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Judgment
This Writ Petition coming on for hearing on this day upon perusing the petition and the affidavit filed in support thereof the order of the High
Court, dated 9-3-1982 and made herein, and the counter-affidavits filed herein and the records relating to the order in C NO.111/10/448-
IA(RC), dated 6-2-1982 on the file of 2nd respondent comprised in the return of said respondents, to the writ made by the High Court, an upon
hearing the arguments of Mr. Habibullah Badsha for M/s/ E. S. Govindan and S. Suresh Kumar, Advocates for the petitioner, and of Mr. T.
Somasundaram, Additional Central Government Standing Counsel on behalf of the respondents, the Court made the following Order:-
The petitioner a manufacturer of iron and steel items including shutter lathe sections. According to the petitioner, the relevant Central Excise Tariff
applicable to the manufacture of shutter lathe section would be Item 26AA(ia). But when the residuary Tariff Item 68 was introduced in the year
1975, the Assistant Collector of Central Excise, by his order dated 17-7-1976, classified the said product under Tariff Item 68. The petitioner
preferred an appeal to the Appellate Collector and by the order dated 23-12-1977, the appeal was allowed and the matter was remanded to the
Assistant Collector for fresh disposal. But once again the Assistant Collector, by his order dated 23-2-1979, held that the item is classifiable under
Tariff item 68 which necessitated the petitioner to prefer an appeal to the Appellate Collector and on a direction from the Appellate Collector by
his order dated 16-1-1980, the Assistant Collector visited the factory of the petitioner on 25-401980 and after studying the process of
manufacture of shutter lathe in detail , passed an order dated 29-4- 1980 classifying under Tariff Item 26AA(ia). This order of Assistant Collector
dated 29-4-1980 had become final. The department did not seek a review of the said order classifying the products manufactured by the petitioner
as falling under Tariff Item 26AA(ia).
On the basis of the order of the Assistant Collector dated 26-4- 1980, the petitioner filed refund claims being the difference between the duty
already paid under Tariff Item 68 and the one payable under Tariff item, 26AA(ia). In the light of the decision of the Assistant Collector dated 29-
4-1980, claims for refund were ordered on 29-12- 1980.
The second respondent, who is the Collector of Central Excise, Madras, purporting to exercise powers u/s 35A of the Central Excises and Salt
Act, 1944, hereinafter referred to as the `Act'' issued a show cause notice to the petitioner calling upon the petitioner to show cause as to why
order of the Assistant Collector dated 29-12-1980 sanctioning refund should not be set aside. The main grounds on which the show cause notice
u/s 35A of the Act was issued are as follows:- (1) The shutter lathe sections will not fall under Tariff item 26AA(ia), but will fall under Tariff item
68 and consequently the benefit of exemption under the erstwhile Notification No.75/67-CE., dated 20-5-1967 will not apply; and (2) The
Assistant Collector has not verified before sanctioning refund whether any set off was availed in terms of Notification No. 178/77-CC. E. and
Notification No. 201/79-C. E. by persons who manufactured shutters out of shutter lathe sections purchased from the petitioners. The petitioner
submitted his explanation. The second respondent, by his order, dated 6-2-1982, held that since Tariff Item 26AA(ia) covers all other rolled
forged or extruded shapes and sections not otherwise specified, the products manufactured by the petitioner would rightly be classified under Tariff
item 68 and not under Tariff Item 26AA(ia) . On the second point, the Collector further held that it is noticed that M/s. Karthika Industries,
Industrial Estate, Guindy, Madras, who have purchased shutter lathe sections from the assessees, had availed Proforma credit of duty of Rs.
2,383,83 under Notification No. 201/79 and it is possible that some more customers of the petitioner might have obtained similar proforma credit
either under Notification No. 178/77 or under Notification No.201/79 and since it is established that at least part of the amount refunded by the
Assistant Collector by orders dated 29-12-1980 had already been taken as proforma credit by M/s. Karthika Industries, it is evident that there
has been a double refund of duty paid or shutter lathe sections and in this view, the Collector had set aside the orders of the Assistant Collector
dated 29-12-1980 directing refund. The present writ petition has been filed to quash the said order of the Collector of Central Excise dated 6-2-
1982.
