Commissioner
of Central Excise, Mumbai-II Vs. M/S Allied Photographics India Ltd [2004] Insc
177 (18 March 2004)
V.N.
Khare, S.B. Sinha & S.H. Kapadia Kapadia, J.
Finding
inconsistencies between two decisions of three-Judge Benches of this Court in
the case of Sinkhai Synthetics and Chemicals Pvt. Ltd. v. Collector of Central
Excise [2002 (143) ELT 17] and Collector of Central Excise, Chennai v. T.V.S.
Suzuki Ltd. [2003 (156) ELT 161] on one hand and the decision of nine- Judge
Constitution Bench in Mafatlal Industries Ltd. v. Union of India [(1997) 5 SCC
536] on the other, a two- Judge Bench of this Court vide order dated 13.11.2003
has referred the following question of law involved in this civil appeal to a
larger Bench and accordingly the matter has come before this court.
"Whether
a claim for refund after final assessment is governed by Section 11 B of the
Central Excise Act 1944?
FACTS:
New
India Industries Ltd. (NIIL) is incorporated under the Companies Act 1956 and
carries on business of manufacturing photographic printing paper which became
chargeable to excise duty vide tariff item No. 37- C(2) of the Central Excise
Act 1944 (hereinafter referred to as "the Act") with effect from
March 1, 1974. NIIL had entered into distribution agreement with a firm, Agfa Gevaert
(India) Ltd. (M/s AGIL) for supply of
goods. On 8.5.1974 the Department served show cause notice on NIIL
(Manufacturer) to explain why prices declared by the company vide letter dated
7.3.1974 should not be rejected as wholesale cash price and why prices charges
by M/s AGIL to its dealers should not be approved in terms of section 4(a) of
the said Act. On 13.12.1974 the Department confirmed the show cause notice and
directed NIIL to pay excise duty on the prices charges by M/s AGIL to its
dealers. In pursuance of the said order, a notice of demand dated 3.1.1975 was
served on NIIL demanding excise duty of Rs.99,631/- for the period 1.3.1974 to
20.5.1974 which NIIL paid, Under Protest, and carried on appeal to the
Appellate Collector. On 8.1.1976 the said appeal was dismissed. NIIL moved the
High Court under Article 226 of the Constitution of India vide Misc. Petition
No. 841 of 1976 challenging the order holding that the liability of NIIL to pay
excess duty should be ascertained by the price charged by M/s AGIL to its
dealers. The petition was subsequently withdrawn. On 15.9.1975, NIIL addressed
a latter to the Department submitting a declaration stating that M/s AGIL is
not related to NIIL in terms of section 4(a) of the said Act. On 1.10.1975, the
said section 4 of the Act was amended and the concept of "related
person" was introduced. On 11.11.1975, NIIL was asked by the Department to
pay excise duty on the price charged by M/s AGIL to its dealers. NIIL went in
appeal which was dismissed on 21.9.1979. On 31.10.1984 the Department approved
the ex-factory price of NIIL instead of the price list of M/s AGIL to its
dealers. Therefore, from 1.11.1984, NIIL started paying excise duty on the
ex-factory price charged by NIIL to M/s AGIL and not on price charged by M/s
AGIL to its dealers. ON 11.8.1986, NIIL filed refund claims for Rs.60,19,238.65
for recovery of excise duty between the period 1.11.1981 to 31.10.1984. On
29.9.1986 another refund claim for Rs.42,77,358.59 was lodged for recovery of excise
duty during the period 1.11.1978 to 31.10.1981. Similarly on 7.4.1987 another
refund claim was lodged for excise duty paid in excess during the period
1.3.1974 to 31.10.1978 by NIIL amounting to Rs.22,38,391.72. These refund
claims were made in view of judgment of this Court in the case of Union of
India & Ors. v. Bombay Tyre International Ltd. reported in [AIR 1984 SC
420]. On 7.4.1987, NIIL made a consolidated refund claim of Rs. 1,25,34,988.97
for the entire period from 1.3.1974 to 31.10.1984. In respect of these refund
claims the Department served a show cause notice and ultimately the Assistant
Collector granted refund to NIIL only for two months preceding the lodgment of
the claim. On 13.4.1987, NIIL filed Writ Petition No. 1336 of 1987 in the High
Court challenging the order of Assistant Collector denying refund except for
two months. That writ petition came for hearing before learned Single Judge on
29.8.1988. The learned Judge held that the action of the Department in
collecting duty not on the sale price of NIIL to M/s AGIL was illegal and,
therefore, NIIL was entitled to refund. However, since the question of unjust
enrichment was debatable, the learned Judge referred the question to the Full
Bench. After the decision of the Full Bench in the case of New India Industries
Ltd. v. Union of India reported in [1990 (46) ELT 23], the said Writ Petition
No.1336/87 was reposted before the learned Judge on 17.1.1990 when he directed
Union of India to prove that the tax burden has in fact been shifted to
consumers. Pending further examination, the Department was directed to deposit
Rs.1,25,34,988.97 in Court. When the Writ Petition came for hearing on
22.3.1990, NIIL conceded that it had passed on the burden to M/s AGIL, the
sole-selling distributors of NIIL. The learned Judge, however, directed M/s
AGIL to file affidavit stating whether it had passed on the burden to its
dealers or not. Therefore on 22.3.1990 the refund claims of NIIL were rejected
but the learned Judge went into further enquiry as to whether the burden had
been passed on by M/s AGIL to its dealers and by judgment dated 14.6.1990 held
that Union of India had failed to prove that M/s AGIL had passed on the burden
to its dealers and accordingly granted refund of Rs.1,25,34,988.97 to M/s AGIL.
