENT and in the meanwhile the petitioners would be deprived of such amount. Moreover, it may be that while processing the refund claim during the course of Reliance Industries Limited's assessment, the respondents may even adjust the refund amount against its dues. Thus, the stand of the respondents that Reliance Industries Limited should file the refund claim and then pay the amount so refunded to the petitioners is neither legally tenable nor is it practically workable. 19. In the opinion of this court, in the light of the clear directions issued by the Rajasthan High Court in the judgment and order referred to hereinabove, which the respondent authorities are bound to comply with,

upon

the

petitioners

making applications for refund along with the requisite documents, the respondents were duty bound to process such claim within a period of twelve weeks from the date of such application. The stand adopted by the respondents that the refund can be made to only to Reliance Industries Limited flies in the face of the order passed by the Rajasthan High Court as well as the above- referred decisions on which reliance has been placed by the learned advocate for the petitioners and is nothing but a purely hyper technical stand adopted by them. Once Reliance Industries Limited has, in clear terms, written to the authorities that various buyers who have purchased HSD in the course of inter-state trade for use in mining activities will be approaching their office for refund of the differential tax amount and has enclosed therewith Customer- wise details of inter-state sales made to buyers in Rajasthan at full rate, it is evident that Reliance Industries Limited is not disputing the fact that it is the petitioners who are entitled to claim the refund. Under the circumstances, the respondent authorities are not justified in Page 15 of 17

C/SCA/18715/2018 JUDGMENT not processing the refund claims of the petitioners. 20. In case of the petitioners, it is an admitted position that the HSD has been purchased by them from Reliance Industries Limited in the course of inter-State trade for use in mining activities and they are, therefore, the ultimate consumers thereof and hence, the question of passing on the tax burden to anyone would not arise. Consequently, the question of unjust enrichment would also not arise. 21. For the foregoing reasons, the petitions succeed and are accordingly allowed. The respondents are directed to forthwith process the refund claims of the respective petitioners and grant refund of the tax amount collected from the petitioners and deposited by the seller in accordance with law within a period of twelve weeks of the receipt of a copy of this judgment. It is, however, clarified that once the refund claim of the petitioners

processed,

Reliance Industries Limited would not be entitled to claim any such refund. Rule is made absolute accordingly, with no order as to costs.” 8. In view of the aforesaid dictum of law the petitioners are entitled to get refund of amount of tax paid by it at the rate of 9% when the respondent No.3 has collected the tax at the rate of 15% instead of 6% as per remission order dated 05.09.2017 from the respondent-State. Page 16 of 17

C/SCA/18715/2018 JUDGMENT 9. For the foregoing reasons, the petitions succeeds and are accordingly allowed qua prayer 'C' only, the respondents are directed to process refund claim of the petitioners for refund of the 9% tax amount collected from the petitioners and deposited by the respondent No.3 IOCL within a period of three months from the date of receipt of copy of the writ of this judgment. Rule is made absolute to the aforesaid extent, with no order as to costs. (J. B. PARDIWALA, J) (BHARGAV D. KARIA, J) KUMAR ALOK Page 17 of 17