Bombay High Court
Associated Bearing Company Limited vs Union Of India And Another on 1 January, 1800
Equivalent citations: 1980(6)ELT415(BOM)
JUDGMENT Chandurkar, J.
1. The petitioner company manufactures ball and roller bearings which are chargeable to excise duty ad valorem under the Central Excise and Salt Act, 1944, hereinafter referred to as `Te Central Excise Act'. The relevant entry in the first scheduled is at item No. 49 which reads as follows :-
"Roller bearings, that is to say ball or roller bearings, all sorts......15% ad valorem."
Undisputedly, the said bearings are sold to the different buyers in a packing. The goods are packed also in order to facilitate their storage in a godown and for protection against damage in course of transportation. According to the petitioners, the bearing are packed in a single packing or in series packing. In single packing each bearing is first wrapped in polythene bag and then put in a carton and finally packed in a wooden case lined with a polythene bag. In series packing a number of bearings are first put in a plastic container and the containers are then packed in a wooden box lined with a polythene bag. According to the petitioners, excise duty was charged on the value of the bearings determined after including the cost of the packing material viz. polythene bags, paper cartons, cylindrical rolls and wooden cases. The period relevant for this petition is 1st September 1974 to 31st August 1975. During this period, according to the petitioners, the total cost of packing material used for packing the goods in respect of which excise duty was collected came to Rs. 19,44,473/-. According to the petitioner, no excise duty could believed and collected on the cost or value of packing material and the petitioners, therefore, by letter dated 31st October 1975 addressed to the Assistant Collector of Central Excise, Poona I Division, Poona invited the attention of the Assistant Collector to the fact that post-manufacturing the value of the article for the purpose of excise duty. Attention of the Assistant Collector was also invited to two decisions of this Court in M/s. Ogale Glass Works Limited v. The Union of India- 79, B.L.R., 37.1979 ELT (J 468) and another in The Union of India v. Mansingka Industries Private Limited, 77 B.L.R., 663=1979 ELT (J158). The reference to these decisions was given as Sp. C.A. 1295/73 Ogale Glass Works Ltd. and Appeal No. 257 of 1972 in the communication addressed to the Assistant Collector. The Assistant Collector was informed by this letter that the cost of packing was included in the declared prices submitted with the price list by a mistake of law and that excise duty in respect of the packing charges has been collected by the department without the authority of law and was liable to be refunded. Alternatively, it was also submitted by the petitioner company that even if the duty on packing charges had been paid not due to a mistake of law but due to inadvertence, error or misconstruction of law, even then the company would be entitled to refund of duty paid by the company erroneously during the preceding 12 months. The amount of excise duty in respect of which refund was sought was stated to be Rs. 3,16,237.69 P.
2. A very brief reply was given to this letter by the Assistant Collector on 17-11-1975 in which the Assistant Collector stated that the claim made by the company had not arisen as a result of any decision of a competent authority changing the original decision and there was, therefore, no question of giving any personal hearing as requested by the company. The company was intimated that the letter was filed without any action.
3. After the receipt of this letter, the petitioner has filed the present petition in February 1976. Along with the petition, the petitioner has filed a Schedule in which the figure of excise duty for which the refund is claimed is shown not as Rs. 3,16,237.69 but as Rs. 2,91,310/- Mr. Rana and Mr. Parikh who have appeared on behalf of the petitioner company have contended in this petition that it is now settled law that while determining the price for the purpose of duty to be paid on excisable goods, post-manufacturing expenses cannot be taken into account and, therefore, according to the learned counsel, the elements of packing expenses which is included in the price for the purpose of determining excise duty payable had to be left out of consideration with the result that a part of the amount recovered by the department has been recovered without any authority of law and, therefore, the company is entitled to the refund of that amount. The total amount of packing costs between September 1974 to August 1975 is stated to be Rs. 19,44,475/- and any excise duty levied on this amount was, according to the petitioner, refundable to the company. The Writ which the petitioner company has prayed for in this petition is on e of quashing the order of the Assistant Collector dated 17th November 1975 and to direct the respondents to forthwith refund Rs. 2,91,670/- being the excise duty collected on packing charges and materials.
