Vidarbha Mills Barar Ltd. vs Collector of Central Excise and Others

Chandurkar, J.—This petition by the petitioner which is a cotton mill at Achalpur is directed against a demand made by the Central Excise Department for Rs. 4,446.21 P. under Rule 10 of the Central Excise Rules, 1944 (hereinafter referred to as the Rules). It is not in dispute that the petitioner which is a textile mill has to pay excise duty in respect of cotton yarn manufactured by it. In March 1966 the staff of the Central Excise Department took samples of cotton yarn from six bales of yarn and sent them to the Chemical Examiner, Central Revenue Control Laboratory, New Delhi, for verification of the count of the yarn which is necessary for ascertaining the excise duty payable in respect of this yarn. It was, however, found that the actual count was different from the data supplied by the mill and same yarn was found to be of higher count than the one declared by the mill. However, the Chemical Examiner gave an opinion that the average count of the samples was of 20 N.F. (New French) count or more but less than 34 N.F. According to the Tariff yarn of 34 N.F. count attracts higher rate of excise duty. The consignment was, however, assessed on the basis of average count for the purpose Of assessment of the cotton yarn, and on this basis it was found that excess excise duty had been recovered from the mill when the provisional assessment was made. A total amount of Rs 4446.21 was, therefore, refunded to the petitioner. This refund was made in the form of refund vouchers. On such letter sent with the refund vouchers to the petitioner is Annexure A dated 21st/24th Oct. 1966 in respect of refund claims for Rs. 1,152 01 and Rs. 899.12. This is addressed by the Assistant Collector, Central Excise, Integrated Division, Nagpur, to the petitioner mill and states :

"I enclose herewith, two refund claim amounting to Rs. 1,152.01 (Rs. One thousand one hundred fifty-two and paise one only) :and Rs. 899.12 (Rs. Eight hundred ninety-nine and paise twelve only) for encashment at Achalpur Sub-Treasury within the validity period of the Bills".

However, the Department later realised that the refunds had been wrongly made, and by communication dated 28-2-1967 a demand for Rs. 4,446.21 in respect of 17,092 Kg, of cotton yarn came to be made from the petitioner. This demand was challenged by the petitioner before the Assistant Collector of Central Excise, Nagpur, by making a representation. It was contended before him that the count of the yarn is always determined on the basis of the average count of the different hanks and, therefore, the original assessment was correctly made and the additional demand should, therefore, be withdrawn. He took, the view that the cotton yarn was assessed on the count of the yarn and not on the basis of the average count and the demand issued for the realization of the amount erroneously refunded to the party correctly issued as provided in the Rule 10 of the Rules. An appeal against this order taken to the Collector of Central Excise came to be rejected on 9-11-67. The petitioner thereafter filed this petition challenging the demand made by the Central Excise Department.

The case of the Department in the return is that the cotton yarn in question was liable to excise duty under item 18-A of the First Schedule to the Central Excises and Salt Act, 1944 (hereinafter referred to as the Act). This entry classifies cotton twist, yarn and thread of all sorts into two categories : (i) of counts 29 or more, and (ii) of counts less than 29. The expression ''count'' is defined in the Explanation as meaning "the size of gray yarn expressed as the number of 100 metre hands per one-half kilogram". In respect of multiple fold yarn, ''count'' was defined as meaning the count of the basic single yarn. Thus, according to the Department the excise duty payable was in accordance with item 18-A for determination of which the average count was not relevant at all and cotton yarn was liable to be assessed to duty only on the basis of the count of the yarn. Therefore, according to the Department, the refund had been wrongly made and the demand was, therefore, justified. Now, we may at this stage point out that it was not possible for the learned counsel for the petitioner to show that the assessment was made according to the rates prescribed for item 18-A in the First Schedule to the Act was in any way incorrect. In other words, it could not be disputed before us that the duty was in fact payable on the basis of the actual count and not on the basis of average count. The correctness of the demand so far as the quantitative assessment was concerned could not, therefore, be challenged by the petitioner.

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There is, however, some substance in the contention that at least a part of the demand is made beyond the prescribed period of three months under Rule 10 of the rules. Now, it is not in dispute that the basis of the demand which is made on 28-1-1967 is the fact that the amount has been wrongly refunded to the petitioner. The refund voucher as already stated was sent to the petitioner on 24-10-1966 in respect of Rs. 2,051.13. It is urged on behalf of the petitioner that the demand made on 28-1-1967 is beyond the period of three months as provided in Rule 10 of the Rules. It is not in dispute that the total amount of Rs. 4,446.21 which is demanded by this demand notice dated 28-1-1967 includes the amount of Rs. 2,051.13 which was refunded on 21st/ 24th October, 1966 and the basis of the demand is that the refund has been wrongly made. Now, Rule 10 of the Rules at the relevant time read as follows:

"Recovery of duties or charges short-levied, or erroneously refunded, - When duties or charges -have been short-levied through inadvertence, error, collusion or misconstruction on the part of an officer, or through mis-statement as to the quantity, description or value of such goods on the part of the owner, or when any such duty or charge, after having been levied, has been owing to any such cause, erroneously refunded, the person chargeable with the duty or charge, so shqrtlevied, or to whom such refund has been erroneously made, shall pay the deficiency or pay the amount paid to him in excess, as the case may be, on written demand by the proper officer being made within three months from the date on which the duty or charge was paid or adjusted in the owners account-current, if any, or from the date of making the refund."

There is no ambiguity about this rule. The demand in respect of the excise duty which has been erroneously refunded has to be made within three months "from the date of making the refund". The learned counsel for the Department contends that the period of three months must be counted from the date on which the petitioner encashed its refund vouchers from the Treasury. Since the refund vouchers were encashed after 24-10-9196, the demand made on 28-1-1972 would be beyond the period of three months. Now, the return states that the petitioner had encashed the refund vouchers on 2-11-1966. Such encashment is, however, not from the Department itself. Sq far as the matter relating to refund is concerned, the refund is complete by the issuing of the refund vouchers. In our view, the date when these refund vouchers were encashed by the assessee is not all relevant for the purpose of computing the period of three month prescribed in Rule 10.

The words used in the rule are "from the date of making the refund".

The refund is made by the Department in the form of refund vouchers and it is that date from which the period of three months must be computed for fixing the period during which a legitimate and legal demand on the basis that. some amount has been wrongly refunded can be made by the Department. Thus, so far as the amounts refunded on 24-10-1966 are concerned, the demand made by the Department for the first time on 28-1-1967 would be clearly beyond the period of three months and the demand cannot, therefore, be sustained. In view of the mandatory provisions of Rule 10 prescribing the period of limitation the demand to the extent of Rs. 2051.13 P. consisting of two items of Rs. 1,152.01 and 899.12 must, therefore, be quashed. It must, therefore,, be held that the Department was entitled to validly make a demand only in respect of Rs. 1,395.08 which is the only amount which the petitioner was liable to pay the Department under Rule 10 of the rules. It is not disputed that the petitioner has paid the entire amount of Rs. 4,446.21. The Department is directed to refund the amount of Rs. 2,051.13 in the view which we have taken.

In the result, the petition is partly allowed as indicated .above. The petitioner will get its costs from the Department.