Customs, Excise and Gold Tribunal - Calcutta
Initiating Explosives Systems vs Commissioner Of C. Ex. on 3 October, 2007
Equivalent citations: 2008[9]S.T.R.509
ORDER D.N. Panda, Member (J)
1. The appellant came in appeal against order-in-appeal dated 29-3-2004 which held that M/s. ICI India Ltd. had acted as a clearing and forwarding agent of the appellant and service tax paid by the appellant was as a person who engaged M/s. ICI (India) Ltd. as their clearing and forwarding agent and such payment was legal and correct for which no refund of tax so paid arose. While doing so, the impugned order upheld order of Adjudication dated 10-6-2003 which rejected refund claim of Rs. 64,94,422/- of this Appellant.
1.2 The Id. Counsel appearing for the appellant submitted that in terms of an agreement dated 29th August, 1996 the appellant engaged M/s. ICI (India) Ltd. as their consignment, distribution and selling agent. Clause 2.1 of the said agreement defined relation of both in this manner. Duties of that agent was defined by Clause 3 of agreement. Such agent in terms of Clause 3.2 of the agreement was to use its best endeavours to promote and market the products of the appellant. Clause 3.3 required the agent to promote, market and sell the products of the appellant. According to Clause 3.2.1 of the agreement, the agent was required to accept orders from the customers for effecting sale of the products. Clause 3.14 required the agent to bear all distribution costs including customers servicing, credit evaluations, selling, advertising, marketing, transportation, transit losses and delivery cost pertaining to the products. As per para 7.2 of Agreement, for discharging the duties under the agreement, the agent was entitled to a commission of 21% of the net selling price of the products. In short, he submitted that the arrangement with the principal and ICI Ltd. was not that of principal and agent but there was a joint venture for sale of products of the former with mutual interest defined by the Agreement instead of the relation as clearing and forwarding agent what that was alleged by the Department.
1.3 In support of his contention that the agreement with the appellant and the ICI was principal to principal basis, the learned Counsel relied on the following decisions:
Medpro Pharma Pvt. Ltd. v. Commr. of C. Ex., Chamni 2006 (3) S.T.R. 355 (Tri.-LB.) Laxmi Color (P) Ltd. v. Commr. of C.E., jaipur-II 2006 (3) S.T.R. 363 ( Tri.-Del.) Umrao Traders v. Commr. of C.E., Jaipur-II 2006 (4) S.T.R. 441 (Tri.) : 2007 (6) STT 477 (New Delhi-CESTAT) Semac (P) Ltd. v. Commr. of Service Tax, Bangalore 2006 (4) S.T.R. 475 (Tri.) : 2007 (6) STT 479 (Bangalore-CESTAT) Tata Consultancy Services v. Union of India 2006 (2) S.T.R. 386 (Ker.) : 2007 (6) STT 258 (Kar.) Salem District Sound System Association v. Union of India 2006 (2) S.T.R. 383 (Mad.) : 2007 (6) STT 267 (Mad.) Larsen & Toubro Ltd. v. Commr. of C.E., Chennai 2006 (3) S.T.R. 321 ( Tri.-LB) Commr. of C. Ex., Bhopal v. Shri Sainath Communication 2006 (3) S.T.R. 327 (Tri.-Del.) 1.4 The learned Counsel further submitted that a combined reading of Clause 3.2, 3.15, 7.1, 7.1.5, 7.7.1 and 7.7.2 it would appear that the relation between the Appellant and ICI (India) Ltd. is nothing but a business arrangement entered into by the parties though the nomenclature is that of principal and agent. Also had it been the case of an agent simplicitor then so much of freedom would not have been given. He relied on the judgments of Hon'ble Supreme Court in the case of Sri T.V.T. & B Finn v. Commr. Tax Officer, Rajzhmundry AIR 1968 SC 784, The Bhopal Sugar Industries Ltd. v. STO (1977) 3 SEC 147, Alwaye Agencies v. Dy. Commr. of Agri Tax & S.T. 1988 (Supp) SCC 394 and judgment of Hon'ble High Court of Calcutta in Ganesh E & I Co. v. Mahadeolal .