Mr. Habibullah Badsha, learned Senior Counsel appearing for the petitioner submits that after a careful consideration the Assistant Collector of
Central Excise has passed final orders on 29-4-1980 classifying the items manufactured by the petitioner as falling under Tariff item 26AA(ia). The
petitioner has accepted the said order. This order has also been acted upon by the department when an order or refund was made on 20-12-
1980. If the department felt aggrieved by the orders of the Assistant Collector, dated 29-4-1980, they could seek a revision u/s 35A of the Act.
But such a revision could be sought for only within a period of six months from the date of the order. But in the instant case, no proceedings for
revision were initiated u/s 35A of the Act at all against the orders dated 29-4-1980. When such is the position, when orders for refund were made
on 29-12-1980 and when a revision against that order dated 29-12-1980 is ought by initiating proceedings u/s 35A of the Act it is not possible for
the department to reopen the concluded issue of classification which formed the subject-matter of the order of the Assistant Collector, dated 29-4-
1980, by an indirect process without filing a revision against the order dated 29-4-1980, the said order dated 29-4-1980 cannot be sought to be
set aside. Secondly,it is submitted by him that so long as the order dated 29-4-1980 stands, it becomes legally enforceable and the natural
consequences of that order dated 29-4-1980 would be an entitlement to the petitioner to obtain a refund of the excess excise duty paid by the
petitioner. This statutory right to obtain a refund cannot be defeated on any extraneous grounds which are not warranted u/s 11A or 11B of the
Act. Thirdly, it is submitted that the very basis of the order of the Collector of Central Excise dated 6-2- 1982 is the conclusion arrived at by him
that the goods manufactured by the petitioner would not all under Tariff Item 26AA(i) but would fall under the residuary Item68. The Collector of
Central Excise does not have jurisdiction to render such a finding when the order dated 29-4- 1980 had become final. Secondly, in the counter-
affidavit filed in this writ petition, it is conceded by the respondents in paragraph 9 as follows:-
Though the respondents originally held that the ''Shutter Lathe Section'' would fall under T. I.68 and not T. I. No. 26AA (I), now the respondents
are inclined to accent the classification made by the Assistant Collector under T. I. No. 29AA (i).
In the face of the said admission found in the counter-affidavit, the very basis of the impugned order dated 6-2-1982 is knocked off and
consequently the same is liable to be quashed. The fourth submission made by the learned Counsel for the petitioner is that it is not possible for the
respondents to deny refund or make attempts to recollect the amount already refunded on the tenuous plea that somebody else has or might have
obtained proforma credit either under Notification No. 178/77 or under Notification No. 201/79. The learned Counsel submits that such a
consideration is not permissible and is totally irrelevant. Section 11A or 11B of the Act does not impose any such condition for obtaining refund.
Therefore, the second reason contained in the order of the Collector of Central excise is unsustainable. In support of the contentions of the
petitioner, reliance is placed on the judgment of the Supreme Court reported in D. Cawasji and Co. v. State of Mysore 1978 ELT 154 and the
judgment of the Court reported in Soft Beverages (P) Ltd. Madurai v. Union of India and Another 1982 ELT 119 and Madras Rubber Factory
Ltd. v. Assistant Collector of Central Excise, madras and Another 1981 ELT 565 . Reliance is also placed on the judgment of the Supreme Court
reported in Commissioner v. Auriaya Chamber 1986 ELT 867 where it has been held that when tax or duty has been illegally collected, there is an
obligation on the State to refund the same.