Being aggrieved, the Department carried the matter in appeal to the Division
Bench which took the view that since NIIL had conceded of having passed on the
tax burden to M/s AGIL there was no question of the trial court further
examining the question as to whether M/s AGIL had passed on the burden to its
dealers. Accordingly, the Division Bench allowed the appeal filed by the
Department vide judgment dated 2.3.1993. Being aggrieved, NIIL came to this
Court vide SLP No. 7484 of 1993. By order dated 30.1.1997, this Court disposed
of the SLP observing that since NIIL had passed on the burden of excise duty to
M/s AGIL the refund claims filed by NIIL are liable to be rejected.
Accordingly,
the said SLP was dismissed. However it was clarified that the said Order will
not prevent M/s AGIL from adopting appropriate remedy as open to it in law. In
view of the order dated 30.1.1997 passed by this Court, M/s AGIL filed Writ
Petition No. 1776 of 1993 in the High Court contending that the petitioners
(AGIL) were entitled to refund of Rs.1,25,34,988.97 as sole selling
distributors of NIIL. That as distributors they (AGIL) were not related to
NIIL. That their transaction was at arms length and therefore, the Department
had erred in collecting excess excise duty from NIIL on the basis of the prices
charged by M/s AGIL to its dealers. In the Writ Petition, M/s AGIL relied on
the judgment of this Court in the case of Bombay Tyre (supra). By order dated
28.9.1993 passed by the High Court, the Department was allowed to withdraw
Rs.1,25,34,988.97 with undertaking to bring back the amount with interest as
and when the Court so directs. In the meantime on 19.12.1996 this Court
delivered its judgment in Mafatlal's case (supra) inter alia giving 60 days'
time to those claimants, who had earlier adopted legal proceedings claiming
refund to move under section 118 as amended w.e.f. 20.9.1991. Consequently, M/s
AGIL moved their refund claim before the Department on 11.2.1997 for Rs.1,25,34,988.97.
On 9.5.1997, a show cause notice was issued by the Department to M/s Allied Photographics
India Ltd. (formerly known as M/s AGIL) calling upon them to show cause why
Rs.1,25,34,988.97 should not be transferred to Consumer Welfare Fund. By
judgment and order dated 31.10.1997 passed by the Assistant Commissioner refund
was granted to M/s Allied Photographics India (P) Ltd. (M/s APIL). This order
of Assistant Commissioner was confirmed in appeal by the Commissioner (Appeals)
and the Tribunal vide impugned order dated 13.6.2000 and the Department was
directed to refund Rs.1,25,34,988.97 with interest. Being aggrieved, the
Department has come to this Court by way of present civil appeal under section 35L(b)
of the Act.
ARGUMENTS:
Mr.
A.K. Ganguli, learned senior counsel for the Department submitted that there
was a difference between provisional assessment under rule 9B and payment of
duty under protest in terms of rule 233B. In this connection reliance was
placed on the judgment of this Court in Mafatlal's case (supra). He submitted
that under the second proviso to section 11B if duty is paid by the
manufacturer under protest the limitation of six months was not applicable,
however, the purchaser of duty paid goods, after finalization of assessment of
excise duty payable by the manufacturer, was not entitled to rely upon the said
proviso. That in any event in the present case, M/s APIL (the
respondent-herein) had claimed refund by filing an independent application on
11.2.1997 and therefore it was governed by section 11B(3). In support reliance
was placed on para 104 of the Mafatlal's case. It was submitted that the
abovementioned two decisions of this Court in the cases of Sinkhai Synthetics
and Chemicals Pvt. Ltd. v. Collector of Central Excise reported in [2002 (143)
ELT 17] and Collector of Central Excise v. T.V.S. Suzuki Ltd. reported in [2003
(156) ELT 161] run counter to the law laid down by this Court in Mafatlal's
case and a clarification to that effect was required in the interest of
justice. Learned counsel next contended that M/s APIL as the sole distributor
of NIIL had bought the products in the course of trading between 1974 and 1984
and had sold them to its dealers earning profits between 12.6535% to 21.1333%.
That during the said period, the purchaser had no right to claim refund and
that M/s APIL became entitled to claim refund only after 20.9.1991 when section
11B was amended by the Central Excise and Customs Amendment Act of 1991 when
such right was recognized for the first time and, therefore, there was no
reason for M/s APIL not to pass on the burden to its dealers. That M/s APIL not
only passed on the burden to its dealers but even admittedly made profits on
its sales. That the consideration paid by M/s APIL to NIIL included excise duty
and the very fact that M/s APIL recovered all its expenses and made profits in
all its sales to its dealers itself establishes that incidence of duty was
passed on to the dealers by M/s APIL in the course of its trading business. It
was further urged that M/s APIL had never moved any refund claim prior to
8.6.1990 and that it filed its affidavit on that day in response to suo-moto
notice issued by the High Court in the Writ Petition filed by NIIL inter alia
for refund whereby for the first time M/s APIL contended that it had not passed
on the burden to its dealers. In this connection, M/s APIL asserted that the
excess duty component was negligible amount of 1.62% of its sale price; that it
had earned profits varying from 12.6535% to 21.1333% and therefore it absorbed
the burden of excess duty within its profit and that it gave a trade discount
varying from 2% to 4% to its customers which itself was more than the burden of
additional duty. However, on behalf of the Department it was contended that
excess duty component was a part of cost incurred by M/s APIL during the above
period 1974/1984 and there is no reason why M/s APIL did not recover it from
its dealers particularly when M/s APIL had no right as a purchaser to claim
refund which was recognized only on 20.9.1991 when section 11B was amended and
therefore, M/s APIL was seeking to unjustly enrich itself by seeking such
refund.
