The judgment of the court was delivered by
L. Narasimha Reddy J.-This writ petition is filed with a prayer to declare the action of the Visakhapatnam Port Trust, the second respondent herein, in not refunding the amount that has been collected in the nature of fringe benefit tax (FBT) between 2005 and 2009 from the members of the petitioner-association despite repeated demands, as illegal, arbitrary and contrary to the provisions of the Income-tax Act, 1961 (for short "the Act"), apart from being unconstitutional. Consequential direction for refund of the amount of Rs. 7,40,69,450 with interest at the rate of 14.75 per cent. per annum is sought.
The facts, in brief, are that at the Visakhapatnam Port, several ships arrive for loading and unloading purposes. The Visakhapatnam Dock Labour Board (for short "the Board") was constituted with a view to regulate the work force needed for that purpose. The board would supply the required manpower for loading and unloading of the ships. To act as a bridge between the ship owners on the one hand, and the board, on the other hand, the institution of stevedores is introduced. The board grants licences to the concerned individuals or agencies to act as stevedores, and on being so recognised, the stevedores are supplied the work force by the board. Over the period, the board was merged with the Visakhapatnam Port Trust, the second respondent herein.
Parliament amended the Act providing for levy of tax on the fringe benefits paid to the employees. The liability to pay the tax, on this account, however, was placed upon the employer. The board felt that it is under obligation to pay the fringe benefit tax in respect of the employees/workers on its rolls. Since the wages for the workers are paid by the stevedores, it was resolved to collect the fringe benefit tax for the concerned employees, from the respective stevedores. The tax is on the fringe benefits paid to each employee. However, a formula was evolved to collect Re. 1 for each metric tonne of the material handled by the stevedore for onward payment of fringe benefit tax, to the Income-tax Department. Between the years 2005 and 2009, a sum of Rs. 7 crores was collected towards fringe benefit tax from the stevedores, i.e., the members of the petitioner-association.
The petitioner contends that the board and the second respondent herein were registered under section 12 of the Act and, accordingly, they stood exempted from the obligation to pay tax and still the fringe benefit tax was collected. They submit that whatever may have been the justification for collecting the amount, when there was some uncertainty as to the liability of the second respondent to pay the fringe benefit tax, at least when the Tribunal decided finally in the year 2010 that the second respondent is not liable to pay the fringe benefit tax, the amount ought to have been refunded, more so, when it was not remitted to the Income-tax Department.
A detailed counter-affidavit is filed by the second respondent. The fact that the fringe benefit tax at the rate of Re. 1 per metric tonne of handled material at the port was collected, is not disputed. It is, however, stated that the amount had to be collected, to be on safe side, and the amount so collected was kept in a separate account, so that, it can be paid in the event of any determination or fastening of liability. A plea is raised to the effect that the association cannot make a demand since the amount was collected from the various stevedores. It is also urged that the respective stevedores have passed on the liability of fringe benefit tax paid by them, to their ultimate customers, be it the ship owners or goods transporters, and that they are not liable to refund the amount. Difficulty is also expressed about the identification of the members from whom it was collected.
Heard Sri S. R. Ashok, learned senior counsel for the petitioner and Sri A. V. Krishna Koundinya, learned senior counsel for the respondents.
It is not uncommon that the employees in the establishments, particularly those, which are large in size, provide for payment of fringe benefits to their employees. Taking into account the fact that the benefits so paid are many a time phenomenal in quantum, Parliament introduced the provision for levy of fringe benefit tax in the form of addition to section 115W to section 115WL in Chapter XII-H of the Act through the Finance Act, 2005. It is the obligation of the employer to pay the fringe benefit tax.
In the introductory part itself, it has been mentioned that the board, which has since merged with the second respondent, would have several employees on its rolls, and they, in turn, are allotted to the stevedore contractors for the purpose of loading or unloading the ships. Though the wages for the allotted employees/workers are paid by the concerned stevedore contractors, the second respondent happens to be the actual employer. Therefore, the obligation, if any, to pay the fringe benefit tax, rests with the second respondent.