4. Now, in the course of oral arguments Mr. Govilkar appearing on behalf of the respondents wanted to contend that no duty was levied on the post-manufacturing expenses but if we read the return, it is clear that the fact that packing charges were shown as a part of the price of the excisable goods by the petitioner has been admitted on behalf of the department. It is no doubt stated in the affidavit that the petitioner/company has itself submitted the price list without showing any separate cost or charges of packing and paid the as valorem duty on such price but at the same time it is admitted that this price was inclusive of all costs of packing. It is stated in the affidavit that the company had fixed their prices and included the packing charges in the amount of price by taking into account the excise duty payable on such amount. The stand taken in the return is that the cost of packing must be taken to be an item essentially included or required to be included in the total wholesale cash price because, according to the department, the goods could not have been placed in the stream of the wholesale market without such packing. It is stated that the petitioner has voluntarily paid duty on the alleged cost of packing material. The department does not admit the correctness of the figure of Rs. 19,44,473/- which is shown as the cost of packing material. It is also stated in the return that the essential packing charges cannot be treated as post-manufacturing expenses.
5. Mr. Govilkar appearing on behalf of the respondent has, however fairly conceded that having regard to the decision of the Supreme Court in Volta's case and in Attic Industries' case as well as the Division Bench decision of this Court in the Union of India v. Mansingka Industries cited supra, the position that post-manufacturing expenses will have to be ignored for the purpose of determining the price on the basis of which excise duty is to be levied cannot be disputed. After considering the decision in A. K. Roy v. Voltas Limited, , the Division Bench of this Court in Mansingka's case, has summarised the legal position by observing that only the value of the excisable goods has to be taken into consideration at the point where the manufacture of the excisable goods is complete and that post-manufacturing expenses or cost will have to be excluded from the value of the excisable goods. In the decision of this Court in M/s. Ogale Glass Works - 1979 ELT (J 468) which dealt with the question whether the cost of packing and packing materials can be taken into account for the purposes of excise duty it was pointed out that the cost of packing and packing materials cannot be legally included in arriving at the wholesale cash price of the excisable goods manufactured by the manufacturer and that the cost of packing and packing material cannot be included for the purpose of levy and collection of excise duty. It is therefore, now too late in the day to dispute the proposition that for the purpose of section 4 of the Central Excise Act the post manufacturing cost consisting of packing cost or the cost of packing material will have to be excluded before excise duty is levied. As already pointed out, this proposition has not now been disputed on behalf of the respondents.
6. The objection raised on behalf of the respondents us mainly founded on Rule 11 of the Central Excise Rules. Rule 11 as it it was in force at the material time reads as follows :-
"No refund of duties or charges erroncously paid unless claim within three months for any duties or charges which have been paid or have been adjusted in an account-current maintained with the Collector under Rule 9 and of which repayment wholly or in part is claimed in consequence of the same having been paid through inadvertence, error or misunderstanding, shall be refunded unless the claimant makes an application for such refund under his signature and lodges it with the proper officer within three months of such payment or adjustment as the case may be."
7. It is not in dispute that in the case where the self removal procedure is resorted to, having regard to the provisions of Rule 173 J as it was in force at the material time, the period prescribed in Rule 11 had to be read as 12 months. Mr. Govilkar on behalf of the respondents has vehemently contended that refund of excise duty is permissible only under Rule 11 and since the application for refund has not been made within a period of one year from September 1974, the petitioner was not entitled to any refund in excess of the period of one year. It was contended before us that what was recovered from the company was excise duty and the only provision under which refund of excise duty can be claimed was Rule 11 and, therefore, no claim of refund of any amount can be claimed outside the provisions of Rule, 11. Now, though an alternative claim was made by the company in its application to the Assistant Collector of Central Excise whereby the claim was alternatively restricted to the period of 12 months, it is now contended at all in the instant case where the levy itself is unauthorised and illegal and what was collected from the company by way of excise duty on account of packing charges could not be excise duty as provided under the Act. Mr. Rana has invited out attention to the definition to the duty under Rule 2 of the Central Excise Rules, 1944 at (v) in which `duty' is defined as meaning `duty payable under section 3 of the Act'. The contention was that if duty was payable only on the basis of the manufactured product and not on post-manufacturing expenses or costs in regard to the manufacture, then anything recovered in the form of duty was really not duty at all, and, therefore, according to the learned counsel, no question of limitation would arise as contemplated under Rule 11 of the Central Excise Rules. It was urged that the person claim was founded on the provisions of section 72 of the Contract Act which provides that,"any person to whom money has been paid or anything delivered, by mistake or under coercion, must repay or return it." The payment of excess amount by way of duty, according to the learned counsel, was really made under a mistake of law and once this mistake was discovered after the decision of this court in M/s, Ogale Glass Works case referred to earlier, if any limitation is to be computed, it will be form the point of time when the mistake was discovered and the claim can well be made within three days therefrom. There was, therefore, no question of lamination as prescribed by section 11 coming in the way of the petitioner company, according to the learned counsel for the petitioner.