Lastly,
it was urged that M/s APIL had worked out its sale prices before the Department
in such a way that it has not passed the burden to its dealers and yet it has
earned profits varying from 12.6535% to 21.1333% which was contrary to normal
conduct of a trader. In this connection it was further submitted that M/s APIL
did not produce any material before the Department disclosing how its sale
price were arrived at.
Per
contra, Shri S. Ganesh, learned senior counsel for the respondent M/s APIL
submitted that M/s APIL as the purchaser was entitled to claim refund of the
excess duty as that amount had been passed on by NIIL to M/s APIL. In this
connection reliance was placed on judgments of this Court in the case of Mafatlal
(supra) and in the case of National Winders v. Collector of Central Excise
reported in [2003 (154) ELT 350].
Learned
counsel for the respondent contended that in the present case section 11B was
not at all attracted. In support he pointed out that during the period 1974 to
1984, the Department insisted on NIIL paying excise duty on the footing that
M/s APIL was related to NIIL. That the Department insisted on NIIL paying the
additional excise duty of 1.62% on the footing that M/s APIL was related person
to NIIL. However in 1984 assessments of NIIL were finalized in terms of
judgment of this Court in the case of Bombay Tyre (supra) wherein it was held
that the distributor could not be treated as a "related person" and
accordingly the amounts paid by NIIL towards excise duty during 1974-84 were
adjusted and appropriated against the amounts found payable on the said
assessments and consequently the disputed amount of excess duty of 1.62% paid
by NIIL under protest during the above period became refundable on the
finalization of NIIL's assessments in 1984. That neither NIIL nor M/s APIL ever
disputed the said assessments made in 1984 and M/s APIL had based their refund
claim on the said assessment. It was submitted that when a provisional
assessment is made under the Act or when excise duty is paid Under Protest by
the appellant, all payments of excise duty are On Account payments which are to
be adjusted and appropriated only on vacating of the protest or finalization of
assessment. In this connection, reliance was placed on rule 9B (5) as it stood
prior to its amendment in 1989 and rule 233B (v) and (vi). In either
situations, when the assessment is finalized or the protest is vacated and the
account is settled between the appellant and the Department and the said On
Account payments made by the appellant are adjusted and appropriated against
the assessed amount and if it is found that any amount is payable by the
appellant then it can be recovered by the Department without issuance of show
cause-cum-demand notice under section 11A.
Correspondingly,
if any amount is found to be repayable by the Department to the appellant on
such taking of accounts, then that amount has to be refunded without going
through section 11B. In this connection reliance was placed on the judgment of
this Court in the case of CCE v. National Tobacco Co. of India Ltd. reported in
[AIR 1972 SC 2563]. According to the learned counsel the same principle was
applicable in cases where the Department has to refund moneys to the appellant
on finalization of the assessment; which principle has been reiterated vide para
104 of the Mafatlal judgment.
Accordingly
it was submitted that the doctrine of unjust enrichment in section 11B would
not apply to the present case. Lastly it was urged that the argument of the
Department was based entirely on section 11B (3) which had no bearing on the
basic issue as to whether section 11B(2) was at all applicable particularly
when the appellant was seeking refund of an "On account" payment made
Under Protest or under the Provisional assessment".
Therefore,
the reliance on section 11B(3) was misplaced. That in the circumstances,
neither Sinkhai Synthetics nor T.V.S. Suzuki can be said to be in any way
incorrect, much less per incuriam. On merits, learned counsel for the
respondent submitted that the question as to whether the burden of duty has
been passed on to the consumer is to be answered by relying on one singular
test viz. whether the manufacturer has increased his sale price in order to
pass on the disputed amount and not whether the manufacturer has made profits
or losses. In this connection, reliance was placed on judgments of the
Appellate Tribunal having been accepted by the Department that composition of
costs incurred by M/s APIL was not relevant and the only relevant factor was
whether M/s APIL had increased its sale price to its dealers after it was
required to pay the differential amount of excise duty in the form of the
increased price charged to it by NIIL. In this connection it was submitted that
M/s APIL did not increase its sale price after it was required to bear the
differential amount of excise duty of 1.62% in the form of the enhanced
purchase price paid by it to NIIL and on the contrary, far from enhancing its
sale prices, M/s APIL granted discounts between 2% to 4% on the sale price
charged by it to its dealers and this discount was more than the disputed
differential amount of excise duty which came to 1.62% of the price. It was
submitted that the case of M/s APIL has been accepted by all the authorities
below and that this Court should not interfere with the concurrent findings of
fact recorded by the authorities below. In this connection it was submitted
that the said findings were based on the audited accounts of APIL; certificate
of Chartered Accountant, Sale Invoices of APIL and two affidavits filed on
behalf of APIL. It was further urged that in the case of Mafatlal (supra) it
has been held that where the claim for refund relates to the period prior to
20.9.1991, any evidence which reasonably shows that the disputed duty has not
been passed on to the dealers/customers in the form of increased price would
suffice and the claimant is not required to produce documents specified in
section 12A which has prospective operation. Hence, M/s APIL (respondents
herein) had not increased the sale price for recovering the additional disputed
duty burden of 1.62% which was passed on to it (M/s APIL) by NIIL. Learned
counsel for the respondent next contended that profits made by it during the
period 1974 to 1984 does not indicate passing on of the duty burden to its
dealers. It was contended that profit or loss is not the determinative factor
in order to ascertain whether the disputed additional duty is passed on by the
respondent to its dealers. In the circumstances, it was submitted that on the
said material and evidence and having regard to the specific findings the only
possible conclusion was that the respondent, M/s APIL had not passed on the
disputed duty burden to its dealers/customers.