1.5 To support the arrangement between the Appellant and ICI (India) Ltd. was joint venture, the appellant relied on the judgment of Hon'ble High Court of Gujarat in the case of Asia Foundations & Constructions Ltd. v. State of Gujarat AIR 1986 Guj 185. He further argued that a person to be called as a "clearing and forwarding agent" should satisfy the definition of this term as defined by 65(25) of Finance Act, 1994 and the activity carried out by the agent does not attract that section. The Department had forceably realized the service tax amounting Rs. 64,94,422/- from the Appellant which should be refunded and both the Authorities below were wrong to reject refund application of the Appellant for the above amount made in February, 1999.
2. The Id. D.R. appearing for the Revenue submitted that the appellants' activity was purely of the nature defined by Section 65(25) of Finance Act, 1994 and ICI (India) Ltd. had acted as forwarding agent of the appellant. Therefore, the appellant is governed by the decision of the Tribunal in the case of Med-pro Pharma Pvt. Ltd. v. Commr. of C. Ex., Chennai 2006 (3) S.T.R. 355 ( Tri.-LB.). He also relied on the decision of Tribunal in the case of Umrao Traders v. Commr. of C.E., Jaipur-II 2006 (4) S.T.R. 441 (Tribunal) : 2007 (6) STT 477 (New Delhi-CESTAT).
3.1 Heard both sides and perused the record.
3.2 Record reveals that the Appellant filed a refund application on 12-10-99 claiming refund of Rs. 64,94,422/- towards service tax paid by them for the period from July 97 to February, 1999 relying on the judgment of Apex Court in the case of Laghu Udyog Bharati v. Union of India . On scrutiny of such application, Department found that the appellant had not submitted attested copy of ST-3 return and TR-6 challans for the entire period as also certificate in form ST-2, detailed calculation sheet and documents showing that tax incidence had not passed on to others. Accordingly by a letter dated 11-11-1999, Department asked the appellant to submit their claim in proper form.
3.3 The appellant resubmitted their claim on 7-2-2000 with certified copy of TR-6 challans, ST-3 for entire period, and registration certificate in form ST-2 without detailed bill-wise calculation sheet and other documentary evidence showing that incidence of tax was not passed to other persons. In absence of calculation sheet and other documentary evidence, the Authority opined that it was not possible on its part to examine whether there was unjust enrichment by the Appellant in respect of the refund claim. The appellant was accordingly issued show cause notice asking why:
(i) The refund claim for an amount of Rs. 64,94,422.00 paid by them as Principal to Clearing and Forwarding Agent for the period from July, 1997 to February, 1999 though payable as per Hon'ble Supreme Court judgment as mentioned herein before should not be rejected as per provisions of Section 11B of Central Excise Act, 1944 made applicable to Service Tax matter vide Section 83 of Chapter V of the Act for the said non-compliance; and
(ii) The amount claimed as refund should not be credited to the Consumer Welfare Fund as envisaged under Section 12C(2) of the Central Excise Act, 1944 as made applicable to Service Tax matters vide Section 83 of Chapter V of the Act.
3.4 In reply to show cause notice the Appellant stated in reply to the Authority below that they had submitted month wise total taxable service provided and service tax paid thereon, incidence of tax was borne by them and not passed on to others and the proceeding against them may be dropped. It was claimed by the Appellant that in view of proposal by Finance Bill, 2000, refund to appellant may be reworked out and paid. Submissions of the Appellant before the learned Adjudication officer was summarized by that Authority as under:
(i) Service Tax, if payable by the beneficiary, of the C&F Services during the period July, 1997 to August, 1998 will be payable @ 5% of the C&F fee paid to the C&F Agent. In the arrangement followed by us we had engaged ICI (India) Ltd. (their explosives business has now been transferred to Indian Explosives Ltd.) for sales and marketing services. As a part of the arrangement, ICI has provided a host of services as sales and marketing agents for IES in respect of our Initiating Explosives products. For this purpose, ICI had outsourced and procured C&F Agency services by appointing various C&F Agents. It is this C&F Agents who had provided C&F Agency services to ICI in respect of the aforesaid products and they were paid C&F Agency commission @ ranging between 2.5% to 5% of the value of goods handled by them.
