Holding

Only the ultimate payers of the levy (the purchasers) are entitled to a refund; the respondents, having passed the burden to purchasers, are not, and the fund may be used for sugarcane development.

Summary

The respondents, owners of Jaora Sugar Mills, were required under the Madhya Bharat Essential Supplies (Temporary Powers) Act, 1948 to deposit the difference between the supply price and ex‑factory price of sugar into a government Sugar Fund. They deposited Rs 50,000 under protest and sued the State for a refund of the deposit and interest. The trial court dismissed the suit, but the High Court set aside the judgment and ordered a refund. On appeal, the Supreme Court held that the respondents never bore the ultimate burden of the levy; it was passed on to the purchasers of sugar, and therefore only those ultimate payers could claim a refund. Since the fund was created for the development of sugarcane, the amount could be retained by the Government for that purpose, and the respondents were not entitled to any refund. The appeal was allowed and the High Court decree was set aside.

Issues considered

The entitlement of the respondents to a refund of the amount deposited in the Sugar Fund.
Whether the levy of the Sugar Fund was within the legislative competence of the State under the Essential Supplies (Temporary Powers) Act and the Constitution.
Who bears the ultimate burden of the levy for purposes of a refund – the sugar mill owners or the purchasers.
The appropriate utilisation of the fund if a refund is not granted.

Legislation cited

Constitution of Indias. Art. 265, s. Art. 277
Madhya Bharat Essential Supplies (Temporary Powers) Act, 1948

Subjects

essential commoditiessugar fundrefund of levylegislative competenceconstitutional lawburden of paymentex‑factory pricesupply pricestate liability

Judgment

56i
l.
STATE OF MADflYA PRADESH•

v.

VYANKATLAL & ANR. B
March 28, 1985

[S. MURTAZA FAZAL ALI AND R. B. MISRA, JJ.J
Madhya Bharat EJsentia/ Supplies (Temporary Powers) Act, 1948.

Supply price and ex.factory price-Differenc/ between-Credited to Sugar
Fund-Refund of -To whom payable-Persons not identified-Can be utilized
for the purpoJe of the creation Of the Fund. .

R ~spondents are owners of sugar miH situated in erstwhile Jaora State
which merged in the Stat<! of Madhya Bharat. After the merger, the Madhya h"
Bharat Essential Supplies (Temporary Powers) Act, 1948 came into force. By
a notification dated 5th September, 1949 the said Act included . 'sugar' Jn ·ihe L'
list of articles as an essential commodity. By another notification dated 5tti.
.
September, 1949 the Government delegated its powers to the Director, Civil
Supplies to issue· orders under the Act. The Director of Civil·Supplies by a
notification datCd 14th January, 1950 fixed ex-factory prices for different sugar
factories, which were to supply and despatch sugar of Grade E-27 at Rs. 32.400
per maund F.0.R. destination~ The supply price was hi8:her than ex-factory E
price. The differenc~ between the supply price and the ex-factory PiiCe ·was to·
be credited to Madhya Bharat Government Sugar Fund.

On demand by appellants, the respondents deposited a sum of Rs. 50,000
under protest in the said Sugar Fund. '

The respondents instituted a suit for the refund of the. amount deposited · F
by them towards Sugar Fund and Rs~, 10,000 towards interest. 'the suit V.:H.S · ·
dismissed.

On appeal, the Higb Court set aside the Judgment and Decree of the trial'·;
.Court and decreed the suit.

Allowing the appeal of the State,
''
HELD : 1. The respondents had not to pay the amount froin thCir;.
coffers, The burden of paying the amount in question was transfered by the ·
respondents.to the purchasers and, therefore, they were not entitled to get a
refund. Only the persons on whom lay the ultimate burden to pay the amount
would be entitled to get a refund of the same. (568C] '
"
'
~62 SUPREME COURT REPORTS t19ss1 3 S.C.R.

2. The amount deposited towards the Fund was to b3 utilise;! for the
developaient of sugarcane. If it is not possible to identify the persons on whom
bad the burden been, placed for payment towards the Fund, the amount of
, the Fund can b= utilis.:i by t!J..: GJ{..:ram.:nt for th; purpose for which the
Fund was created, n1mely, the d~velopment of sugarcane. There is no question
of refunding the amount to the Respondents who had not eventually paid the
amount towards the Fund.. Doing so would virtually amount to allow the
respondents unjust cnricbmCnt. [568D-E] ·

The Orient Paper Mil/J Ltd. v. The State of Orissa & Ora. [1962] 1 · SCR
S49. State of Bombay ,; The United Moton (India) Ltd. [1953] SCR 1096,
Shiv Shankar Dal Mi/lute.;; State of Haryana [1980) I SCR 1170., Newabganei ,
Sugar Mills v. Union of India & Ora. [1976] 1 SCR 803., Sales Tax Officer,
Banaras & Ors. v. Kanhalya Lal Mukundlal Saraf,· [1959] SCR 1350., Ms Amar
Nath Om Parkash & Ors. •· The State of Punjab & Ors., 1984 (2) SCALE 796,
· relied upo~-