POINT
FOR DETERMINATION:
Whether
the doctrine of unjust enrichment in section 11B of the Act is applicable to
the facts of this case, having regard to the fact that NIIL (manufacturer) had
paid the differential disputed excise duty Under Protest from 1.3.1974 to
31.10.1984 when the assessment was finalized in favour of NIIL in view of the
judgment of this Court in the case of Union of India & Ors. v. Bombay Tyre
International Ltd. reported in [AIR 1984 SC 420]?
FINDINGS:
The
points at issue in this civil appeal are whether refund of duty paid under
provisional assessment is similar to duty paid under protest as both are
"On Account" payments adjustable on finalization of assessment or
vacating of protest? Secondly, in the course of such adjustment or vacation of
protest, if any amount is found payable by the Department to the manufacturer,
is it open to the purchaser to contend that he (the purchaser) has stepped into
the shoes of the manufacturer seeking refund of "on account payment"
and, therefore, he was not bound to comply with section 11B of the said Act. In
this civil appeal, we have to deal with the law governing refund during the
disputed period from 1974 to 1984. To resolve the dispute herein, we quote hereinbelow
section 11B of the said Act as also rule 9B of the Central Excise Rules, 1944
as it stood prior to Central Excise & Customs (Amendment) Act, 40 of 1991:
"Section 11B: Claim for refund of duty.
(1)
Any person claiming refund of any duty of excise may make an application for
refund of such duty to the Assistant Collector of Central Excise before the
expiry of six months from the relevant date:
Provided
that the limitation of six months shall not apply where any duty has been paid
under protest.
Explanation. For the purposes of this section,
(A)
"refund" includes rebate of duty of excise on excisable goods
exported out of India or on excisable materials used in
the manufacture of goods which are exported out of India;
(B)
"relevant date" means,
(a) in
the case of goods exported out of India where a refund of excise duty paid is available in respect of the goods
themselves or, as the case may be, the excisable materials used in the
manufacture of such goods,
(i) if
the goods are exported by sea or air, the date on which the ship or the
aircraft in which such goods are loaded, leaves India, or
(ii) if
the goods are exported by land, the date on which such goods pass the frontier,
or
(iii) if
the goods are exported by post, the date of despatch of goods by the Post
Office concerned to a place outside India;
(b) in
the case of goods returned for being remade, refined, reconditioned, or
subjected to any other similar process, in any factory, the date of entry into
the factory for the purposes aforesaid;
(c) in
the case of goods to which banderols are required to be affixed if removed for
home consumption but not so required which exported outside India, if returned
to a factory after having been removed from such factory for export out of
India, the date of entry into the factory;
(d) in
a case where a manufacturer is required to pay a sum for a certain period, on
the basis of the rate fixed by the Central Government by notification in the
Official Gazette in full discharge of his liability for the duty leviable on
his production of certain goods, if after the manufacturer has made the payment
on the basis of such rate for any period but before the expiry of that period
such rate is reduced, the date of such reduction;
(e) in
a case where duty of excise is paid provisionally under this Act or the rules
made thereunder, the date of adjustment of duty after the final assessment
thereof;
(f) in
any other case, the date of payment of duty.
(2) If
on receipt of any such application, the Assistant Collector of Central Excise
is satisfied that the whole or any part of the duty of excise paid by the
applicant should be refunded to him, he may make an order accordingly.
(3)
Where as a result of any order passed in appeal or revision under this Act
refund of any duty of excise becomes due to any person, the Assistant Collector
of Central Excise may refund the amount to such person without his having to
make any claim in that behalf.
(4)
Save as otherwise provided by or under this Act, no claim for refund of any
duty of excise shall be entertained.
(5)
Notwithstanding anything contained in any other law, the provision of this
section shall also apply to a claim for refund of any amount collected as duty
of excise made on the ground that the goods in respect of which such amount was
collected were not excisable or were entitled to exemption from duty and no
court shall have any jurisdiction in respect of such claim.
Rule
9B: Provisional assessment of duty.
(1)
Notwithstanding anything contained in these rules:
(a) where
the proper officer is satisfied that an assessee is unable to produce any
document or furnish any information necessary for the assessment of duty on any
excisable goods; or
(b)
where the proper officer deems it necessary to subject the excisable goods to
any chemical or any other test for the purpose of assessment of duty thereon;
or
(c)
where an assessee has produced all the necessary documents and furnished full
information for the assessment of duty, but the proper officer deems it necessary
to make further enquiry (including the inquiry to satisfy himself about the due
observance of the conditions imposed in respect of the goods after their
removal) for assessing the duty, the proper officer may, either on a written
request made by the assessee or on his own accord, direct that the duty leviable
on such goods shall, pending the production of such documents or furnishing of
such information or completion of such test or enquiry, be assessed
provisionally at such rate or such value (which may not necessarily be the rate
or price declared by the assessee) as may be indicated by him, if such assessee
executes a bond in the proper form with such surety or sufficient security in
such amount, or under such conditions as the proper officer deems fit, binding
himself for payment of the difference between the amount of duty as
provisionally assessed and as finally assessed.
(2) (3)
The Collector may permit the assessee to enter into a general bond in the
proper Form with such surety or sufficient security in such amount or under
such conditions as the Collector approves for assessment of any goods
provisionally from time to time:
Provided
that, in the event of death, insolvency or insufficiency of the surety or where
the amount of the bond is inadequate, the Collector may, in his discretion,
demand a fresh bond and may, if the security furnished for a bond is not
adequate, demand additional security.
(4)
The goods provisionally assessed under sub-rule (1) may be cleared for home
consumption or export in the same manner as the goods which are not so
assessed.
(5)
When the duty leviable on the goods is assessed finally in accordance with the
provisions of these rules, the duty provisionally assessed shall be adjusted
against the duty finally assessed, and if the duty provisionally assessed falls
short of, or is in excess of the duty finally assessed, the assessee shall pay
the deficiency or be entitled to a refund, as the case may be." Before analysing
section 11B, it is important to note that there is a difference between making
of refund and claiming of refund. Section 11B was inserted in the said Act w.e.f.
