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A municipality cannot push its envelope and collect a tax higher than what is permitted by the State legislature. At the same time, no refund can be given to the dealer of the excess tax thus collected, unless he is able to prove that he had taken such excess tax in his stride and did not pass on the burden to the consumers.
In Mohan Chopada vs State of Madhya Pradesh and Others, the Madhya Pradesh High Court found that the Municipal Council Umariya had raised taxes on timber felled from forests in its jurisdiction from 0.5 per cent to 3 per cent over the years, blissfully ignoring the State legislative mandate that such tax cannot exceed what the Government charges dealers for exporting timber from Madhya Pradesh to other States.
The Court, therefore, had no hesitation in striking down the excess tax as an illegal impost, and was not persuaded by the appellant’s argument that the excess tax already paid by him must be refunded. The Court was influenced by the doctrine of unjust enrichment of the manufacturer, which now forms the bedrock of our Central excise and customs laws. If the manufacturer is given refund, it would amount to his undue enrichment, because he would have passed on the burden down the line and, therefore, the onus is on him to prove that he did not do so. In the case on hand, this obligation was not discharged by the appellant.
(The author is a New Delhi-based chartered accountant.)
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