Allahabad High Court
Guru Charan Industrial Works vs Union Of India (Uoi) And Ors. on 9 December, 1987
Equivalent citations: 1988(16)ECC23, 1988(33)ELT648(ALL)
Author: R.M. Sahai
Bench: R.M. Sahai
JUDGMENT R.M. Sahai, J.
1. Does the period of limitation provided under Section 11B of Central Excises and Salt Act for refund of duty paid on goods which were not excisable or were entitled to exemption prevents a person from approaching this court for refund of the amount paid under mistake of law after expiry of six months from the date of payment is the issue which has been debated with some vehemence. No less interesting has been discussion on ethics of undue enrichment.
2. Narration of facts is unnecessary. Suffice it to mention that the Assistant Collector Central Excise while exercising power under Section 11B of Central Excises and Salt Act of 1944 accepted the claim of petitioner, a Rice Mill Plant, that it being registered as small scale industry was entitled for exemption from whole of excise duty leviable under Tariff Item No. 68 of First Schedule in respect of first clearance, for home consumption; therefore, the payment of excise duty at 10% during financial years 1983-84 and 1984-85 was made under mistake of law. But the claim was held to be admissible for the period six months prior to 27th September, 1984, the date on which refund application was. made as refund under Section 11B could be claimed within six months only from the date of payment of duty.
3. Right to claim refund of tax or duty paid under mistake of law with corresponding obligation of state to repay has been consistently upheld by courts. Taxation is sovereign power of the State. But it is subject to constitutional restriction under Article 265 that no tax shall be levied or collected except by authority of law. Therefore, any levy or collection which is contrary to law has to be struck down. 'When moneys are paid to the State which the State has no legal right to receive, it is ordinarily the duty of the State subject to any special provisions of any particular statute or facts or circumstances of the case to refund the tax of the amount paid'.' (Commissioner,of Sales Tax v. Auraiya Chamber of Comm. 1986 (25) ELT 867 (SC), [See also Sales Tax Officer v. Kanhaiya Lal A.I.R. 1959 SC 135, State of Madhya Pradesh v. Bhailal A.I.R. 1964 SC 1006, State of Kerala v. Aluminium Industries (1965) 16 S.T.C. 689].
4. What has agitated, however, courts from time to time is the period during which the government can be directed to discharge its obligation by the courts in exercise of power under Article 226. Here too there is more or less unanimity that since a suit for recovery of payment under mistake of law can be filed within three years from the date of knowledge the same rule should be adhered to while exercising discretion under Article 226. [A.I.R. 1964 SC 1004, (1965) 16 S.T.C. 689). In Trilok Chand v. R.B. Munshi A.I.R. 1970 SC 898 Chief 3ustice Hidayatullah while cautioning the courts against entertaining stale claims preferred to rule that discretion of the court should be the guiding factor. But the ratio which has held the field on period of limitation during which refund should be directed is stated thus in D.Cawasji v. State of Mysore A.I.R. 1975, S.C., 813;
"Therefore, where a suit will lie to recover moneys paid under a mistake of law, a writ petition for refund of tax within 3 years of the knowledge of the mistake would also lie."
5. But the fundamental issue is if the remedy of approaching this court in its extraordinary jurisdiction after addition of Sub-section (5) to Section 11B of Act of 1944 is not available as it would indirectly extend period of limitation which has been restricted to six months by the statute. Sub-section (5) of Section 11B reads as under :
"Notwithstanding anything contained in any other law, the provisions 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."
Refund of tax or duty is founded on principle of absence of leviability. That is what was paid was not tax or duty but money either because it was not taxable or at the point of time it was paid it was exempt under any provision of law. To such payments Section 11B even without Sub-section (5) applied squarely. But to allay any doubts the Sub-section was added and what was otherwise implicit was made explicit. The learned Standing counsel, however, emphasised that the word 'also' in Sub-section was significant. It is a pointer to the Legislative intent that payments made under mistake of law have been included in this section subject to the restriction that the application for refund of such repayments should also be made within six months. Simultaneously the Legislature has specifically debarred any person from approaching any other court. Therefore, if the claim was beyond six months it could not be allowed. And since the remedy of approaching any other court has been taken away the limitation provided for applying for refund under Section 72 of Contract Act should be taken to have been substituted by shorter period of limitation under the Act on principle of specific excludes general. Urged learned counsel that if limitation for filing suit within three years from discovery of mistake was not available then the ratio laid down by Hon'ble Supreme Court in various authorities mentioned earlier automatically become inapplicable. The argument is attractive no doubt. But analysed closely if falls apart. As already stated Sub-section (1) empowers any person to make an application for refund of any duty of excise. Obviously because the duty was erroneously paid either because no duty was leviable or it was exempt, or excess payment was made or realised due to mistake in application of a particular tariff item or a notification reducing the duty was not in knowledge etc. Nature of such payments was, however, held by courts to be payment of money and not duty. Therefore, the Legislature intervened and appears to have added Sub-section (5) to clarify that the provisions of refund in the section shall apply both to a claim for refund of any duty or amount collected as duty on goods which were not excisable or were entitled to exemption That has probably provided impetus to learned standing counsel to urge that six months period applies even to such payment of money. The argument does not appear to have any merit. Section 11B(5) does entitle a person to apply for refund. But it does not fix any time limit. It is doubtful if the period of limitation of six months from the date of payment of duty provided in Clause (f) of the explanation to the section defining relevant date can be applied to payments made under mistake of law. Even assuming it does the argument of the learned standing counsel does not cut much ice. An act of omission may give rise to different remedy under