Bombay High Court
Solar Pesticides Pvt. Ltd. vs Union Of India on 22 October, 1991
Equivalent citations: 1992(1)MHLJ871
Author: Sujata Manohar
Bench: S.H. Kapadia, Sujata V. Manohar
ORDER Sujata Manohar, J.
1. The 1st petitioner Solar Pesticides Private Limited is a Company registered under the provisions of the Companies Act, 1956. The 2nd petitioner is the Managing Director of the 1st petitioner. The 1st petitioner operates under the trade name of 'Solar Syndicate'. The name of the petitioners was originally Hypro Pesticides Private Limited. After the filing of the petition the name has been changed to Solar Pesticides Private Limited and the petition has been accordingly amended.
2. The petitioners manufacture, inter alia, Copper Oxychloride, a chemical extensively used as a fungicide for the treatment of agricultural crop. The petitioners have their factory at Bulsar which is registered as a Small Scale Industry. The product manufactured by the petitioners is also registered by the Insecticides Board, Faridabad, for the manufacture of Copper Oxychloride. The petitioners require as one of the raw materials copper scrap for the manufacture of Copper Oxychloride. The petitioners regularly import copper scrap for use in their factory at Bulsar for the anufacture of Copper Oxychloride.
3. Under the Customs Notification No. 122 of 1978 dated 21-6-1978, as amended from time to time a concessional rate of duty is levied on the import of copper scrap which is used for the manufacture of chemicals. While availing of this concessional Customs duty the petitioners furnished an end-use bond in favour of the Customs Department duly guaranteed by the petitioners' Bankers. This bond is for the purpose of ensuring that the copper scrap imported by the petitioners is used for the manufacture of Copper Oxychloride. Once the copper scrap is so consumed a Chartered Accountant's certificate regarding such consumption along with an affidavit is furnished before the Customs Department. The Customs Department after verification cancels the bond.
4. The dispute in the present case relates to the recovery of countervailing duty, that is to say, Additional Customs Duty in respect of copper scrap so imported by the petitioners. The relevant heading for the purposes of levy of additional Customs duty is Heading 7404.00 under the Central Excise Tariff as from 1st of March 1986. Prior to that date the relevant Tariff item under the Central Excise Tariff was 26A.
5. Under Notification No. 35/81-C.E., dated 1-3-1981 an exemption is granted to waste or scrap of copper, zinc, aluminium and lead if used in the manufacture of chemicals. Exemption is granted from the whole of the duty of excise leviable inter alia on copper scrap provided that :
(i) it is proved to the satisfaction of an officer not below the rank of Assistant Collector of Central Excise that the said waste or scrap is intended to be used in the manufacture of chemicals; and
(ii) in respect of such use elsewhere than in the factory of production of the aforesaid waste or scrap, the procedure set out in Chapter X of the Central Excise Rules, 1944 is followed.
6. In order to avail of this exemption notification for the purpose of countervailing duty the petitioners undisputedly comply with the first condition, namely, that the copper scrap imported by them is used for the manufacture of chemicals. The second condition however, regarding compliance with the procedure set out in Chapter X of the Central Excise Rules, 1944 cannot be followed by the petitioners because they are not the manufacturers of copper scrap in India. They cannot, therefore, follow the procedure laid down in Chapter X for clearing the goods for the purposes of Excise duty. As the petitioners imported these goods they cannot fulfil the second condition.
7. As from 1st of August 1984 for the purpose of countervailing duty the relevant Excise Notification is Notification No. 173/84-C.E., dated 1-8-1984. This has been subsequently amended on 10-2-1986 and thereafter it is replaced by Exemption Notification No. 177/88-C.E., dated 13-5-1988. For the purposes of the present petition the relevant particulars of this notification as amended from time to time have substantially remained the same. Under this notification also exemption is granted, inter alia, to copper waste and scrap, originally falling under Central Excise Tariff Entry 26A and now falling under Central Excise Tariff Item 7404, if such waste and scrap are intended to be used in the manufacture of chemicals. Where such use is elsewhere than the factory of production, the procedure set out in Chapter X of the Central Excise Rules is required to be followed. The petitioners, being importers of copper scrap, could not follow this procedure. Hence the petitioners were denied the benefit of those exemption Notifications for the purposes of levy of additional duty of Customs at the time when they imported copper scrap.
8. The petitioners filed applications for refund of the additional duty of Customs within the prescribed period but these refund applications were rejected. Exhibit 'O' which is annexed to the petition lists out 31 refund applications for the period 3-5-1982 to 18-11-1986. The numbers of Bill of Entry and the amounts of refund due are also set out against each application in Exhibit 'O'.