8. These contentions which are advanced both on behalf of the petitioner and the department do not need to be considered in detail because in our view the matter has been exhaustively dealt with by the decision of this Court in Mansingka's case. The Division Bench which decided Mansingka's case was dealing with the question as to whether railway freight charges can be taken as a part of the value of the excisable drug. That decision no doubt was given in an appeal which arose out of the civil suit which was filled by the company against the Union of India alleging that certain amounts had been illegally recovered from the company purporting to recover excise duty under the Central Excise Act but that will not make any difference to principle laid down therein . The company in that case was manufacturing vegetable oil which was packed in tin containers. The grievance of the company was that the value of the tin containers as well as railway freight charges could not be taken into account for the purpose of determining excise duty while the department had added the value of the tin containers and the railway freight charges to the value of vegetable product that is hydrogenated oil. The company had, therefore, fild a suit for the recovery of the amount levied illegally on the value of tin containers and on account of railway freight on the product. The suit was creed by the trail court and the Union of India had filed an appeal before the High Court. The Division Bench held that the cost of the tin containers must be treated as post-manufacturing cost and it must be excluded from the value of the excisable products on which the duty of excise was to be levied. The freight was also treated as post-manufacturing expenses.
One of the contentions raised on behalf of the Union of India was that the suit was not maintainable because such a suit was barred under section 40 as it stood then and the company had not exhausted all the remedies provided by the Central Excise Act in the form of an appeal under section 35 and revision section 36 of the Act. Section 40 was also referred to as barring the filling of a suit in matters arising under the Central Excise Act, 1944. Negativing this contention and holding that the suit was maintainable after referring to the decision of the Supreme Court in Dhulabhai v. State of Madhya Pradesh, , the Division Bench pointed out that the levy of excise duty on the value of the tin containers and the cost of freight was wholly outside the law sand it cannot be said to be a mere question of an error in the exercise of jurisdiction. The Division Bench observed as follows:-
"Now in the case before us we have held that imposition of excise duty on the tin containers and on freight was not warranted by any of the provisions of the Act of 1944. Thus levy of central excise duty on the value of the tin containers and the cost of freight was wholly the law and it cannot be said to be a mere in exercise of jurisdiction. The Central Excise and Salt Act of 1944 only provides for the imposition of duty of excise on excisable goods so that when an attempt is made to levy duty of excise on goods which are not excisable then such a levy falls outside the law and, therefore, would be illegal."
The Division Bench also pointed out that section 40 was not attracted in a case where the question was one of collection of illegal duty and/or its recovery or refund.
9. The effect of the decision in Mansingka's case, therefore, appears to be that excess duty recovered on the basis of price which included an element of post-manufacturing cost has been held to be not merely an error in exercise of jurisdiction but it has been held to be an illegal recovery. The jurisdiction the authorities under the Central Excise Act is to recover duty according to law. If any duty is recovered in such a manner that duty comes to be levied on price which is not permissible to law as in the case of including post-manufacturing expenses in the price of the dutiable article,, the levy of duty clearly amounts either to acting in excess of jurisdiction or acting without jurisdiction. Such an act on the part of the departmental authorities cannot be considered as resulting from any error or misconstruction as contemplated by Rule 11 of the Act. In such a case there is also no question of any inadvertent demand. The very basis of computation of duty becomes wrong and to that extent the recovery is wholly unauthorised.