CIVIL APPELLATE. JURISDICrION : Civil Appeal No. 149 oJ
!97l. I
.I
a, " On appeal by ·Certificate . from the Judgment and Decree
dated 28.4.69 of the ·Madhya Pradesh · High Court in First Appeal
No. 14 of.1963. ·

·H. K.Purl for th~ Appellant. ·

UR.La/it, S.K. Gambhir, Asliok Mahajan and S. ·Kirplani for
th~)tespondents. . ..

The Judgment of the Court was delivered by

MISRA J. The present appeal by certificate is dire~ted
, against the judgment de.led 28th April, 1969 of the Hig~ Court of
·. Madb~'Prajlesh,1ndore .Bench.·

The facts leading
. , brief. .The respondents
to this . appeal are
'

are the 'owners of Jaora Sugar Mills situaied at Jaora in the
earlier State of Madhya Bharat. The erstwhile State of Jaora
.a
: . .J merged in the State of Madhya Bharat.. After· the.- merger the
Madhya Bharat. Essential Supplies (Temporary Powers) Act, 1948
came into force. By a notification No. 5163/XXX. (49) .dated
5th September,'1949 the Madhya Bharat Government in exercise of
thC~?owe~s. veste~ under the, ~aid Act included 'sugar' in the list•
of articles as an essential: commodity. By another notificatio~' No.
M.i>. S:r.-t TE v, VYANKATLAL (Misra, J.) 563
5166/XXX(49) dated the 5th September, 1949 the Madhya Bharat
Government delegated its powers to issue orders under the sai~
Act in favour of the Director, Civil Supplies, Madhya Bharat.] In
exercise of the p~wers conferred on hi "Ill \lnder the Madhya Bharat
Sugar Control Order, 1949 the Director of Civil Supplise .issued a
notification No. 7. C.S. 15/50 dated the 14th January, 1950 fixing ex-
factory prices fordifferent sugar factories. Under the said notifi-
cation· all suga( factories in Madhya Bharat were to supply and
dcs)atch sugar of Grade E-27 at Rs. 32.4.0 permaund F.0.R~
destination. The supply price was a little higher than the ex-factory
price. The difference between the supply price and the ex-factory
price was .to bo credited of Madhya Bharat Government Sugar
Fund. c,
'fhe appellaot made several demands on the respondents, the
proprietors of the Jaora Sugar Mills, to credit such difference in ·th.e
account of Madhya Bharat Government Sugar Fund and .the
respondents ultimately deposited R•. 500 JO under prqtest.

On the 10th September, 1953 the respondents instituted a sui!
in the court of Fifth Additional District Judge, Indore against ~he
erstwhile State of Madhya Bharat for the refund Of the sum of
Rs. 50,000 which the respondents had deposited towards Sugar Fund
and Rs. 10,000 towards interest at the rate of 6 per cent per a.nnum
from the date of deposit of the aforesaid sum of Rs. 50,000. The E·
suit continued against the newly formed State of Madhya Pradesh
as provided by law.

The grievance of the respondent in the main was that the
change and modification made by the Madhya Bharat Government F ;1
in the definition of es>ential comodities given in the Act by includ-
ing sugar therein was against the law, that the Director of Civil
Supplies had no authority before 6tll September, 1949 .to issue the
Sugar Control order, 1949 which had been issued on 5th September,' .
194.9 ; that the State Government or the Director of Ci vii supplies,. -,\
Madhya Bharat had no power under the Essential Supplies (Tem·-
G
porary Powers) Act and the Sugar Control Order to impos~ a levy
styled as 'Sugar Fund' and to recover the same; that th~ levy ~nfi ;
collecti~n of tax/impost styled as 'Sugar Fund' by the Director .of ..
Civil Supplies being violative of Art. 265 of t'1e Constitutlo~. was
illegal and invalid; tl1at the·provisions of Sugar Control Order 1949
. ' H ~i
did not empower the Director of Civil Supplies to fix any price,
SUPREME COURT REPORtS [1985] :l s.c.il.

A other than ex-factory wholesale or retail price or to fix a price
· which be called supply price or to impose and collect levy as 'Sugar
Fund'; that is was illegal and unconstitutional for the Director of
Civil Supplies to fix different ex-factory prices for different sugar
mills in the same State ; that it was illegal and unconstitutional
to collect money through certain mills for creating Sugar Fund when
other factories in the same State were being exempted from doin·g so
that there was clear difcrimination in fixing ex-factory price of sugar
in respect of respondents' mill lower than ex-factory price fixed for·
certain other mills in the State without there being a rational basi;
for the same ; and that the levy and collection of certain money
from the respondents being without lawful authority and without
c. legislative competence, the State was bond to refound 'the same.