(ii) If at all service Tax is to be paid by the beneficiary of C & F Service for the period July, 1997 to August, 1998 as per proposals of the Finance Bill 2000 then Service Tax (c) 5% of the fee paid by ICI to C & F Agents will need to be paid by us.
As against this, we had calculated and paid, albeit mistakenly, service tax for the above period @ 5% of the entire amount of fee paid by us to ICI towards sales and marketing services. Service Tax for the above period (July '97 to August, 1998) therefore needs to be recomputed. The amount works out to Rs. 2,68,133/-. A certificate issued by M/s. Khetan & Chaudhury, Chartered Accountants certifying correctness of the above amount is enclosed as Annexure-A.
(iii) Consequent upon the above recomputation we are now entitled to the refund of excess amount paid as service tax for the period July '97 to August, 1998. The excess amount has been paid @ 5% on the balance amount of the sale and marketing commission paid by us to ICI @ ranging between 16% to 18% of the value of goods sold by us through them. The excess amount so paid works out to Rs. 44,40,070/- for the aforesaid period of July, 1997 to August, 1998. A certificate issued by M/s. Khetan and Choudhury, Chartered Accountant certifying correctness of the above amount is attached as Annexure-B.
(iv) We are entitled for the refund of the Service Tax for the period Sep. '98 to Feb. '99 as per law laid down by the Supreme Court in its judgment dated 27-9-99 in the case of Laghu Udyog Bharti v. Union of India wherein Sub-rules (xvii) and (xii) of Rule (i) (d) of the Service Tax Rules 1994 were struck down as illegal and ultra vires as per aforesaid judgment of Supreme Court, the Service Tax for this period is not liable or be paid by the beneficiary of the C & F Services. The Service tax for the above period is required to be paid by the provider of the C&F Service i.e. C&F Agents who were appointed by ICI for outsourcing this service @ 5% on the C&F Agency fee paid to them.
In addition to above, M/s. Initiating Explosives System India Ltd. the Appellant contended that service tax amounting to Rs. 17,86,219/- paid for the period Sept. '98 to Feb. '99 was liable to be refunded to them as tax was levied and paid without authority of law. They also requested for a personal hearing on the matter.
3.5 During pendency of the matter before the Id. Adjudicating Authority, the Appellant also approached the Hon'ble High Court of Kolkata in Writ Petition No. 583 of 2003 for direction to that authority for disposal of the refund application of the appellant. According to the order of adjudication, the Hon'ble High Court directed that such application be disposed by a reasoned order within one month from the date of communication of direction of the Hon'ble Court. Following such direction the Id. Adjudicating Authority proceeded to decide the matter.
3.6 The authority below observed that claim of the appellant was basing on the decision of the Apex Court in the case of Laghu Udyog Bharti (supra). The authority found that the appellant was registered under law and paid Service Tax from July, 1997 to February, 1999. On examination of the Agreement between the appellant and ICI (I) Ltd., the Authority found that the agent was responsible for obtaining necessary license, permits and approvals under the relevant laws and required to comply with legal requirements. At page 7 of the order of adjudication, the authority found that the agreement between the parties established that ICI (I) Ltd. acted as clearing and forwarding agent on behalf of the appellant. However, relying on the Clause 112 and 113 of the Finance Bill, 2000, the authority opined that the appellant was required to deposit the Service Tax in view of validation clause and also for such decision relied on Notification No. 7/99-S.T. dated 23-8-99. With such a conclusion, the authority rejected the refund claim of the appellant.