17.11.1980. Under sub-clause (e) to explanation B to section 11B(1), where
assessment was made provisionally the relevant date for commencement of
limitation of six months was the date of adjustment of duty as final
assessment. Entitlement to refund would thus be known only when duty was
finally adjusted. Sub- clause (e) referred to limitation in cases covered by
rule 9B which dealt with duty paid under provisional assessment. The said rule
started with a non-obstante clause. Rule 9B(1)(a) to (c) indicated the
circumstances in which the proper officer would allow provisional assessment.
Rule 9B(4) dealt with clearance of goods provisionally assessed whereas rule
9B(5) dealt with adjustment of provisionally assessed duty against finally
assessed duty. The said rule 9B was a complete code by itself. On compliance
with the conditions therein, the proper officer was duty bound to refund the
duty without requiring the assessee to make a separate refund application. The
said rule, therefore, provided for making of refund. On the other hand, section
11B(1) dealt with claiming of refund by the person who has paid duty on his own
accord. In this connection, section 4 of the said Act is relevant. In the case
of Bombay Tyre (supra) it has been held that section 3 of the Act refers to
levy of duty whereas section 4 dealt with assessment. Assessment means
determination of the tax liability. Under the Act, duty was payable by the
manufacturer on his own account. Hence, under section 11B(1), such a person had
to claim refund by making an application within six months from the relevant
date except in cases where duty was paid under protest in terms of the proviso.
However, even in such cases, the person claiming refund had to pay the duty
under protest in terms of prescribed rules. A bare reading of section 11B(1),
therefore, shows that it refers to claim for refund as against making of refund
by the proper officer under rule 9B.
On
20.9.1991, the above section 11B underwent a drastic change vide Central
Excises and Customs Laws (Amendment) Act, 40 of 1991 (hereinafter referred to
as "the Amendment Act"). By the Amendment Act, the concept of unjust
enrichment as undeserved profit was introduced. We reproduce herein below
amended section 11B: "Section 11B: Claim for refund of duty. (1) Any
person claiming refund of any duty of excise may make an application for refund
of such duty to the Assistant Collector of Central Excise before the expiry of
six months from the relevant date in such form and manner as may be prescribed
and the application shall be accompanied by such documentary or other evidence
(including the documents referred to in section 12A) as the applicant may
furnish to establish that the amount of duty of excise in relation to which
such refund is claimed was collected from, or paid by, him and the incidence of
such duty had not been passed on by him to any other person:
Provided
that where an application for refund has been made before the commencement of
the Central Excises and Customs Laws (Amendment) Act, 1991, such application
shall be deemed to have been made under this sub-section as amended by the said
Act and the same shall be dealt with in accordance with the provisions of sub-
section (2) substituted by that Act:
Provided
further that the limitation of six months shall not apply where any duty has
been paid under protest.
(2)
If, on receipt of any such application, the Assistant Commissioner of Central
Excise is satisfied that the whole or any part of the duty of excise paid by
the applicant is refundable, he may make an order accordingly and the amount so
determined shall be credited to the Fund:
Provided
that the amount of duty of excise as determined by the Assistant Commissioner
of Central Excise under the foregoing provisions of this sub-section shall,
instead of being credited to the Fund, be paid to the applicant, if such amount
is relatable to
(a) rebate
of duty of excise on excisable goods exported out of India or on excisable materials used in
the manufacture of goods which are exported out of India;
(b) unspent
advance deposits lying in balance in the applicant's account current maintained
with the Commissioner of Central Excise;
(c) refund
of credit of duty paid on excisable goods used as inputs in accordance with the
rules made, or any notification issued, under this Act;
(d) the
duty of excise paid by the manufacturer, if he had not passed on the incidence
of such duty to any other person;
(e) the
duty of excise borne by the buyer, if he had not passed on the incidence of
such duty to any other person;
(f) the
duty of excise borne by any other such class of applicants as the Central
Government may, by notification in the Official Gazette specify:
Provided
further that no notification under clause (f) of the first proviso shall be
issued unless in the opinion of the Central Government the incidence of duty
has not been passed on by the persons concerned to any other person.
(3)
Notwithstanding anything to the contrary contained in any judgment, decree,
order or direction of the Appellate Tribunal or any Court or in any other
provision of this Act or the rules made thereunder or any other law for the
time being in force, no refund shall be made except as provided in sub-section
(2).
Explanation. For the purposes of this section (B)
"relevant date" means (f) in any other case, the date of payment of
duty." According to statement of objects and reasons for enacting the
Amendment Act, the Public Accounts Committee recommended introduction of
suitable legislation to amend the said Act to deny refunds in cases of unjust
enrichment. Under the amended section 11B(3) of the said Act, notwithstanding
anything to the contrary in any judgment, decree, order or direction of the
appellate Tribunal or any Court, no refund was to be made except in accordance
with section 11B(2) of the said Act.
Further,
there was substitution of sub-clause (e) to explanation B to section 11B(1) by
which the original sub- clause (e) was deleted and substituted by new
sub-clause (e) under which in cases where duty has been passed on by the
manufacturer to the buyer, the relevant date for computing the period of
limitation would commence from the date of purchase of goods by the buyer. At
this stage, it is important to note that although sub-clause (e) as it stood
prior to 20.9.1991 dealt with the period of limitation in cases of refund of
duty paid under provisional assessment, the substantive provision for provisional
assessment of duty was rule 9B. Therefore, even with the deletion of old
sub-clause (e), rule 9B continued during the relevant period. The deletion of
sub-clause (e) and continuation of rule 9B shows that the section 11B (as
amended) applied to claiming of refunds where the burden was on the applicant
to apply within time and prove that the incidence of duty has not been passed
on whereas rule 9B covered cases of ordering of refund/making of refund, where
on satisfaction of the conditions, the concerned officer was duty bound to make
the order of refund and in which case question of limitation did not arise and,
therefore, there was no requirement on the part of the assessee to apply under
section 11B. Lastly, rule 9B referred to payment of duty on provisional basis
by the assessee on his own account and, therefore, in cases where the
manufacturer has been allowed to invoke this rule and refund accrues on
adjustment under rule 9B(5) that refund is on the account of the manufacturer
and not on the account of the buyer.
