Question

If a tax is ultra vires or unconstitutional then the party is entitled to have a refund of it from the government whether it has been paid under protest or not. This Court has held that the payment of tax which is without authority of law is payment made under a mistake within the meaning of Section 72 of the Indian Contract Act. Then, in such a case, question would arise, whether the government to whom the payment had been made by mistake must repay it. Thus, the principle of restitution or repayment of the tax simpliciter has been considered in light of the doctrine of unlawful enrichment. The doctrine envisages that when the State collects a tax from the tax-payer without authority of law, but if the taxpayer has already passed on the burden of the tax money paid by him to the State to someone else and has recouped the money then the taxpayer is not entitled to ask for the restitution from the State the money paid by him as unauthorized tax. In such circumstances, the State cannot be asked to refund the tax money to the taxpayer on the principle of unlawful enrichment.