3.7 Sequel to the decision of the learned A.O., the Id. Appellate Authority also held that he found no reason to interfere with the findings of the Id. Adjudicating Authority and concluded that ICI (I) Ltd. acted as a clearing and forwarding agent of the appellant and the Service Tax paid by the appellant was not refundable interims of the provisions of the Finance Bill, 2000.
3.8 There is no doubt that the Hon'ble Supreme Court in the case of Laghu Udyog Bharti v. U.O.I. held that "We have no hesitation in holding that the provisions of Rule 2(d)(xii) and (xvii), in so far as it makes persons other than the clearing and forwarding agents or the persons other than the goods transport operators as being responsible for collecting the service tax, are ultra vires the Act itself. The said sub-rules are accordingly quashed". However Finance Act, 2000 made validation of certain action taken under Service Rules through Sections 116 and 117 of the said Act which reads as under:
116. Amendment of Act 32 of 1994. - During the period commencing on and from the 16th day of July, 1997 and ending with the 16th day of October, 1998, the provisions of Chapter V of the Finance Act, 1994 shall be deemed to have had effect subject to the following modifications, namely:
(a) in Section 65, -
(i) for Clause (6), the following clause had been substituted, namely:
(6) "assessee" means a person liable for collecting the service tax and includes -
(i) his agent; or
(ii) in relation to services provided by a clearing and forwarding agent, every person who engages a clearing and forwarding agent and by whom remuneration or commission (by whatever name called) is paid for such services to the said agent; or
(iii) in relation to services provided by a goods transport operator, every person who pays or is liable to pay the freight either himself or through his agent for the transportation of goods by road in a goods carriage;
(ii) after Clause (18), the following clauses had been substituted, namely:
(18A) "goods carriage" has the meaning assigned to it in Clause (14) of Section 2 of the Motor Vehicles Act, 1988 (59 of 1988);
(18B) "goods transport operator" means any commercial concern engaged in the transportation of goods but does not include a courier agency;
(iii) in Clause (48), after Sub-clause (m), the following sub-clause had been inserted, namely:
(ma) to a customer, by a goods transport operator in relation to carriage of goods by road in a goods carriage;
(b) in Section 66, for Sub-section (3), the following subsection had been substituted, namely:
(3) On and from the 16th day of July, 1997, there shall be levied a tax at the rate of five per cent, of the value of taxable services referred to in Sub-clauses (g), (h), (i), (j), (k), (l), (m), (ma), (n) and (o) of Clause (48) of Section 65 and collected in such manner as may be prescribed.;
(c) in Section 67, after Clause (k), the following clause had been inserted, namely:
(ka) in relation to service provided by goods transport operator to a customer, shall be the gross amount charged by such operator for services in relation to carrying goods by road in a goods carriage and includes the freight charges but does not include any insurance charges.
117. Validation of certain action taken under Service Tax Rules. - Notwithstanding anything contained in any judgment, decree or order of any court, tribunal or other authority, Sub-clauses (xii) and (xvii) of Clause (d) of Sub-rule (1) of Rule 2 of the Service Tax Rules, 1994 as they stood immediately before the commencement of the Service Tax (Amendment) Rules, 1998 shall be deemed to be valid and to have always been valid as if the said sub-clauses had been in force at all material times and accordingly:
(i) any action taken or anything done or purported to have been taken or done at any time during the period commencing on and from the 16th day of July, 1997 and ending with the day, the Finance Act, 2000 receives the assent of the President shall be deemed to be valid and always to have been valid for all purposes, as validly and effectively taken or done;
(ii) any service tax refunded in pursuance of any judgment, decree or order of any court striking down Sub-clauses (xii) and (xvii) of Clause (d) of Sub-rule (1) of Rule 2 of the Service Tax Rules, 1994 before the date on which the Finance Act, 2000 receives the assent of the President shall be recoverable within a period of thirty days from the date on which the Finance Act, 2000 receives the assent of the President, and in the event of non-payment of such service tax refunded within this period, in addition to the amount of service tax recoverable, interest at the rate of twenty-four per cent. per annum shall be payable, from the date immediately after the expiry of the said period of thirty days, till the date of payment.