If one
reads section 11B on one hand and rule 9B on the other hand, both indicate
payment by the assessee on his own account and refund becomes due on that
account alone.
In the
light of what is stated above, we now quote hereinbelow para 104 of the
judgment of this Court in the case of Mafatlal Industries Ltd. (supra):
"104. Rule 9-B provides for provisional assessment in situations specified
in clauses (a), (b) and (c) of sub-rule (1). The goods provisionally assessed
under sub-rule (1) may be cleared for home consumption or export in the same
manner as the goods which are finally assessed. Sub-rule (5) provides that
"when the duty leviable on the goods is assessed finally in accordance
with the provisions of these Rules, the duty provisionally assessed shall be
adjusted against the duty finally assessed, and if the duty provisionally
assessed falls short of or is in excess of the duty finally assessed, the assessee
shall pay the deficiency or be entitled to a refund, as the case may be".
Any recoveries or refunds consequent upon the adjustment under sub-rule (5) of
Rule 9-B will not be governed by Section 11-A or Section 11-B, as the case may
be. However, if the final orders passed under sub-rule (5) are appealed against
or questioned in a writ petition or suit, as the case may be, assuming that
such a writ or suit is entertained and is allowed/decreedthen any refund claim
arising as a consequence of the decision in such appeal or such other
proceedings, as the case may be, would be governed by Section 11-B. It is also
made clear that if an independent refund claim is filed after the final
decision under Rule 9-B(5) reagitating the issues already decided under Rule
9-B assuming that such a refund claim lies and is allowed, it would obviously
be governed by Section 11-B. It follows logically that position would be the
same in the converse situation." At the outset it may be pointed out that
in para 104 there is nothing to suggest that payment of duty under protest does
not attract bar of unjust enrichment. Para
104 only states that if refund arises upon finalization of provisional
assessment, section 11B will not apply.
In the
present case, reliance was placed by the respondent M/s APIL on the above para
in support of its contention that payment of duty under protest and payment of
duty under provisional assessment are both "on account" payments
under the Act. We do not find any merit in this argument. As discussed, there
is a basic difference between duty paid under protest and duty paid under rule
9B. The duty paid under protest falls under section 11B whereas duty paid under
provisional assessment falls under rule 9B. That section 11B deals with claim
for refund whereas rule 9B deals with making of refund, in which case the assessee
has not to comply with section 11B. Therefore, section 11B and rule 9B operate
in different spheres and, consequently, in para 104 of the said judgment, it
has been held that in cases where duty is paid under rule 9B and refund arises
on adjustment under rule 9B(5), then such refund will not be governed by
section 11B. In the said para, it has been clarified that if an independent
refund claim is made after adjustment on final assessment under rule 9B(5),
agitating the same issues, then such claim would attract section 11B. This is
because when the assessee makes an independent refund claim after final orders
under rule 9B(5), such application represents a claim for refund and, it would
not come in the category of making of refund and therefore, the bar of unjust
enrichment would apply.
Hence,
there is no merit in the contention of the respondent M/s APIL that although in
this case duty was paid under protest, there was no difference between such
payment and duty paid under provisional assessment under the said Act. This
argument was obviously advanced because unless the two payments are equated as
contended, the respondent M/s APIL was required to comply with section 11B. In
this matter, duty has been paid under protest. It is the case of the respondent
M/s APIL that since such payment was similar to payment under rule 9B, the
respondent M/s APIL was not required to comply with section 11B. In the light
of the discussion hereinabove, we hold that the respondent was bound to comply
with section 11B. Lastly, in any event, the application dated 11.2.1997 fell in
the category of refund claim being made after finalization of assessment of
NIIL and, therefore, section 11B had to be complied with in terms of para 104
of the above judgment in the case of Mafatlal Industries Ltd. (supra). For
above stated reasons, since there was failure to comply with section 11B, the
respondent was not entitled to refund.
The
point which still remains to be decided is whether the respondent herein was
entitled to refund without complying with section 11B of the Act on the ground
that it had stepped into the shoes of NIIL (manufacturer) which had paid the
duty under protest. It was argued on behalf of the respondent that NIIL had
paid the excise duty under protest pending final assessment, which was
ultimately decided in favour of NIIL and since NIIL had sold the product to the
respondent herein, the respondent was entitled to the benefit of the second
proviso to section 11B(1) which inter alia stated that limitation of six months
shall not apply where duty had been paid under protest. We do not find any
merit in this argument. In the case of Bombay Tyre International Ltd. (supra),
it has been held by this Court that section 3 of the said Act is a charging
section whereas section 4 is a computation section which covers assessment and
collection of excise duty. That the basis of assessment under section 4 was the
real value of excisable goods which included manufacturing cost and
manufacturing profit but excluded selling cost and selling profit. That the
price charged by the manufacturer for sale of the goods represented the real
value of the goods for assessment of excise duty. In the case of Atic
Industries Ltd. v. H. H. Dave, Asstt. Collector of Central Excise reported in
[AIR 1975 SC 960], this Court has held that the resale price charged by a
wholesale dealer who buys goods from the manufacturer cannot be included in the
real value of excisable goods in terms of section 4 of the said Act. Therefore,
it is clear that the basis on which a manufacturer claims refund is different
from the basis on which a buyer claims refund. The cost of purchase to the
buyer consists of purchase price including taxes and duties payable on the date
of purchase (other than the refund which is subsequently recoverable by the
buyer from the Department).
