Bajrang Bali Roller Flour Mills And Anr. Vs State of Assam And 5 Ors (Gauhati High Court)
Cess Levy Deemed Unconstitutional and Ultra Vires After GST Implementation; Refund Denied Citing Unjust Enrichment and Board’s Finances
In a significant ruling, the Gauhati High Court has declared the levy and collection of cess under the Assam Agricultural Produce Market Act, 1972, unconstitutional and beyond the powers granted by the CGST Act, 2017, and the AGST Act, 2017, following the introduction of the Goods and Services Tax regime. The decision came in the case of Bajrang Bali Roller Flour Mills And Anr. Vs State of Assam And 5 Ors.
The petitioners, a manufacturing unit importing goods into Assam for production, challenged the cess collection by the Assam State Agricultural Marketing Board authorities. They argued that the cess, levied on the buying and selling of goods in a market area, was improperly applied to them as they neither bought nor sold goods within the market but merely brought in raw materials for manufacturing.
The court’s decision heavily relied on two preceding judgments of the Gauhati High Court: M/s. Bhatter Traders and another vs. State of Assam ((2023) 118 GSTR 470) and the order dated February 9, 2024, in Eastern Roller Flour Mills (P) Ltd. vs. State of Assam and others (WP(C) No.4727/2018 and connected cases). The court found the issues in the present case to be “pari materia” (on the same subject) with those decided in the earlier judgments.
In the Bhatter Traders case, a coordinate bench had categorically held that the levy of cess by the Market Committees and the Board after the implementation of GST, specifically following Central Government Notification No. 12/2017-Central Tax (Rate) and the corresponding State Notification No. FTX.56/2017/25, was unconstitutional and ultra vires the CGST Act, 2017, and the AGST Act, 2017. These notifications had exempted services provided by an Agricultural Produce Marketing Committee or Board, or by a commission agent for the sale or purchase of agricultural produce, implying that such activities and associated levies were intended to be subsumed under the GST framework. The Bhatter Traders judgment concluded that the continued collection of cess under the 1972 Act post-GST was therefore invalid.
The crucial aspect addressed in both Bhatter Traders and reiterated in Bajrang Bali was the question of refund for the cess amounts collected illegally. The petitioners in Bajrang Bali, like those in the preceding cases, sought a direction for the refund of the cess. However, the court, while declaring the levy unconstitutional, declined to order a refund.
The court’s reasoning for denying the refund was rooted in the doctrine of unjust enrichment. Referring to the Supreme Court judgments in State of Maharashtra and Others vs. Swanstone Multiplex Cinema Private Limited ((2009) 8 SCC 235) and the nine-judge bench decision in Mafatlal Industries Limited & Others vs. Union of India vs Others ((1997) 5 SCC 536), the Gauhati High Court reiterated the principle that a claim for refund of illegally collected tax can only succeed if the petitioner demonstrates that the burden of the tax or cess has not been passed on to the end consumers.
In the absence of specific pleadings by the petitioners in Bajrang Bali, as was the case in Bhatter Traders and Eastern Roller Flour Mills, confirming that they had not shifted the burden of the collected cess onto their customers (for goods brought for resale), the court found no basis to grant the refund. The Mafatlal Industries judgment, in particular, highlights that a claimant cannot collect the duty from purchasers and then also claim a refund from the state, as this would amount to unjust enrichment.
Furthermore, the court considered the financial health of the Assam State Agricultural Marketing Board. Citing information presented in an additional affidavit in the Eastern Roller Flour Mills case, the court noted that the Board’s financial position was precarious, relying on grant-in-aid from the state government. The court opined that directing the state to recover the illegally collected cess amount from the Board for refund to the petitioners would not be in the interest of justice, equity, and good conscience, and could seriously impede the Board’s functioning under the 1972 Act.
Therefore, while affirming the illegality of the cess collection by the respondent authorities from July 1, 2017 (the date of GST implementation) onwards, the Gauhati High Court in Bajrang Bali Roller Flour Mills, in line with the precedents set by Bhatter Traders and Eastern Roller Flour Mills, chose not to issue a directive for the refund of the amounts already collected from the petitioners during this period.
The writ petition was accordingly disposed of with the observation that the collection of cess from the petitioner was unconstitutional and ultra vires the CGST Act, 2017, and the AGST Act, 2017, but without granting the relief of refund for the amount already collected. This judgment reinforces the legal position that state-level agricultural produce market cesses are incompatible with the GST regime after its implementation, although obtaining a refund for past collections remains subject to proving that the tax burden was not passed on and considering the financial implications for the collecting authority.
FULL TEXT OF THE JUDGMENT/ORDER OF GAUHATI HIGH COURT
