Luxury tax paid by the assessee without passing the burden to customers is refundable.

M/s. NAC Jewellery, engaged in the manufacture and sale of jewellery, challenged luxury-tax assessments for the assessment years 2002–03, 2003–04 and 2004–05, insofar as tax was levied on the purchase value of gold, silver and platinum jewellery and precious stones.

The assessee sought refund of the luxury tax paid, contending that the levy was invalid.

The Writ Court allowed the writ petitions by order dated 11 December 2009, against which the Commercial Taxes Department filed the present writ appeals.

The Department did not controvert the assessee’s statement that the tax had been paid from its own resources and had not been collected from customers.

On the Court’s direction, the jurisdictional Assessing Officer confirmed in writing that the assessee had borne the tax and had not passed its burden on to customers.

Whether the levy of luxury tax on jewellery and precious stones was constitutionally and legislatively competent under Entry 62 of List II of the Seventh Schedule to the Constitution?

Whether the assessee was entitled to refund of the luxury tax paid, or whether refund was barred by the principle against unjust enrichment because the tax burden had allegedly been passed on to customers?

The Court applied the Constitution Bench decision in Godfrey Phillips India Ltd. v. State of U.P., (2005) 139 STC 537, which held that Entry 62 of List II does not authorise a tax on goods or articles; “luxuries” under that Entry refers to activities of indulgence, enjoyment or pleasure, and not to luxury goods.

Godfrey Phillips further held that although the impugned luxury-tax legislation was invalid, refund of taxes already paid need not automatically be granted, following the principle recognised in Somaiya Organics (India) Ltd. v. State of U.P., (2001) 5 SCC 519.

The Court also applied the doctrine of unjust enrichment: refund would ordinarily be denied where the assessee had recovered the tax from customers, but would be permissible where the assessee had itself borne the tax burden.

The parties agreed that the validity of the luxury-tax levy had already been decided against the Revenue in Godfrey Phillips, under which a tax imposed on luxury goods was beyond the legislative competence conferred by Entry 62 of List II.

The remaining question was therefore refund.

Although the Department was given an opportunity to establish that the assessee had passed the tax burden to its customers—a circumstance that would attract the rule against unjust enrichment—it produced no contrary material.

The assessee’s assertion that it had paid the tax from its own resources remained uncontroverted, and the Assessing Officer subsequently confirmed that the tax had not been collected from customers.

Consequently, denying refund would not prevent unjust enrichment; rather, retention of the tax by the Department would be unwarranted.

The Department was directed to pay the refund within eight weeks.

The writ appeals and connected miscellaneous petitions were dismissed, with no order as to costs.