Consequently,
it is not open to the buyer to include the refund amount in the cost of
purchase on the date when he buys the goods as the right to refund accrues to
him at a date after completion of the purchase depending upon his success in
the assessment. Lastly, as stated above, section 11B dealt with claim for
refund of duty. It did not deal with making of refund. Therefore, section 11B(3)
stated that no refund shall be made except in terms of section 11B(2). Section 11B(2)(e)
conferred a right on the buyer to claim refund in cases where he proved that he
had not passed on the duty to any other person. The entire scheme of section
11B showed the difference between the rights of a manufacturer to claim refund
and the right of the buyer to claim refund as separate and distinct. Moreover,
under section 4 of the said Act, every payment by the manufacturer whether
under protest or under provisional assessment was on his own account.
The
accounts of the manufacturer are different from the accounts of a buyer
(distributor). Consequently, there is no merit in the argument advanced on
behalf of the respondent that the distributor was entitled to claim refund of
"on account" payment made under protest by the manufacturer without
complying with section 11B of the Act.
As
stated above, para 104 of the judgment in the case Mafatlal Industries Ltd.
(supra) states that if refund arises upon finalization of provisional
assessment, section 11B will not apply. Para 104 of the said judgment does not
deal with payment under protest. In the light of what is stated herein, we may
now consider the judgment of this Court in the case Sinkhai Synthetics &
Chemicals Pvt. Ltd. (supra). In that matter, the assessee was a manufacturer. The
assessee claimed exemption which was denied by the Department. The assessee
went in appeal to CEGAT. Pending appeal, assessee paid excise duty under
protest. The assessee succeeded before the CEGAT and claimed refund on
17.1.1991. Refund was denied by the Department. Therefore, it was a case of
payment of duty under protest. However, in the said decision, this Court
applied para 104 of the judgment of the Constitution Bench in the case of Mafatlal
Industries Ltd. (supra), which with respect, had no application. As stated
above, para 104 of the judgment in the case of Mafatlal Industries Ltd. (supra)
dealt with refund consequent upon finalization of provisional assessment.
Para
104 does not deal with refund of duty paid under protest. As stated above, there
is a difference under the Act between payment of duty under protest on one hand
and refund consequent upon finalization of provisional assessment on the other
hand. This distinction is missed out, with respect, by the judgment of this
Court in the case of Mafatlal Industries Ltd. (supra). We may also point out
that the judgment in the case of Sinkhai Synthetics & Chemicals Pvt. Ltd.
(supra) is based on the concession made by the counsel appearing on behalf of
the Department. That judgment is, therefore, per incuriam. Learned counsel for
the respondent herein placed reliance on the judgment of this Court in the case
of TVS Suzuki Ltd. (supra). In that case, application for refund was filed.
This was on completion of final assessment. On 9.7.1996, the Department issued
a show-cause notice as to why the refund claim should not be rejected for
non-compliance of section 11B. By order dated 17.7.1996, the refund claim was
rejected on the ground that it was beyond limitation. On appeal, the
Commissioner (Appeals) observed that the bar of unjust enrichment was not
applicable as the assessee claimed refund consequent upon final assessment. He
allowed the refund claim. CEGAT agreed with the view of Commissioner (Appeals).
Before this Court, the Department conceded rightly that in view of para 104 of
the judgment of this Court in Mafatlal Industries Ltd. (supra), bar of unjust
enrichment was not applicable in cases of refund consequent upon adjustment
under rule 9B(5). The judgment of this Court in the case of TVS Suzuki Ltd.
(supra), therefore, supports the view which we have taken herein above that
refund consequent upon finalization of provisional assessment did not attract
the bar of unjust enrichment.
Mr. Ganesh,
learned senior counsel appearing on behalf of the respondent vehemently urged
that the issue arising in the present matter is squarely covered by the
decision of Division Bench of this Court in the case of National Winder v.
Commissioner of Central Excise, Allahabad [2003 (154) ELT 350] in which it has
been held that if duty is paid by a manufacturer under protest then limitation
of six months will not apply to a claim of refund by a purchaser. For the
reasons given hereinabove, we hold that the said judgment is per incuriam. At
this stage, it is important to note that the Division Bench judgment [Hon. S.N.
Variava & B.P. Singh, JJ.] in the case of National Winder (supra) was
delivered on 11.3.2003. However, on 13.11.2003, the Division Bench [Hon. S.N. Variava
& H.K. Sema, JJ.], has referred the matter as stated above to the larger
bench in the light of conflict which the Division Bench noticed between the
earlier judgments of this Court on one hand and paragraph 104 of the judgment
of the Constitution Bench of nine-Judges in the case of Mafatlal Industries Ltd.
(supra). Hence, by this judgment, we have clarified the position in law.
Having
come to the conclusion that the respondent was bound to comply with section 11B
of the Act and having come to the conclusion that the refund application dated
11.2.1997 was time barred in terms of section 11B of the Act, we are not
required to go into the merits of the claim for refund by the respondent who
has alleged that it has not passed on the burden of duty to its dealers. Mr. Ganesh,
learned senior counsel however submitted that this Court should not interfere,
under Article 136 of the Constitution, in view of the concurrent finding of
fact given by the authorities below that the respondent has not passed on the
incidence of duty to its dealers. We do not find any merit in this argument. In
May, 1974, the Department took the view that price declared by NIIL in its
price list cannot be accepted as assessable value of excisable goods and price
at which their sole distributor M/s AGIL sold the goods represented the correct
price.