10. In M/s. Ogale Glass Works case, Mukhi J. had observed while dealing with the contention that Rule 11 read with Rule 173 J of the Central Excise Rules bars a claim of the company for the moneys collected from the company by the Excise authorities and paid by them that where moneys which cannot be described as excise duty as they were outside the provisions of the Act and are so recovered, hence the so-called bar under Rule 11 read with Rule 11 read with Rule 173 J cannot stand in the way of the petitioner. Deshpande J. who delivered the concurring judgment has not, however, agreed with these observations of Mukhi J. and it may therefore, not be possible to hold that the ratio of the decision in M/s. Ogale Glass Works case is that in the case of recovery of excise duty after including the post-manufacturing cost in the price of the excisable article, the recovery is outside the provisions of Rule 11. That will not, however, affect the ratio of the earlier decision of the Division Bench in Mansingka's case where Mukhi J. in his judgment delivered on behalf of the Division Bench expressly took the view that such recoveries must be treated as being outside the law and it could not be said to be a mere question of an error in the exercise of jurisdiction. There is much to be said in favour of this view as already pointed out above.
11. We may also refer to another decision of a Division Bench of this Court in State of Maharashtra and others v. Glaxo Laboratories, 1979, Excise Law Times (J 286). That decision arose out of a claim for refund of excise duty recovered under Medicinal and Toilet Preparations (Excise Duties) Act, 1955. The Glaxo Laboratories had filed a suit for the recovery of the amount of Rs. 1,64,415.34 on the original side of this Court. This suit was decreed and the State of Maharashtra had filed an appeal before the Division Bench of this Court. One of the contentions raised was that the suit was barred in view of the provisions of Rule 13 of the Central Excise Rules, 1944 which provides as follows :-
"No duties or charges which have been paid or have been adjusted in an account-current maintained with the Excise Commissioner under rule 9 and of which repayment wholly or in part is claimed on consequence of the same having been paid through inadvertence, error or misconstruction, shall be refund unless a written claim is lodged with the proper officer within six months from the date of such payment or adjustment, as the case may be." (Underlining is ours) Holding that the plaintiffs suit was really and in substance a suit for recovery of tax illegally collected from them, it was pointed out by the Division Bench that the Act did not contain any provision for refund if tax illegally collected. Dealing with rule 13 quoted above, the Division Bench observed that it refers to a claim for refund of duty or charges paid under very limited circumstances only, that is, when such duty has been paid inadvertence, error or misconstruction and it was, therefore, held that the plaintiffs' case did not and could not fall under rule 13. In that case the Collector and the Director of Excise and Prohibition had proceeded top levy excise duty on the basis that the plaintiffs' had committed a breach of the provisions of rule 96 of the Drugs Rules,1945, under which the plaintiffs' were required to give on the drug, the containers, in as conspicuous a manner as the trade name of the labels of the name of that particular drug which was mentioned in the relevant pharmacopoeia. It was found that there was no provision either in the Drugs Act or the Drugs Rules or the relevant Excise Act or the Rules that a manufacturer if a medicinal preparation, if the commits a breach of the Drugs Rules, the medicinal preparation manufactured by him would be exigible to duty or not the Act irrespective of the fact whether by the Act, it is exigible to duty or not . The Division Bench had observed that what the Collector and the Director of Excise and Prohibition both had done in relying upon this so-called breach of rule96 of the Drugs Rules was to incorporate into the Act a new item of taxation and had arrogated to themselves the function of Authorities under the Drugs Rules and had evolved for a breach of one of these Rules a penalty no existent in the Drugs Act or the Rules made thereunder for this violation.
12. Now, it will be clear that rule 13 relating to refund quoted above is almost identical in terms to rule 11 of the Excise Rules and the Division Bench had held that if there is illegal levy, rule 13 would not be attracted. The same will be the position in a case where rule 11 of the Excise Rules is concerned ands if there is an illegal levy in the sense that items which cannot be taken into account for the purpose of determining price of an excisable article are taken into account, the levy will be outside of an excisable article are taken into account, the levy will be outside provisions of the Act, and, therefore, would be illegal.