Explanation: For the removal of doubts, it is hereby declared that no act or omission on the part of any person shall be punishable as an offence which would not have been so punishable if this section had not come into force.
3.9 Enactment of Validation Act retrospectively is also permissible to the Legislature as held in ITW Signode India Ltd. v. CCE . A retrospective effect indisputably can be given in case of curative and validating statute. In fact curative statutes by their very nature are intended to operate upon and affect past transaction having regard to the effect that they operate on conditions already existing. However, the scope of Validating Act may vary from case to case. A Validation Act removes actual or possible voidness, disability or other defect by confirming the validity of anything which is or may be invalid.
4. In Shri Prithvi Cotton Mills Ltd. and Anr. v. Broach Borough Municipality and Ors. , it was pointed out that a legislature does possess the power to validate statutes and to pass retrospective laws. The Court, however, laid down:
When a Legislature sets out to validate a tax declared by a court to be illegally collected under an ineffective or an invalid law, the cause for ineffectiveness or invalidity must be removed before validation can be said to take place effectively. The most important condition, of course, is that the Legislature must possess the power to impose the tax, for, if it does not, the action must ever remain ineffective and illegal. Granted legislative competence, it is not sufficient to declare merely that the decision of the Court shall not bind for that is tantamount to reversing the decision in exercise of judicial power which the legislature does not possess or exercise. A court's decision must always bind unless the conditions on which it is based are so fundamentally altered that the decision could not have been given in the altered circumstances. Ordinarily, a Court holds a tax to be invalidly imposed because the power to tax is wanting or the statute or the rules or both are invalid or do not sufficiently create the jurisdiction. Validation of a tax so declared illegal may be done only if the grounds of illegality or invalidity are capable of being removed and are in fact removed and the tax thus made legal. Sometimes this is done by providing for jurisdiction where jurisdiction had not been properly invested before. Sometimes this is done by re-enacting retrospectively a valid and legal taxing provision and then by fiction making the tax already collected to stand under the re-enacted law. Sometimes the legislature gives its own meaning and interpretation of the law under which the tax was collected and by legislative fiat makes the new meaning binding upon courts. The Legislature may follow any one method or all of them and while it does so it may neutralise the effect of the earlier decision of the court which becomes ineffective after the change of the law. Whichever method is adopted it must be within the competence of the legislature and legal and adequate to attain the object of validation. If the Legislature has the power over the subject-matter and competence to make a valid law, it can at any time make such a valid law and make it retrospectively so as to bind even past transactions. The validity of a validating law, therefore, depends upon whether the legislature possesses the competence which it claims over the subject-matter and whether in making the validation it removes the defect which the courts had found in the existing law and makes adequate provisions in the validating law for a valid imposition of the tax.
In Ujagar Prints and Ors. (II) v. Union of India and Ors. after considering various decisions, Apex Court held thus:
A competent legislature can always validate a law which has been declared by courts to be invalid, provided the infirmities and vitiating infactors noticed in the declaratory judgment are removed or cured. Such a validating law can also be made retrospective. If in the light of such validating and curative exercise made by the legislature - granting legislative competence - the earlier judgment becomes irrelevant and unenforceable, that cannot be called an impermissible legislative overruling of the judicial decision. All that the legislature does is to usher in a valid law with retrospective effect in the light of which earlier judgment becomes irrelevant. (See Shri Prithvi Cotton Mills Ltd. v. Broach Borough Municipality .