The State resisted the claim of the plaintiff-respondents and
refuted the allegation on the points. The trial court decided all the
issues against the plaintiffs and consequently it dismissed the suit.
D On appeal by the plaintiffs the High Cou.rt set aside the jµdgment
and decree of the trial court and decreed the suit for refund of
Rs. 50,000 deposited by plaintiffs under protest and Rs. I 0,000 as
interest thereon calculated at the rate of 6 per cent from the date of
suit till realisation. The High Court repelled the contention of the
State that the impost was not intended to augment general revenues
E of the State bnt was meant for a special purpose, i.e., for creating
a fund which could be utilised for augmenting the production of
sugarcane in the State so that the supply of sugar might be increased.
The High Court observed that legislative competence was necessary
for such imposition irrespective of the fact whether the impost was
intended to augment general revenues of the State or for a special
F purpose, i.e., for creating a fund for augmenting the production of
sugar. It further held that Art. 277 of the Constitution only saves
such taxes, cesses or fees which immediately before the commence-
ment of the Constitution were being lawfully levied by the Govern-
ment of any State notwithstanding that those taxes, duties, cesses
G or fees are mentioned in the Union List. But in the instant case
levy of 'Sugar Fund' was imposed by means of an order which was
published for the first time in the Madhya Bharat Government
Gazette dated 28th January, 1950 two days after the Constitution
came into force.

The High Couri proceeded further to hold that the power
H1
conferred on the Director of Civil Supplies did not authorise him
M.i'. stArn v. VYANKATLAL (Misra,!,) 565
to fix different prices in his discretion in different parts of Madhya A
Bharat under s. 5. of the Sugar Control Order which in the case of
some mills was higher than ex-factory price. The fixing of supply
price higher than ex-factory price had nothing to do with the en-
forcement of the order as it does not deal with licensing, ex-factory
sale price, movement or distribution of sugar. Nor did ss. 11 and 12
B
justify the Director of Civil Supplies recovering additional amount
apart from ex-factory price from the purchasers.

Thus, in the opinion of the High Court the State had levied and
collected under the purported legal authority certain money from
the plaintiffs for which it had no· legislative competence to do and
therefore the State must restore the same to the persons from
c
whom it was collected and cannot keep the same on the ground
that plaintiffs too .have been wrongly allowed to collect, and that
the persons who could claim the same were the corresponding
purchasers. The High Court 9mitted to decide the question
whether the particular purchasers can recover hereafter from the D
pl.aintiffs whatever they h'ad collected in excess of the ex-factory
sale price on the. ground that it need not be determined in this
case.

Feeling aggrieved the State has come up in appeal. It
vainly tried to support its stand that the recovery of Rs. 50,000 E
from the respondents was perfect! y lawful and proper and there
was no discrimination as contemplated by Art. 14 of the
Constitution.

On the question of refund of the amount to the plaintiffs- 11
respondents reliance was placed on The Orient Paper Mills Ltd. v.
The State of Orissa & Ors (1). In that case the appellants who
were registered dealers under the Orissa Sales Tax Act, 1947 used to
collect sales tax from the purchasers on all sales effected by· them,,
inclnding sales to dealers in other States. They wery assessed to and
paid tax on their turnover which included sales outside the State
ofOrissa. After the decision of this Conrt in State of Bombay v. G
The United Motors(lndia) Ltd ('J. the dealers applied nnder .s.14
of the Act for refund of tax paid on the ground that sales outside
the State were not taxable under cl. (!)(a) of Art. 286 of