9. Exhibit 'Q' gives in a tabular form the date and number of the Order of the Assistant Collector of Customs rejecting the applications of the petitioners. In the present petition the petitioners have challenged the rejection of their refund applications. A copy each of Exhibits 'O' and 'Q' are annexed to this order.
10. It is submitted by the petitioners that the above exemption notifications give complete exemption from payment of excise duty to copper scrap used in the manufacture of chemicals. Hence when copper scrap is imported for use in the manufacture of chemicals, additional Customs duty (countervailing duty) cannot be levied on copper scrap so imported. There is considerable force in the arguments advanced by the petitioners. The exemption notification clearly provides a complete exemption from the payment of duty in respect of copper scrap used in the manufacture of chemicals. The additional requirement of compliance with the procedure set out in Chapter X of the Central Excise Rules, 1944 is merely a procedural requirement which ensures the enduse of the copper scrap. Such a procedural requirement, which cannot possibly be complied with by an importer of copper scrap, cannot deprive the importer of the benefit of exemption from additional Customs duty when such benefit is clearly available to copper scrap manufactured in India. In fact, this position has been clarified by the Deputy Collector of Customs, Appraising, by circulating a copy of the letter of the Central Board of Excise & Customs dated 27th July 1987. The Central Board of Excise and Customs has clarified that it would not be legally correct to levy additional duty (countervailing duty) on imported goods when in fact no excise duty is actually payable in respect of such goods when manufactured in India and put to the specified end-use. The requirement of following the procedure set out in Chapter X of the Central Excise Rules is merely a procedural requirement. Non-compliance with such requirement will not deprive the Importer of the benefit of exemption. This letter is binding on the respondents.
11. Our attention is also drawn to a decision of the Tribunal in the case of Collector of Central Excise, Ahmedabad v. Sanchem Enterprises, Ahmedabad, reported in 1990 (50) ELT 528 (Tri.) = 1991 (34) ECR 140 (Cegat SB-C) where the Tribunal also held that the technicality of not complying with Chapter X formalities will not deprive the assessee of the benefit of an exemption notification. This decision is also binding on the respondents. The petitioners are therefore entitled to the benefit of exemption from the payment of additional Customs duty. We therefore have no hesitation in holding that the refund applications of the petitioners have been wrongly rejected.
12. It is however, submitted by Mr. S. M. Shah who appears for the respondents that although the petitioners may be entitled to the refunds claimed by them in the petition, their claim must be considered in the light of the Central Excise and Customs Laws (Amendment) Act of 1991 which has come into force. Under this Act, certain amendments have been made inter alia, to the Customs Act, 1962. Under the new Section 27 of the Customs Act which has replaced the earlier Section 27, it is provided, inter alia, that an application for the refund of Customs duty shall be accompanied by such documentary or other evidence (including the documents referred to in Section 28C) as the applicant may furnish to establish that the amount of duty 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 Excise and Customs Laws (Amendment) Act, 1991, such application shall be deemed to have been made under this sub-section and the same shall be dealt with in accordance with the provisions of sub-section (2) of Section 27. Hence the refund applications of the petitioners are affected by the amendments.
13. Section 27(2) which is introduced by this Act is as follows : (the relevant portion is underlined by us).
"(2) If, on receipt of any such application, the Assistant Collector of Customs is satisfied that the whole or any part of the duty paid by the applicant is refundable, he may make an order accordingly that the amount so determined shall be credited to the Fund :
Provided that the amount of duty as determined by the Assistant Collector of Customs 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) the duty paid by importer, if he had not passed on the incidence of such duty to any other person;
(b) the duty on imports made by an individual for his personal use;
(c) the duty borne by the buyer, if he had not passed on the incidence of such duty to any other person;
(d) the export duty as specified in section 26;
(e) drawback of duty payable under sections 74 and 75;
(f) the duty borne by any other such class of applicants as the Central Government may, by notification in the Official Gazette, specify."
14. Sections 28C and 28D introduced by this Act are as follows :
"28C. Price of goods to indicate the amount of duty paid thereon. - Not-withstanding anything contained in this Act or any other law for the time being in force, every person who is liable to pay duty on any goods shall, at the time of clearance of the goods, prominently indicate in all the documents, relating to assessment, sales invoice and other like documents, the amount of such duty which will form part of the price at which such goods are to be sold.
28D. Presumption that incidence of duty has been passed on to the buyer. Every person who had paid the duty on any goods under this Act shall, unless the contrary is proved by him, be deemed to have passed on the full incidence of such duty to the buyer of such goods."