Thiru T. Somasundaram, learned Counsel appearing for the respondents submits that the judgment of a Division Bench of this Court reported in
Madras Aluminium Co. Ltd. and Another v. Union of India 1981 ELT 478 is directly on point and as held therein that is so far as the petitioner has
passed on already the excise duty paid on the foods manufactured by him to the customs, the petitioner would not be entitled to a refund of the
excess excise duty paid by him, since to enable him to obtain a refund would result in unjust enrichment, Learned Counsel also relied upon the
judgment of the Supreme Court reported in State of Madhya Pradesh Vs. Vyankatlal and Another, . These rival contentions are considered as
follows:-
As stated earlier, the question whether the items manufactured by the petitioner, namely shutter lathe section would fall under Tariff Item No. 68
or Tariff item No. 26AA(ia) is no longer in doubt, not only because there is a final order of classification made by the assistant Collector dated 29-
4-80 which has not been appealed against, but also because of the admissions contained in the counter-affidavit where in it is conceded that the
said shutter lathe sections would fall under Tariff Item No. 26-AA(ia). Consequently, it follows that if the petitioner had paid higher rate of excise
duty under Tariff Item 68 under protest and had cleared the goods, he may seek remedy u/s 11B of the Act. Section 11B states that any person
claiming refund of any duty of excise may make an application for refund of such excise duty to the Assistant Collection of Central excise before
the expiry of six months from the date of payment of duty and if on receipt of such application, the Assistant Collector is satisfied that the whole or
any part of the excise duty paid by the applicant should be refunded to him, he may make an order accordingly ""Under section 11B, the petitioner
had filed applications for refund of excess excise duty paid by him and orders thereon had been passed on 20-12-1980 directing refund. This
order of refund is in conformity with the earlier order of the Assistant Collector of Central Excise dated 29-4- 1980 and also the stand now taken
in the counter-affidavit that the relevant Tariff Item applicable is 26AA(ia).
Section 11A of the Act states that when any duty of excise has been erroneously refunded, a Central excise Officer may, within six months from
the relevant date, serve notice on the person chargeable with the duty that the refund has been erroneously made, requiring him to show cause why
he should not pay the amount specified in the notice. Apparently, no action u/s 11A of the Act has been initiated against the petitioner on the
ground that the refund ordered by the Assistant Collector of Central Excise was erroneous. In the contrary proceedings had been initiated u/s 35A
of the Act which, in Section 35A(2), vests a suo motu power in the Collector of Central Excise to call for and examine the record of any
proceedings in which any decision or order has been passed under the Act by a Central Excise Officer subordinate to him for the purpose of
satisfying himself as to the correctness, legality or propriety of such decision or order and he may pass such order thereon as he thinks fit. Sub-
section (4) of section 35AA of the Act states that no proceedings shall be commenced under the said section after the expiration of a period of one
year from the date the decision or order.
In the instant case, the Collector of Central Excise has initiated action u/s 35A of the Act by issue of a show cause notice dated 24-6-1981.
Obviously when the issued such show cause notice on 24- 6-1981, a period of one year had already lapsed from 29-4-1980 when the Assistant
Collector passed final orders classifying the items manufactured by the petitioner as one falling under Tariff Item 26AA(ia). Therefore, by
purporting to exercise powers u/s 35A of the Act, the Collector of Central Excise had no jurisdiction to interfere with the orders dated 29-4-1980
because bar of limitation had set in. But the same time, by the impugned orders, the Collector of Central Excise had rendered a finding that the
Tariff Item applicable is 68 and not 26AA(ia). This reasoning of the Collector of Central Excise in the impugned orders dated 6-2-1982 is wholly
unsustainable and his conclusion that Tariff item 25AA(ia) is not applicable is contrary to the very admission in the counter-affidavit filed in this case
and consequently that portion of the order of the Collector of central Excise holding that the Tariff Item applicable to the shutter lathe sections
manufactured by the petitioner would be 68 is in correct and consequently that portion of the order is set aside.