Accordingly,
on 8.5.1974 show-cause notice was issued to NIIL as to why the prices submitted
by NIIL should not be rejected and why excise duty should not be collected from
NIIL on the prices at which their distributor M/s AGIL sold the goods in the
market. By order dated 31.12.1974, the Department held that the transactions
between NIIL and M/s AGIL (predecessor of the respondent herein) were not at
arms length and accordingly it was ordered that the prices charged by the
distributor M/s AGIL should be taken as a wholesale cash price under section 4
of the said Act, as it stood at the relevant time. However, later on, in view
of the judgment of this Court in the case of Bombay Tyre International Ltd.
(supra) the Department approved the price list of NIIL vide order dated
31.10.1984 and accepted the ex-factory price of NIIL. On the basis of the said
order, NIIL claimed refund of Rs.1,25,34,988.97 on which the Department issued
show- cause notice on 23.2.1987 calling upon NIIL to show- cause why the said
amount should not be credited to the Consumer Welfare Account. NIIL objected.
However, their objection was rejected. Thereafter, the litigation took place as
stated above. Ultimately, vide order dated 31.10.1997, the Assistant
Commissioner Central Excise granted refund, which order was confirmed in appeal
by the Commissioner (Appeals) and by CEGAT. Hence, the Department has come by
way of the present Civil Appeal.
On the
above facts, the short point which arises for determination is whether
incidence of duty was passed on by NIIL to its distributor M/s AGIL and whether
M/s AGIL in turn passed on the burden to its dealers. On the first point, NIIL
conceded in the earlier proceedings before the High Court that it had passed on
the duty burden to its distributor M/s AGIL. Therefore, the only question which
we are required to decide is whether M/s AGIL in turn had passed on the duty
burden to its dealers as alleged.
In the
present case, it was argued on behalf of the Department before the authorities
below that 20% of the total price paid by M/s AGIL represented the duty
recovered by NIIL as a part of the sale price. It is important to note that M/s
AGIL was the sole distributor of NIIL. Therefore, it is highly improbable for a
distributor to incur cost of purchase which included 20% element of duty in
addition to the purchase price without passing on the burden to its dealers.
From the record, it appears that during the disputed period 1974 to 1984, M/s
AGIL were in trading which further supports the above improbability.
In the
present case, there is no material placed on record by M/s AGIL as to how it
had accounted for the cost of purchase in its books and the accounting
treatment it gave to the said item at the time of payment of the purchase
price. No record as to costing of that item has been produced. This material
was relevant as in the present case NIIL conceded that it had passed on the
burden of duty to its distributor M/s AGIL (buyer) and it was the buyer who
claimed refund. It has been urged on behalf of the respondent and which
argument has been accepted by the Authorities below that 20% of the total price
paid by M/s AGIL to NIIL represented total excess excise duty levied and not
the excess duty collected by NIIL in the form of sale price from its
distributor M/s NIIL.
It was
argued that excess duty collected by NIIL represented only 1.62% of the total
price. It was argued that resale price charged by M/s AGIL to its dealers had
no relevance to excess excise duty paid by M/s AGIL to NIIL at the time of
purchase as the sale price charged by M/s AGIL to its dealers was based on the
prevailing market price. We do not find any merit in this argument.
In the
present case, the refund claim is made by a buyer and not by the manufacturer.
The buyer says that he has not passed on the burden to its dealers. The buyer
has bought the goods from the manufacturer paying the purchase price which
included cost of purchase plus taxes and duties on the date of purchase. In
such cases, cost of purchase to the buyer is a relevant factor. None of the
authorities below have looked into this aspect. Even the appellate Tribunal has
not gone into this relevant factor. It has merely quoted the passages from the
order of the lower authority, whose order was impugned before it. Costing of
the goods in the hands of the distributor, the cost element and the treatment
given to purchases by the buyer in his own account were relevant circumstances
which the Authorities below failed to examine. It was submitted that cost of purchase
was not a relevant factor.
It was
submitted on behalf of the respondent that the resale price charged by the
buyer was not a relevant factor. It was submitted that since the sale price of
the goods before and after the assessment remained the same the burden of
excess duty was absorbed by the respondent. It was submitted that in any event
the sale price of the goods increased much less than the amount of duty
(differential) involved in this case and, therefore, incidence of duty was not
passed on to the consumers.
In
this connection, reliance was placed on several judgments of the Tribunal. We
have gone through these judgments. They are not applicable to the facts of this
case. In the present case, we are concerned with the distributor buying the products
from the manufacturer and reselling them to its dealers. Hence, the cost of
purchase is a relevant factor. The facts of the cases before the Tribunal deal
with sale by manufacturer to the consumer.
They
deal with assessees' invoice bearing a composite price. They are the cases
which dealt with the claim of refund by the manufacturer. They did not deal
with claim of refund by the buyer. Hence, they have no bearing on the facts of
the present case.
Before
concluding, we may state that uniformity in price before and after the
assessment does not lead to the inevitable conclusion that incidence of duty
has not been passed on to the buyer as such uniformity may be due to various
factors. Hence, even on merits, the respondent has failed to make out a case
for refund.
Since
relevant factors stated above have not been examined by the authorities below,
we do not find merit in the contention of the respondent that this Court should
not interfere under Article 136 of the Constitution in view of the concurrent
finding of fact.
Accordingly,
this Civil Appeal stands allowed. The judgment and order
No.C-II/1748-50/WZB/2000 dated 13.6.2000 in Appeal No.E/3318/99-Mum passed by
the Customs, Excise and Gold (Control) Appellate Tribunal, West Regional Bench
at Mumbai-II is hereby set aside.
There
shall be no order as to costs.
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