law. The act of omission which entitles a person to claim refund is payment of money and its realisation on goods which were not excisable or exempt. The application may be made within six months. It is a remedy available under the statute. It may commence from the date of payment. It does not destroy the remedy available under general law to apply for refund within three years from the date of knowledge. The expression, 'no court shall have any jurisdiction in respect of such claim' has to be confined to situations visualised by it. And not to realisation which are void without jurisdiction or against constitutional constraint. Limitation under statute only bars the remedy. It does not annihilate the. right. If on the same cause of action a person has two remedies then the other is not excluded because the period of limitation for one is shorter. Principle of specific excluding general is not available as the remedy under statute is from date of payment and not from date of knowledge. One of the principles of application of rule of limitation is that if the same cause of action gives rise to two remedies then that which keeps alive rather than that which debars should be preferred on equitable considerations. Therefore, even if the Assistant Collector did not commit any error of law in refusing to refund the money paid prior to six months from the date it held that no amount was leviable the petitioner was not debarred from invoking extraordinary jurisdiction of this Court which is not hedged with any restriction or limitation except the self imposed discipline. Moreover remedy under Article 226 is an additional remedy and not in suppression of statutory remedy (See Shri Vallabh Glass Works v. Union of India [1984 (3) S.C.C. p. 362]. In Patel India Pvt. Ltd. v. Union of India 1973 A.I.R. S.C. 1300, it was held that limitation of three months for refund provided Under Section 40 of Customs Act applied to cases where payment had been through inadvertence, error of misconstruction. Therefore, collection of money in circumstances other than those mentioned in the section could be directed to be refunded even after expiry of time. In Auraiya Chamber of Commerce's case (Supra), the role of Courts to ensure fairness and justice regardless of technicalities has been emphasised. In Shiv Shanker Dal Mills v. State of Haryana 1980 A.I.R. S.C. 1037, it was observed that there was no law of limitation specially for public bodies on virtue of returning what was wrongly recovered. There is thus no dearth of authority that tax or duty collected illegally is liable to be refunded for which direction can be issued under Article 226 even if the claim is barred by rule of limitation under the statute.
6. Undue enrichment is often advanced to resist acceptance of claim for refund. Roots of this plea is embedded in morality the very foundation of our social structure. All actions individual or State must conform to honesty and fairness. Levy of tax or duty illegally robs the consumer. Refund to him, however, is illusory. Therefore, undue enrichment is there either of the manufacturer or dealer or trader or the State. Amongst two who is more morally justified? That can be resolved if genesis of Article 265 is properly comprehended. It is a constitutional limitation on State. The raison d'etre is obvious. The constitution visualised a society based on rule of law. Therefore, any State action which contravenes it cannot be upheld. If theory of Undue enrichment is pressed into service in favour of State it shall encourage compulsive exactions, erode the rule of law and shake the moral fibre. To keep this in check and maintain the balance between individual and State even the illegal levy or collection has been prohibited by the constitution. Although refund due to declaration of law as ultra vires results in a bonanza or windfall to the trader but the statutory compulsion of payment of tax or duty whether realised or not tilts the balance against State. Observation in Union of India v. Tata Chemicals 1983 E.L.T. 776 (Gujarat) relied by learned standing counsel to the effect, 'we confess we are unaware of any judicial system which tolerates a situation wherein a consumer is allowed to be robbed of and the intermediary who collected the tax is allowed to be benefited by a windfall, an unjust enrichment', does not take into consideration that robbing of consumer is at the instance of an invalid law, disobedience or disregard of which by dealer or trader is penal and is visited upon with severe consequences. That is why the Supreme Court in D. Cawasji and Co. (supra) while reiterating its views in Bhailal Bhai (supra) and Aluminium Industries Ltd. (supra) held that the claim for refund should not be normally entertained after three years as the tax is intended for immediate expenditure. But the Hon'ble Court did not countenance the view that the claim should be refused because of lack of intention to refund it to consumer and observed, 'Nor is there any provision under which the court could deny refund of tax even if the person who paid it has collected if from his customers and has not subsisting liability or intention to refund it to them or for any reason it is impracticable to do so'.
7. Interest on refund illegally disallowed is claimed on strength of Dulichand Shree Lal v. Collector of Central Excise and Ors. 1986 (26) E.L.T. 298 (Cal.), Radheshyam Tulsiram v. Collector of Customs 1987 (31) E.L.T. 58 (Cal.), Calcutta Paper Mills Manugore Co. v. Customs Excise and Gold 1986 (25) E.L.T. 939 (Cal.). Liability to pay interest arises if the amount is withheld or not paid back illegally in violation of any law. None has been established. Exemption depended on if the clearance was first clearance for home consumption. It was held in favour of petitioner by the impugned order. And the Assistant Collector immediately directed refund of so much amount as was permissible under Section 11B. The refusal to refund remaining amount was due to bar of limitation. It is being accepted now. Therefore, the department cannot be said to have committed any default for which it should be directed to pay interest. Ratio in Dulichand Shree Lal is not very helpful. Compulsive payment or payment under threat of action has not been pleaded or established. Collection became without authority of law after it was found to be covered in the notification, exempting clearance for home consumption. The collection, therefore, was not' bad initially. In the circumstances there appears no justification to direct payment of interest.
8. In the result this petition succeeds and is allowed. A direction is issued to opposite parties to refund the duty collected during 1983-84 and 1984-85 on clearance for home consumption after deducting the amount already paid. The petitioner shall be entitled to costs.