What remains to be seen is whether the respondents are entitled to pass an order u/s 11A of the Act on the ground that the amounts ordered to
be refunded by the Assistant Collector to the petitioner have been erroneously refunded. The only surviving ground on which the Collector of
Central excise has held that the amount had been erroneously refunded is that there maybe other persons like M/s. Karthika Industries, Guindy
who might have availed of proforma credit either under Notification No. 178/77 or under Notification No. 201/79 and, therefore, the Assistant
Collector erred in ordering refund. Under Notification 201/79 the Central Government had exempted all the excisable good on which duty of
excise is leviable and in the manufacture of which any goods falling under Item No. 68 of the First Schedule to the Central Excises and Salt Act,
1944 have been used, from so much of the duty of excise leviable thereon as is equivalent to the duty of excise already paid on the inputs.
In other words, under this Notification, if a person manufacturers certain goods out of inputs which had already suffered excise duty under
Tariff Item No. 68, then the said manufacturer is entitled to a set-off of the Central Excise duty already suffered. In the instant case,in the light of
the admissions made in the counter-affidavit, the goods manufactured by the petitioner do not fall under Tariff Item No. 68 and consequently the
benefit of Notification No. 201/79, dated 4-6- 1979 may not be available to the purchasers from the petitioners. If erroneously any proforma
credit had been given to such purchasers by applying Notification No. 201/79, it is open to the department to proceed against these purchasers
who had that unjust benefit and recover the amounts given credit to erroneously. But that would not enable the department to proceed against the
petitioner who are admittedly entitled to the benefit of Tariff Item 26AA(ia) and who are liable to pay excise duty only under that item to obtain
refund of the excess excise duty paid by them on the wrong classification on the products manufactured by them as one falling under Tariff Item 68.
This claim of the petitioner had been sustained by the department itself when it ordered refund of the excess excise duty paid by them by orders
dated 29-12-1980. There is no error in the said order of refund passed by the Assistant Collector of central Excise. The order of the Collector of
Central Excise to the contrary is clearly without jurisdiction and is unsustainable and is liable to be quashed and is quashed.
However, before parting with the case, it is necessary to refer to the several judgments cited at the Bar. The first judgment, on which the
learned Counsel for the respondents wants to rely on is the judgment of a Division Bench of this court reported in Madras Aluminium Co. Ltd. and
Another v. Union of India 1981 elt 478 . That was a case where writ petitions were filed, one to quash the order of the Assistant Collector
rejected the claim for refund on the ground of delay and the other one for a writ of mandamus directing the respondent to refund the excise duty
erroneously collected from the petitioner. In that case, though the Court held that the collection of excise duty from the petitioners was not
sustainable, yet the Court held that the collection of excise duty from the petitioners was not sustainable , yet the Court declined to grant the relief
of mandamus on the reasoning contained in paragraph 35 of the judgment :-
It is well established that the right of the petitioners to get a refund of the excise duty is subject to questions of estoppel, limitation and the like. If
peculiar circumstances existed and they showed that the amount the State has to refund really belongs not to the petitioners but to the consumers,
then the Court will be justified in refusing to direct refund. In this case, any direction to refund the excise duty to the petitioners will result in their
retention of the duty collected by the petitioners by such a direction. Admittedly, the petitioners have passed on the excise duty to the consumers
and this was done on the basis that they have paid excise duty to the State. But for the payment of excise duty to the State the petitioners will not
be entitled to pass on the duty being refunded to the actual consumers, the petitioners will have the benefit of both the collection of excise duty
from the consumers and the benefit of refund from the State. Thus the court will indirectly and unjustly be enriching the petitioners by directing
refund of the excise duty paid by them.