13. We may also refer to the decision of a Division Bench of the Madras High Court in Assistant Collector of Customs, Madras v. Premraj & Ganpatraj & Company- 1978 Excise Law Times (J630). That was a matter which arose out of a refund of duty paid under the Customs Act. Section 27(1) of the Customs Act provided that a refund must be claimed before the expiry of six months from the date of payment of duty. This limitation was not to apply where the duty is paid under protest. Section 27(4) provided that, save as provided under section 26, no claim of refund of duty shall be entertained except in accordance with the provisions of section 2/. The assessee in that case had paid Customs duty at the rate which originally prevailed without noticing the change in the tariff rates and an application for refund was made after the period stipulated under section 27 of the Customs Act. The application was rejected by the authorities and therefore the assessee filed a writ petition under Art. 226 of the Constitution. In the Writ petition the argument was that the collection of duty was without the authority of law and that the High Court was not inhibited by the period provided under section 27. Reference was made to Art. 265 of the Constitution which provided that,"No tax shall be levied or collected except by the authority of law." The Division Bench while delivering the judgment in that Writ petition pointed that there was no justification either to impose a tax or collect the amount, the refund of which was claimed and the order directing the refund was upheld. The decision highlights the fact that a recovery which was unauthorised by law was treated as being outside the statutory provisions of section 27 which prescribed the period of limitation for refund
14. We may also usefully refer to the observations of the Supreme Court in the case of D.Cawasji & Company v. State of Mysore- in which the Supreme Court has clearly observed that the period of limitation within which a writ petition should be filed for recovery of moneys paid under a mistake of law is three years from the date when the mistake is known and that may ordinarily be taken to be reasonable standard by which the delay in seeking a relief under Art. 226 can be measured. Thus, it clearly appears to us that once the recovery by the Department of the excess duty was held to be illegal, the provisions of Rule 11 would not be attracted and such a claim for refund must be considered in the light of the fact that time the claim is made on the footing that the payment was made under a mistake of law and the claim is made within three years from the time when the mistake was discovered. The claim for refund thus could be entertained even in proceedings under Art. 226 of the Constitution. It may be pointed out that the decision of M/s. Ogale Glass Works was given only in July 1975 and application made by the company to the Assistant Collector is almost within the month from that date. It, therefore, cannot be said that the company was not m enough in making a claim which seems to have been made almost immediately after the decision in M/s. Ogale Glass Works become known.
15. It was then argued by Mr. Govilkar that the company must have already recovered the excise duty from its customers and therefore, any order in favour of the company directing the department to refund the amount would result in the unjust enrichment of the company. This argument also must be rejected and we may merely refer to the following observations in Cawasji & Company's case made by the Supreme Court in paragraph 10 :-
" The company has intended to make expenditure for the common good and it would be needless to require its return after it has been in whole or in part expended which would often be the case if the suit or application can be brought at any time within three years of a Court declaring the law under which it was paid to be invalid, be it a 100 years after the date of payment. Nor is there any provision under which the Court can deny the refund of tax even if the person who paid it after collecting 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." (Underling ours).
It would not, therefore, be possible to reject the claim for the refund on the ground that the company may already have recovered the amount its customers.
16. It will, however, not be possible to make any order for refund of any particular amount as the matters now stand. The departments has denied the correctness of the figures given by the petitioner company. An inquiry will, therefore, have to be made by the departmental authorities as to what was the amount of excess duty levied on what has been described as packing charges inclusive of the cost of packing material. Unless these figures are ascertained, it would not be possible to reach any decision on the quantum of duty recovered in excess of what was legally recoverable. The petitioner will, therefore, have to satisfy the department about the correctness of the figures on the basis of which the claim has been made in this petition. The proper order in this petition would, therefore, be that petitioner is held entitled to claim refund on the finding that no excess duty was leviable on the cost of packing inclusivve of the cost of packing material and the Assistant Collector of Central Excise is directed to enquire into the question as to what is the exact amount to which the petitioner will be entitled by way of refund in respect of excise duty paid during September 1974 to August 1975. The petitioner will be entitled to produce the necesary material and account books and such other information which they think necessary and which the authorities think the petitioenrs should be called upon to produce before them in order to determine the quantum of the refund which the petitiones can successfully claim.
17. The petition is thus allowed with costs.