Doctrine of unjust enrichment - recovery of entertainment tax from cinema goers

Doctrine of unjust enrichment - recovery of entertainment tax from cinema goers during availment of exemption is recoverable; when law is not clear, superior courts not to interpret law in such a way as to confer unjust benefit to any party: SC

NEW DELHI, AUGUST 08, 2009: THE Supreme Court had recently delivered a landmark Judgment on the doctrine of unjust enrichment. In instances where an assessee recovers tax from taxpayers in spite of an exemption (absolute or partial) from levy of tax and retains the same without depositing the same with the State, by following the ratio laid down by the Apex Court in Mafatlal Industries Ltd vs. Union of India 2002-TIOL-54-SC-CX , the Court held that it amounts to unjust enrichment; but at the same time it was held that if the provisions for recovery are not clear in the Statute then the Superior Courts cannot interpret the statute in such a way so as to confer an unjust benefit to any of the parties, i.e. the taxpayer or tax collector or the State. The brief facts of the case are as follows:

A multiplex theatre in Brihan Mumbai Municipal Corporation limits was enjoying the exemption from levy of entertainment tax conferred by the State Government as per the scheme of exemption applicable to multiplex theatre complexes. In the first three years of operation, the exemption will be absolute i.e. no entertainment tax is payable and in the subsequent two years, the exemption will be to the extent of 75% of the entertainment tax payable and from the sixth year they are subject to a levy of applicable entertainment tax without any exemption. The respondent in this case availed the exemption from levy of entertainment tax conferred by the State but recovered the tax from the cinema goers. The State of Maharashtra initiated recovery proceedings for recovery of the tax collected by the multiplex theatre from the cinema goers. The respondents succeeded in the High Court of Mumbai wherein the High Court held that the State was not entitled to claim more than what could be levied as entertainment duty during the period of dispute irrespective of the fact that the exhibitors have shown on admission tickets issued to patrons 45% of the duty though they were liable to pay only 25% of 45% during the incentive period of 2 years.

The State of Maharashtra appealed to the Supreme Court against this judgment of the High Court and contended that the multiplex theatre complex is liable to pay back the tax collected from the cinema goers in terms of the provisions of Bombay Entertainments Duty Act, 1923 read with Section 72 of the Indian Contract Act, 1872 and Article 296 of the Constitution of India. It was contended that the respondent had collected the tax over and above the exemption provided by the State Government and the tax so collected is liable to be paid back to the State Government. The respondents i.e. the multiplex theatre among other things contended that the admission charges collected by the respondent being a matter of contract by and between them and the cinema goers and the Act having not provided for any forfeiture clause, the question of the respondents being unjustly enriched does not arise, more so when it is not a case where the amount of tax had been deposited which the State was entitled to keep with it having regard to the statutory provisions in this behalf.

The Apex Court after analyzing the relevant provisions of the statute and relying on the decisions of the Court in Mafatlal Industries Ltd vs. Union of India 2002-TIOL-54-SC-CX, Union of India vs. Solar Pesticide Pvt Ltd 2002-TIOL-57-SC-CX , Sahakari Khand Udyog Mandal vs. Commissioner of Customs & Central Excise 2005-TIOL-48-SC-CX-LB and Indian Banks' Association, Bombay and Others v. Devkala Consultancy Service and Others observed as follows:

++ Respondent has shown the net rate of tickets which they charged by way of admission charges & entertainment duty separately. Respondent had indisputably been collecting 45% of the amount of admission fee by way of entertainment duty, i.e. the full duty payable in terms of the provisions of the said Act and the Rules.

++ Whether a statute expressly confers power on an assessee to realize the amount of tax payable to the State from its customers or not is not material. An assessee has to collect such taxes which are required to be levied and collected from the consumers. Once the taxes are levied, Section 3 of the Bombay Entertainments Duty Act entitles the State to collect the same from the owner of the multiplex theatre complex, subject to the concession given to them.

++ The terms "concession" and "exemption" are a form of privilege. When a statute confers a privilege, the same must be confined only to the extent provided for therein.

++ Once it is held that the amount realizable from the cinema goers by way of entertainment duty comes within the purview of the definition of `tax', there is no reason to justify the conclusion of the High Court that the State Government for all intent and purport conferred the retention benefit on the multiplex theatre. If the State intended to provide for a grant, the same should have expressly been stated in the statute. The respondents cannot be granted a huge amount by a welfare State indirectly which it cannot do directly.

++ State has a power to grant exemption or concession in respect of payment of tax and no power under the provisions of the Constitution or otherwise to allow an assessee to collect tax and retain the same.

++ When the provisions are not very clear Superior Courts will not interpret the statute in such a way as to confer an unjust benefit to any of the parties, i.e., the taxpayer or tax collector or the State.

++ When a person collects tax illegally, it has to be refunded to the taxpayers and if taxpayers cannot be found, the court would direct the same to be paid and/or appropriated by the State.

Pursuant to these observations, the Supreme Court concluded that the State has to realize the amount unjustly enriched by respondent and pay the same to a reputed voluntary or a charitable organization, which had been rendering good services to any sections of the disadvantaged people and in particular women and children. The Court put the onus on the Chief Minister of Maharashtra to take up the responsibility of ensuring full, proper and effective utilization of the said amount so given to the charity.