Such legislative experience of validation of laws is of particular significance and utility and is quite often applied, in taxing statutes. It is necessary that the legislature should be able to cure defects in statutes. No individual can acquire a vested right from a defect in a statute and seek a windfall from the legislature's mistakes. Validity of legislations retroactively curing defects in taxing statutes is well recognised and courts, except under extraordinary circumstances, would be reluctant to override the legislative judgment as to the need for and the wisdom of the retrospective legislation. In Empire Industries Ltd. v. Union of India , Apex Court observed:
...not only because of the paramount Governmental interest in obtaining adequate revenues, but also because taxes are not in the nature of a penalty or a contractual obligation but rather a means of apportioning the costs of Government amongst those who benefit from it.
5. Various circumstances on which refund may arise and the manner how such grant can be made were considered by Hon'ble Supreme Court in case of Mafatlal Industries Ltd. v. UOI . Summary of consideration as appearing in part IV of the judgment in terms of para 99 reads as under:
99. The discussion in the judgment yields the following propositions. We may forewarn that these propositions are set out merely for the sake of convenient reference and are not supposed to be exhaustive. In case of any doubt or ambiguity in these propositions, reference must be had to the discussion and propositions in the body of the judgment.
(i) Where a refund of tax/duty is claimed on the ground that it has been collected from the petitioner/plaintiff - whether before the commencement of the Central Excises and Customs Laws (Amendment) Act, 1991 or thereafter - by mis-interpreting or misapplying the provisions of the Central Excises and Salt Act, 1944 read with Central Excise Tariff Act, 1985 or Customs Act, 1962 read with Customs Tariff Act or by mis-interpreting or mis-applying any of the rules, regulations or notifications issued under the said enactments, such a claim has necessarily to be preferred under and in accordance with the provisions of the respective enactment before the authorities specified thereunder and within the period of limitation prescribed therein. No suit is maintainable in that behalf. While the jurisdiction of the High Courts under Article 226 - and of this Court under Article 32 - cannot be circumscribed by the provisions of the said enactments, they will certainly have due regard to the legislative intent evidenced by the provisions of the said Acts and would exercise their jurisdiction consistent with the provisions of the Act. The writ petition will be considered and disposed of in the light of and in accordance with the provisions of Section 11B. This is for the reason that the power under Article 226 has to be exercised to effectuate the rule of law and not for abrogating it. The said enactments including Section 11B of Central Excises and Salt Act and Section 27 of the Customs Act do constitute "law" within the meaning of Article 265 of the Constitution of India and hence, any tax collected, retained or not refunded in accordance with the said provisions must be held to be collected, retained or not refunded, as the case may be, under the authority of law. Both the enactments are self-contained enactments providing for levy, assessment, recovery and refund of duties, imposed thereunder. Section 11B of the Central Excises and Salt Act and Section 27 of the Customs Act, both before and after the 1991 (Amendment) Act are constitutionally valid and have to be followed and given effect to. Section 72 of the Contract Act has no application to such a claim of refund and cannot form a basis for maintaining a suit or a writ petition. All refund claims except those mentioned under Proposition (ii) below have to be and must be filed and adjudicated under the provisions of the Central Excises and Salt Act or the Customs Act, as the case may be. It is necessary to emphasis in this behalf that Act provides a complete mechanism for correcting any errors whether of fact or law and that not only an appeal is provided to a Tribunal - which is not a departmental organ - but to this Court, which is a civil court.
(ii) Where, however, a refund is claimed on the ground that the provision of the Act under which it was levied is or has been held to be unconstitutional, such a claim, being a claim outside the purview of the enactment, can be made either by way of a suit or by way of a writ petition. This principle is, however, subject to an exception : where a person approaches the High Court or Supreme Court challenging the constitutional validity of a provision but fails, he cannot take advantage of the declaration of unconstitutionality obtained by another person on another ground; this is for the reason that so far as he is concerned, the decision has become final and cannot be reopened on the basis of a decision on another person's case; this is the ratio of the opinion of Hidayatullah, CJ. in Tilokchand Motichand and we respectfully agree with it. Such a claim is maintainable both by virtue of the declaration contained in Article 265 of the Constitution of India and also by virtue of Section 72 of the Contract Act. In such cases, period of limitation would naturally be calculated taking into account the principle underlying Clause (c) of Sub-section (1) of Section 17 of the Limitation Act, 1963. A refund claim in such a situation cannot be governed by the provisions of the Central Excises and Salt Act or the Customs Act, as the case may be, since the enactments do not contemplate any of their provisions being struck down and a refund claim arising on that account. In other words, a claim of this nature is not contemplated by the said enactments and is outside their purview.