The Division Bench also relied upon a passage occurring in The Orient Paper Mills Ltd. Vs. The State of Orissa and Others, where the attack on
the validity of Section 9b of the Orissa Sales Tax Act was repelled by holding as follows :-
The amounts collected by the assessees therefore primarily belonged not to the assessees but to the purchasers. On an erroneous assumption that
tax was payable, tax was collected by the assessees and was paid over to the State. u/s 9B, Clause (3) of the Act, as it stood at the material times,
the amount realised by any person as tax on sale of any goods shall, notwithstanding anything contained in any other provision of the Act, be
deposited by him in a Government treasury within such period as may be prescribed if the amount so realised exceeded the amount payable as tax
in respect of that sale or if no tax is payable in respect thereof. As the tax collected by the assessees was not eligible in respect of the sales from
the purchaser, a statutory obligation arose to deposit it with the State and by paying that tax under the assessment, the assessee must be deemed to
have complied with this requirement. But the amount of tax remained u/s 9B of the Act with the Government of Orissa as a deposit. If with a view
to prevent the assessee who had no beneficial interest in those amounts from making a profit out of the tax collected. the Legislature enacted that
the amount so deposited shall be claimable only by the persons who has paid the amounts to the dealer and not by the dealer, it must be held that
the restrictions on the right of the assessees to obtain refund was lawfully circumscribed in the interest of the general public.
Relying heavily on this judgment of the Division Bench of this Court, the learned Counsel for the respondents submits that in so far as the petitioner
had already passed on the duty to the consumers, any order for refund would unjustly benefit the petitioner and this Court in exercise of jurisdiction
under Article 226 of the Constitution of India would not exercise a discretion to facilitate the petitioner to make unlawful gain.
The above judgment of the Division Bench of this Court was considered by Nainar Sundaram, J., in the case reported in Soft Beverages (P)
Ltd., Madurai v. Union of India and Another 1982 ELT 119 .The learned Judge has pointed out that the prayer before the Division Bench was for
a mandamus to direct the respondents to refund the excess excise duty collected from the petitioners and the High Court was to exercise the
discretionary jurisdiction by declining to assist a person to make unlawful gain. The judgment of the Supreme Court reported in The Orient Paper
Mills Ltd. Vs. The State of Orissa and Others, is also distinguishable because there was a specific provision in the statute, namely, Section 9B of
the Act which prevented the assessee to obtain unjust gain and the Legislature had enacted that the amounts leviable by the Government shall be
claimable only by the persons who had paid the amounts to the dealer and not by the dealer. It was in this view, Nainar Sundaram, J., held that the
refund of duty paid under the mistake of law cannot be denied even if the duty has already been passed on to the customer. If was further held that
the refund of duty wrongly paid under the mistake of law cannot be denied by the Government on the principal of unjust enrichment.
In the instant case, not only there is no provision like Section 9B of the Orissa Sales Tax Act which was the subject-matter of the decision of
the Supreme Court reported in The Orient Paper Mills Ltd. Vs. The State of Orissa and Others, , but there is a positive provision in Section 11B
of the Act making it mandatory for the Government to refund to the assessee any excise duty collected in excess than what is due and payable. In
the decision of Supreme Court reported in D. Cawasji and Co. V. State of Mysore 1978 ELT 154 it was held :
Nor is there any provision under which the court could deny refund of tax even if the person who paid it has collected it from his customers and
has no subsisting liability or intention to refund it to them, or for any reason, it is impracticable to do so.
In Commissioner v. Aruiaya Chamber 1986 ELT 867 the Supreme Court held in paragraph 28 as follows :-
As we read this order in the instant case, when the assessee or dealer made an application for revision, the Additional Judge (Revision) could
direct a refund because money was being illegally retained by the revenue. If mistake either of law or of fact is established, the assessee is entitled
to recover the money and the party reviving them is bound to return it irrespective of any other consideration.
In paragraph 29, it is held:
If excess amount is realised, refund is also contemplated by the scheme of the Act. In this case, undoubtedly sales tax on forward contracts has
been illegally recovered on a mistaken view of law. the same is lying with the Government. The assessee or the dealer has claimed for the refund in
the revision.......