(i') [1962) l SCR 549.
'.
(2) [1953] SCR 1069 H
SUPkEME COURTS kEPORTS h9SSJ 1S.C.R.
A
the Constitution read. with the Explanation. Refund was refused
by the Sales Tax Authorities and the Board of Revenue. The High
Cqurt, however, ordered refund of tax paid for certain period but
refused it in regard to other periods. The Orissa Sales Tax Act
was, however, amended in 1958 with retrospective effect incorpora-
IJ ting s.14A which provided that refund could be claimed only by
the person from whom the dealer had realised the amount by way
of sales tax or otherwise. On these facts it was held by this
Court that under s.14A of the Act incorporated by the Orissa
Sales Tax (Amendment) Act, 1958 refund of tax whicn the dealer
was not liable to pay could be claimed by the person from whom
c the dealer had actually realised it whether as sales tax or otherwise
and not by the dealer.
In Shiv Shankar Dal Mills etc. v. State of Haryana (1) the
appellants and the petitioners who had paid under mistake the
excess sums demanded a dirJctio1 to the effect that these amounts
D be refunded. It, however, transpired that many of the traders had
themselves recovered the c.tcess percentage from the next
purchasers. It was held that to the extent the traders had paid
out of their own, they were entitled to keep them, but not where
they had in turn collected from elsewhere. In Newabganj Sugar
Mills v. Union of India & Ors ('l. this Co~rt in a similar situation
devised a new procedure to deal with a new situation where equity
demanded redistrib.ution but procedural expensiveness and
cumbersomeness effectively thwarted legal action. It directed the
Registrar of the High Court to receive and dispose of claims from
the ultimate consumers for excess price paid on proper proof,
F out of the security money.
In Sales Tax Officer, Banaras & Ors. v. Kanhaiya Lal
Mukundla/ Saraf(3 the levy of sales tax on forward transaction
was held to be ultra vi res. The respondents, therefore, applied
for a refund of the amounts paid by a petition under Art.
226 of the Constitution. This Court, however, took the view
G that the term 'mistake' under s. 72 of the' lndiHn Contract Act
comprises within its scope a mistake of law as well as a mistake
offact and that, under that section a party is entitled to recover

Ol 119so11 s.c.R. 1111.
H (2) [1976) 1 S.C.R. 803.
((3)19591 s.c.R. mo.
.t.t.P. STATE v. VYANkATLAL (Misra, J.)
money paid by mist11ke or unde,r coercion and if i! is established A;
that the payment, even though it be of a tax, has been made by
the party labouring µnder a mista~e of law, the party receiving
the money is found to repay or return it though it might have been
paid voluntarily .subject, however, to questions of estoppel, waiver,
limitation or the like. B

Recently, this Court in.Mis Amar Nath Om·Parkash & Ors.
v. ·The State of Puniab & .Ors (1). had -the occasion fo consider the
question of refund to the dealers in a ·similar situation and it
obsei,ved; ·
c
" ... we· do not see how a mere declaration that the
levy and collection of fee · in excess of Rs.2 per hundred
would automatically vest in the dealer the right to get at
the excess amout when in fact he did not bear the burden
of it and when the moral and equitable owner of it was
the consumer-public to whom the burden had been passed D, '.
on.
The primary pµrpose _of sec. 2;\A is seen on the.face ()f
it; i_t prevel)ts the refund of license fee by . the market
committee to dealers, who have already passed on the
burden of such fee to the next purc\laser of the agricultural
El
produce and who went to unjustly enrich themselves by
. obtaining the refund from the market committes. S. 23A
in _truth,' recognises the consumer-public who have borne
the 1,1ltimate bµrden as the persons who h~ve
really paid the amount ·and so entitled ·to refund of
any excess fee collected and therefore directs the market .
F
committee representing their inte;ests to retain the
amount. · It has to be in this form becau_se it would, in
practice, be a difficult and futile exercise to attempt to
·trace the individual purchasers and consumer who
.. ultimatelely -bore the burden. It is really a law
returning to the public what it has taken from the public, G
py enabling the commitee to utilise the amount for the
perfonnance of services required of it under the Act.
· Instead of allowing middlemen to ·profiteer by illgotten

(I) [1984] 2 SCALE 769. H
stJPReME cioiia.t tlEPoRts h9ssi 3 s.c.a.
A'
gains, the legislature has ·devised a procedure to undo the
wrong that has been done by the excessive levy by allowing
the committees to retain the amount to be utilised
hereafter for the benefit of the very person' for whose
benefit the marketing legisl~tion was enacted."
B
The principles laid down in the aforesaid cases Y{ere based on
the specific provisions in those Acts but the same principles can
safely be applied to the facts of the present case inasmuch .as in
the present case also the respondents had not to pay the amount
from their coffers. The burden of paying the amount in question
c was transferred by the respondents to the purchasers and, therefore,
they were not entitled to get a refun!!. Only the persons on whom
lay the ultimate burden to pay the amount would be entitled to
get a refund of ·the same. The amount deposited towards the
Fund was to be utilised for the development of sugarcane. If it
D' is not possible to identify the persons on whom had the burden
been placed fqr payment towards the Fund, the amount of the
Fund can be utilised by the Government for the purpose for which
the Fund WJS created, namely, development of s(!garcane. There
is no question of refunding the amount. to the respondents who had
not eventually paid the amount towards the Fu11d. Doing so would
E virtually amount to allow the respondents' unjust enrichment.

For ·the foregoing discussion. the appeal must succeed. It is
accordingly allowed and the judgment and decree of the High
.Court for the refund of the amount of Rs.so;ooo and interest
thereon is set aside. Ill the circumstances of the case the parties
F
shall bear their own costs.

G A.P.J . Appeal allowed.
. '