15. The scheme framed by the amended Sections 27, 28A, 28B, 28C and 28D therefore, provides that ordinarily whenever an application for refund is granted, the refund goes to the Consumer Welfare Fund and not to the applicant. This is because under Section 28D there is a presumption that every person who has paid duty on any goods has passed on the incidence of duty to the buyer of such goods. To rebut this presumption, the proviso to Section 27(2) requires the applicant to establish that he has not passed on the incidence of duty to the buyer of these goods, or has not sold these goods, but used them himself. Similarly the buyer of such goods can get the refund if the buyer has not passed on the duty to anybody else. There are also other provisions to ensure clear documentation indicating what is the price of such goods and how much is the duty on such goods and whether it is to be paid by the purchaser of such goods or not.
16. Even under Section 28B which requires that every person who has collected any amount from the buyer of imported goods in any manner as representing the duty of customs shall forthwith pay the amount so collected to the credit of the Central Government subject to what is prescribed in that section, it is envisaged that the goods which are actually imported are sold to a buyer by the importer along with the incidence of the duty of Customs.
17. Section 28C also requires that every person who is liable to pay duty on any goods at the time of the clearance of the goods, prominently indicates in all the documents relating to assessment, the amount of such duty which will form part of the price at which such goods are to be sold. Section 28C clearly contemplates the imported goods being sold in the market in the same form in which they are imported.
18. Hence the entire scheme is designed for a situation where (1) the importer of goods after clearing the goods on payment of duty, sells these goods to others. In the process either he directly passes on the incidence of duty to his buyer or does not. Only in the latter case will the importer get the refund. Otherwise the refund will go to the buyer or to the Consumer Welfare Fund as per the sections. (2) If the duty is passed on to the buyer, the right to recover the duty is also passed on to the buyer of the imported goods; Provided that the buyer has not in turn, sold these goods and passed on the duty to the next buyer. (3) The converse situation contemplated is where the importer uses the goods himself. Here there is no question of passing on the incidence of duty to anyone else since the goods imported are not sold to anyone else. Hence he can get the refund.
19. Therefore the question of unjust enrichment arises under the amended scheme when refund is asked for by a person who has sold the imported goods and in the process directly passed on the burden of duty to the buyer. Clauses (a), (b) and (c) of the proviso to Section 27(2) and the presumption laid down under Section 28D make this very clear.
20. In the present case the imported copper scrap has not been sold by the petitioners to anybody. They have used the scrap themselves for the manufacture of chemicals. The petitioners have therefore not passed on the duty paid by them on copper scrap to any buyer of copper scrap. Had they done so, the buyer of this imported scrap could have claimed a refund and so on. Since the petitioners have consumed the scrap in the process of manufacturing Copper Oxychloride, they have not passed on the incidence of duty to anybody in the manner envisaged in the scheme. Because the scheme envisages a direct transfer of the burden of duty along with the sale of the same goods which were imported, to the buyer.
21. Undoubtedly, the import duty paid on copper scrap may become a part of the cost of manufacture of Copper Oxychloride. But when Copper Oxychloride is sold in the market, it is difficult to ascertain how much of the original import duty on copper scrap is passed on to the buyer of Copper Oxychloride and in what proportion. Nor can there be in such a case the kind of documentation required under the scheme. So that the buyer of Copper Oxychloride and in what proportion. Nor can there be in such a case the kind of documentation required under the scheme. So that the buyer of Copper Oxychloride cannot claim a refund of any part of the duty on Copper scrap. Where there is no sale of the goods which were imported and no direct transfer of the burden of duty to the buyer of the imported goods, the case falls under clause (a) or (b) of the proviso to Section 27(2).
22. In other words clause (a) also covers all cases where the importer has not sold the imported goods in the same form in which they were imported, but has used or consumed the goods himself. This would include his using up or consuming the imported goods in the manufacture of a different commercial commodity. Clause (b) of the proviso brings out this aspect clearly in the case of an individual.
23. The Statement of Objects and Reasons relating to the Central Excise and Customs Laws (Amendment) Act, 1991 is also relevant as throwing light on the circumstances that brought about the amendment. It is stated in the Statement of Objects and Reasons.
