Tax cannot be levied and collected without authority of law. Tax collected becomes revenue of the Union or the State. Taxes are levied for public purposes and benefit of tax collected cannot be given to taxpayer. Therefore, where any amount is leviable under the law as tax, it cannot be refunded to the taxpayer.

Tax is levied by imposing liability of payment of tax on the taxpayer. When this liability arises, taxpayer falls under obligation of payment of tax. This liability makes the taxpayer debtor to Government. Amount paid or deposited by a taxpayer towards satisfaction of tax liability is tax and such amount cannot be refunded to the taxpayer. Any amount deposited by a person does not become a tax unless he is liable for payment of such amount as tax.

Where tax levy provision of law (charging section) provides levy of tax on certain property or event but another provision of the same law provides exemption from tax in respect of such property or event, it has to be understood that exemption provision has effect of modifying the tax levy provision. Provision, which grants exemption from tax, has effect of nullifying the levy of tax provided in the charging section. The net effect is that the property or event, on which charging section provides levy of tax, no longer remains leviable to any tax. In such circumstances, taxpayer cannot be asked to make payment of any money as tax. In respect of such a case, the law cannot require the taxpayer to make payment first and to claim refund later.

Views expressed by me hereinabove are based on observations made by the Constitution Bench of Honorable Supreme Court in two judgments referred to hereinafter.

The definition of word “Tax”, as given by Latham Chief Justice of High Court of Australia, with approval, has been quoted by the Constitution Bench of our Honorable Supreme Court in the Commissioner, Hindu Religious Endowments, Madras vs. Sri Lakshmindra Thirtha Swamiar of Sri Shirpur Mutt.  Judgment Dated: 16/04/1954. The Honorable Court has made following observations:–

“A neat definition of what “tax” means has been given by Latham C. J. of the High Court of Australia, in Matthews v. Chicory Marketing Board(1). A tax”, according to the learned Chief Justice, “is a compulsory exaction of money by public authority for public purposes enforceable by law and is not payment for services rendered”. This definition brings out, in our opinion, the essential characteristics of a tax as distinguished from other forms of imposition which, in a general sense, are included within it. It is said that the essence of taxation is compulsion, that is to say, it is imposed under statutory power without the taxpayer’s consent and the payment is enforced by law. The second characteristic of tax is that it is an imposition made for public purpose without reference to any special benefit to be conferred on the payer of the tax. This is expressed by saying that the levy of tax is for the purposes of general revenue, which when collected revenues of the State. As the object of a tax is not to confer any special benefit upon any particular individual, there is, as it is said, no element of quid pro quo between the taxpayer and the public authority. Another feature of taxation is that as it is a part of the common burden, the quantum of imposition upon the taxpayer depends generally upon his capacity to pay.”

We can say that where any tax is leviable under the law, person made liable for payment of tax cannot be given option of not paying the tax because the tax, by definition, is a compulsory exaction of money. Secondly, tax being public revenue, benefit of tax cannot be given to taxpayer or any other individual. Therefore, any amount which is leviable as tax cannot be refunded to the taxpayer.

If any amount is not leviable as tax at any time, taxpayer cannot be asked to pay any amount as tax first and to claim refund later. In this reference, the Constitution Bench of the Honorable Supreme Court, in M/s Bhawani Cotton Mills Ltd. vs. State of Punjab & Anr., Judgment Dated: April 10, 1067, has laid down as follows:

“If a person is not liable for payment of tax at all, at any time, the collection of a tax from him with a possible contingency of refund at a later stage will not make the original levy valid.”

The said principle has continuously been followed by the Honorable Supreme Court in its subsequent judgments other cases, including Steel Authority of India Ltd. vs. State of Orissa & Ors. Etc. Etc., Judgment dated: February 26, 2000, M/s Nathpa Jhakri Jt. Venture vs. State of Himachal Pradesh & Ors., Judgment Dated: March 14, 2000.

I will also like to point out that for lifting levy of tax, provided in the charging section, property or event should be wholly exempt from tax. To know when a supply can be said wholly exempt tax, learned readers of this article may read my article with title “Supply Wholly Exempt From Tax in GST”, recently published on this website.

Disclaimer: Except the quoted versions, interpretations made and all other views expressed here are my personal views and are meant only for academic discussion. Readers are advised to obey the law and to seek opinion of their legal advisors before acting upon the views expressed here. I and the publishers of this article disown any liability on account of any loss or damage that may be caused on account of use of views expressed here.

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Location: NOIDA, Uttar Pradesh, IN
Member Since: 11 Jul 2019 | Total Posts: 31
I am retired Government Servant. Prior to my retirement I had been working as Member Tribunal, Uttar Pradesh Commercial Taxes. Presently, residing in Noida, U.P. & enjoying fully my retired life. View Full Profile

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October 2020