In paragraph 13 it is held as follows :-
Where indubitably there is in the dealer legal title to get the money refunded and where the dealer is not guilty of any laches and where there is no
specific prohibition against refund, one should not get tangle in the cobweb of procedures but do substantial justice. The above requirements in this
case, in our opinion, have been satisfied and therefore, we affirm the direction of the Additional Judge (revisions). Sales Tax for refund of the
amount to the dealer and affirm the High Court''s judgment on this basis.
Relying on the above decisions of the Supreme Court reported in D. Cawasji and Co. v. State of Mysore 1978 ELT 154 and Commissioner v.
Auriaya Chamber 1986 ELT 867 and the judgment of this Court reported in Soft Beverages (P) Ltd., Madurai v. Union of India and Another
1982 ELT 119 learned Counsel for the petitioner submits that the order dated 29-12-1980 directing refund was perfectly valid and the subsequent
order of the Collector of Central Excise dated 6-2-1982 cannot be sustained. I see considerable force in the submissions of the learned Counsel
for the petitioner and the judgments relied upon by him fully support his case. The judgment of the Division Bench of this Court reported in Madras
Aluminium Co. Ltd. and Another v. Union of India 1981 ELT 478 is clearly distinguishable, since that was a case where this court was requested
to exercise jurisdiction under Article 226 of the Constitution of India for the issue of a Writ of Certiorari and Mandamus and this Court in its
discretion declined to exercise the said jurisdiction as it would result in the petitioner getting unjust enrichment. But in the instant case the petitioner
is not seeking the aid of this Court under Article 226 of the Constitution of India for a direction to the respondents to refund the excess duty
collected from him. On the contrary, he is seeking a direction of this court to sustain the order of refund already obtained by him and to safeguard
against the invasion of that right which had already accrued to his benefit, by the purported exercise of powers u/s 35A of the Central Excise Act
by the Collector of Central Excise. It is also necessary to refer to the decision cited by Mr. T. Somasundaram reported in State of Madhya
Pradesh Vs. Vyankatlal and Another, . In this case, by the order of the Government, the difference between the supply price and the ex-factory
price of sugar was to be credited to Madhya Bharat government Sugar Fund. This fund was held to be in violation of Article 265 of the
Constitution of India. Therefore, the petitioner applied to the Government. It was under these circumstances, the High Court ordered that the State
must restore to the petitioner the amounts collected from them and that the Government cannot keep the same on the ground that plaintiffs too have
been wrongly allowed to collect the same. When the matter came to Supreme Court, it was held as follows in paragraph 14 :-
The principles laid down in the aforesaid case where based on the specific provision in those Acts but the same principals can safely be applied
to the facts of the present case in as much as in the present case also the respondents had not to pay the amount from their coffers. The burden of
paying the amount in question was transferred by the respondent to the purchasers and , therefore, they were not entitled to get a refund. Only the
persons on whom lay the ultimate burden to pay the amount would be entitled to get the refund of the same. The amount deposited towards the
fund was to be utilised for the development of sugarcane. If it is not possible to identify the persons on whom had the burden been placed for
payment towards the fund, the amount of the fund can be utilised by the government for the purpose for which the fund was created, namely,
development of sugarcane. There is no question of refunding the amount to the respondents who had not eventually paid the amount towards the
fund. Doing so would virtually amount to allow the respondents unjust enrichment.
Learned Counsel for the respondents, basing reliance on the above judgment, submits that on equitable principles this Court should not assist the
petitioner to obtain refund because there is no possibility of the petitioner refunding the amount so collected by them to the ultimate consumers. But
this judgment of the Supreme Court is distinguishable because in that case there was no provision like Section 11B of the Central Excises Act
which entitles a party to obtain refund. This being a statutory right is not defeasible of any consideration of equity.
In the light of the forgoing discussions, it follows that this writ petition is liable to be allowed and the same is allowed and the order of the
Collector of Central Excise dated 6-2-1982 is quashed. There will be no order as to costs.