"The question of "unjust enrichment" in cases of goods subject to duty of excise or customs has been the subject-matter of discussion for quite sometime now. The concept of "unjust enrichment", in so far as it relates to the said duties, is that any refund of these duties made to any manufacturer or importer, who may have initially paid these duties but had passed on the same to the buyers, would be in the nature of a windfall gain to such manufacturers or importer.
xx xx xx xx xx xx
3. The Bill aims at giving effect to the aforesaid recommendation of the Committee and proposes the following main amendments in the said Acts, namely :-
(a) the manufacturer or importer of goods shall not be entitled to refund of the duty of excise or, as the case may be, the duty of customs if he has already passed on the incidence of such duty to the buyer;
(b) the burden of proof that the incidence of the duty has not been passed on to the buyer shall be on the person claiming the refund;
(c) every person, who is liable to pay duty of excise or, as the case may be, the duty of customs on any goods, shall be under an obligation to prominently indicate, at the time of clearance of the goods, in all the documents relating to assessment, etc., the amount of duty which will form part of the price at which such goods will be sold;
(d) the refund of any of the said duties is proposed to be made only to the person who has ultimately borne the incidence of such duty;
(e) xx xx
xx xx
xx xx
(f) xx xx
xx xx
(g) it is also proposed to provide that where any manufacturer or importer of goods has collected any amount in any manner from the buyer as representing the duty of excise or, as the case may be, the duty of customs, he shall pay the said amount to the credit of the Central Government and the said amount shall be utilised in adjusting the duty payable by the manufacturer or importer on finalisation of assessment. The surplus, if any, will be dealt with in accordance with the aforesaid provisions of section 11B of the Central Excises and Salt Act, 1944 and section 27 of the Customs Act, 1962."
24. This doctrine of unjust enrichment, which is the genesis of the amendment, has no application in cases where the imported goods are either consumed by the importer or are used by him in the manufacture of other products. In the case of the imported product Customs duty paid on it becomes a part of the cost of manufacture of the new item or items in which the imported component is an ingredient. In such cases the doctrine of unjust enrichment is not invoked. In the case of HMM Ltd. and Another v. The Administrator, Bangalore City Corporation, Bangalore and Another the Supreme Court has dealt with this aspect of the doctrine of unjust enrichment. In the case before the Supreme Court, the Court dealt with the payment of octroi duty on milkfood powder imported in bulk in drums in the city of Bangalore on which octroi was paid at the time of import. The milkfood powder was repacked in small packs and bottles of various sizes and sent to various places outside Bangalore, except a small quantity which was sold in Bangalore City proper. The manufacturer claimed refund of octroi for the quantity of milkfood powder which was sent outside Bangalore after repacking and/or rebottling. One of the contentions which was raised before the Supreme Court was that refund of octroi cannot be given because there was possibility of unjust enrichment of the claimants. Negativing this contention, the Supreme Court observed that the octroi in the case before it was a duty on the entry of the raw materials, for coming in.
"It is the duty on the coming in of the raw materials which is payable by the producer or the manufacturer. It is not the duty on going out of the finished products in respect of which the duty might have been charged or added to the costs passed on to the consumers. In such a situation, no question of 'undue enrichment' can possibly arise in this case".
25. In the present case the additional duty of customs is levied on raw material which is being imported. It is not an additional duty on any finished product which is going to be sold to the consumer and to whom the incidence of the additional duty of customs can be passed on directly. Since the additional duty of customs has not been directly passed on by the petitioners to any third party by selling the imported goods, they are entitled to claim refund of this amount under proviso (a) to Section 27(2) of the amended Section 27.
26. It was also submitted before us that in any case since this is a claim for recovery of monies paid under a mistake of law in a petition under Article 226 of the Constitution, the provisions of the Central Excises and Customs Laws (Amendment) Act, 1991 cannot apply in any event. In view of our earlier findings, it is not necessary for us to examine this aspect of the submission which is made before us.
27. In the premises, rule is made absolute in terms of prayer (a). The respondents are directed to grant the applications of the petitioners for refund of the additional duty of Customs paid by them as per their refund applications set out in Exhibit "O" to the petition and after ascertaining the correctness of the petitioners' claim, to pay the same to the petitioners, giving them the benefit of proviso (a) to Section 27(2) of the amended Customs Act pursuant to the Central Excise and Customs Laws (Amendment) Act, 1991. The same to be determined and paid as expeditiously as possible.
28. The petitioners, by an amendment, have claimed interest on their refund claims. Looking to the circumstances of the present case and in view of the fact that it was only after learning about the letter of the Central Board of Excise and Customs dated 27-7-1987 that the present petition has been filed on the basis of discovery of a mistake of law, in our view, this is not a fit case where any interest should be granted to the petitioners. The claim of interest of the petitioners is therefore rejected.
Rule is made absolute accordingly.
29. In the circumstances there will be no order as to costs.