In case the Income-tax Department made any demand against the second respondent for payment of fringe benefit tax and that, in turn, collected the corresponding amount from the members of the petitioner- association, there would not have been any serious objection. The reason is that the agency, which is under obligation to pay the wages and fringe benefits, is equally, under obligation to pay the tax also. It is a matter of record, that the second respondent got itself registered under section 12 of the Act and thereby became exempted from payment of the tax. Dispute in relation to some other aspect, arising under the Income-tax, was said to be pending. May be as a precautionary measure, the second respondent and its predecessor intended to collect the amount, representing the fringe benefit tax, from the members of the petitioner-association, so that the same can be paid, in the event of there being any demand from the Income-tax Department. Instead of taking into account, the fringe benefits to be paid to the employees/workers and determining the proportionate fringe benefit tax thereon, the board of management of the second respondent evolved a formula, in this behalf, through its resolution dated July 28, 2005. It reads :
"The board resolved to adopt the minutes of meeting No. 2 held on June 4, 2005, and circular resolution No. 42 of 2005 dated June 23/ 30, 2005. Shri K. V. Krishna Kumar stated that with regard to the board resolution No. 40 of 2005, for the purpose of clarity, it was decided to collect fringe benefit tax from an easily measurable point without double accounting. Hence, the board resolved to collect a special levy towards fringe benefit tax liability of VDLB from the employers of the registered scheme on the stevedoring tonnage at Re. 1 per metric tonne with effect from August 1, 2005."
Accordingly, the amounts were being collected from the concerned members of the petitioner-association, and by 2012, it aggregated to about Rs. 8 crores.
The fact, however, remains that neither there was any demand by the Income-tax Department against the second respondent for payment of fringe benefit tax nor in fact any amount was paid on that account. The amount recovered from the members of the petitioner-association was deposited in a separate account, from time to time, and it is also earning interest.
The petitioner has been making demand for refund of the amount of Rs. 8,30,03,737. Even in the counter-affidavit, the second respondent did not plead any justification, worth its name, for withholding the amount. The only plea raised was with regard to the levy of service tax of Rs. 46,91,187 by the Central Excise Department. The appeal in relation thereto is said to be pending with the CESTAT Southern Bench. The inclination on the part of the second respondent to refund the amount is also signified in paragraph 12 of the counter-affidavit. It reads :
"It submit in reply to paragraph 19 of the affidavit of the petitioner that the fringe benefit tax amount was shown as 'liabilities' on the balance-sheet and the amount was kept in a separate account known as fringe benefit tax till the finalisation of the case. In this regard it is further submitted that while furnishing a clarification to the CESTAT authorities, it is stated under protest, that the fringe benefit tax is collected from the employers and credited under liability with a condition that as a consequence of the Income-tax appeal, if it is not liable to fringe benefit tax, the amount so collected will be refunded to the firms."
The tax appeal is only in relation to service tax and not about the Income-tax. Once there is no demand, much less the payment of the fringe benefit tax by the second respondent to the Income-tax Department, there does not exist any justification to withhold the amount.
Across the Bar, it is argued that the refund of the amount may result in undue enrichment of the members of the petitioner-association, and sometimes, it may even be difficult to identify the persons, from whom it is collected. As regards the first contention, it has to be kept in mind that the collection of the amount by the second respondent was not in exercise of any sovereign powers. It is only when a Government, in its sovereign power, collects the amount, and there is likelihood of the benefit, not reaching the end customer, that the principle of undue enrichment will come into play. The underlying principle is that if a trader collected tax from the customer and paid to the exchequer, the refund thereof, on account of the adjudication must, naturally reach the person who paid it, and not an intermediary. Even where such amount is withheld, it goes to the State exchequer and becomes available for the welfare of the public at large. The second respondent, which has no traits of sovereignty, cannot be permitted to take such a plea. At any rate, when the amount was collected from a specified stevedore contractor, and the contractor in turn has undertaken the work with the owner of a ship, for loading or unloading, on a lump sum, the theory does not have any application.
As regards the second, namely, the difficulty in identifying the agency to be refunded, even the petitioner did not insist that the amount should be paid to it. Its endeavour is only to ensure that the amount is refunded to the concerned agency from whom it was collected. The second respondent would have the liberty to undertake proper verification, in the context of refunding the amount. If any doubt exists, in this regard, correspondence can be entertained, either with the agency, or with the petitioner. It is only on full satisfaction of the second respondent, about the identity of the agency, that the relevant amount can be refunded.
16. The writ petition is, therefore, allowed directing that :
(a) The second respondent shall be under obligation to refund the amount collected towards the fringe benefit tax along with accrued interest to the respective stevedores from whom it was collected duly identifying them, within two months from the date of receipt of a copy of this order.
(b) We also make it clear that the second respondent shall not be under any obligation towards fringe benefit tax for the benefits paid to the employees supplied by it to the stevedores.
(c) If any doubt is entertained in this behalf as to the identity, it is open to the second respondent to seek necessary information or clarification from the petitioner, and
(d) If the second respondent paid any service tax on the amount collected by it towards service tax, it need not refund the same.
The miscellaneous petitions filed in this writ petition shall stand disposed of. There shall be no order as to costs.