(iii) A claim for refund, whether made under the provisions of the Act as contemplated in Proposition (i) above or in a suit or writ petition in the situations contemplated by Proposition (ii) above, can succeed only if the petitioner/plaintiff alleges and establishes that he has not passed on the burden of duty to another person/other persons. Mis refund claim shall be allowed/decreed only when he establishes that he has not passed on the burden of the duty or to the extent he has not so passed on, as the case may be. Whether the claim for restitution is treated as a constitutional imperative or as a statutory requirement, it is neither an absolute right nor an unconditional obligation but is subject to the above requirement, as explained in the body of the judgment. Where the burden of the duty has been passed on, the claimant cannot say that he has suffered any real loss or prejudice. The real loss or prejudice is suffered in such a case by the person who has ultimately borne the burden and it is only that person who can legitimately claim its refund. But where such person does not come forward or where it is not possible to refund the amount to him for one or the other reason, it is just and appropriate that that amount is retained by the State, i.e., by the people. There is no immorality or impropriety involved in such a proposition. The doctrine of unjust enrichment is a just and salutory doctrine. No person can seek to collect the duty from both ends. In other words, he cannot collect the duty from his purchaser at one end and also collect the same duty from the State on the ground that it has been collected from him contrary to law. The power of the Court is not meant to be exercised for unjustly enriching a person. The doctrine of unjust enrichment is, however, inapplicable to the State. State represents the people of the country. No one can speak of the people being unjustly enriched.
(iv) It is not open to any person to make a refund claim on the basis of a decision of a Court or Tribunal rendered in the case of another person. He cannot also claim that the decision of the Court/Tribunal in another person's case has led him to discover the mistake of law under which he has paid the tax nor can he claim that he is entitled to prefer a writ petition or to institute a suit within three years of such alleged discovery of mistake of law. A person, whether a manufacturer or importer, must fight his own battle and must succeed or fail in such proceedings. Once the assessment of levy has become final in his case, he cannot seek to reopen it nor can he claim refund without re-opening such assessment/order on the ground of a decision in another person's case. Any proposition to the contrary not only results in substantial prejudice to public interest but is offensive to several well established principles of law. It also leads to grave public mischief. Section 72 of the Contract Act, or for that matter Section 17(1)(c) of the Limitation Act, 1963, has no application to such a claim for refund.
(v) Article 265 of the Constitution has to be construed in the light of the goal and the ideals set out in the Preamble to the Constitution and in Articles 38 and 39 thereof. The concept of economic justice demands that in the case of indirect taxes Central Excises duties and Customs duties, the tax collected without the authority of law shall not be refunded to the petitioner-plaintiff unless he alleges and establishes that he has not passed on the burden of duty to a third party and that he has himself borne the burden of the said duty.
(vi) Section 72 of the Contract Act is based upon and incorporates a rule of equity. In such a situation, equitable considerations cannot be ruled out while applying the said provision.
(vii) While examining the claims for refund, the financial chaos which would result in the administration of the State by allowing such claims is not an irrelevant consideration. Where the petitioner-plaintiff has suffered no real loss or prejudice, having passed on the burden of tax or duty to another person, it would be unjust to allow or decree his claim since it is bound to prejudicially affect the public exchequer. In case of large claims, it may well result in financial chaos in the administration of the affairs of the State.
(viii) The decision of this Court in Sales Tax Officer, Bennrns v. Kanhaiynlal Mukundlal Saraf 1959 S.C.R. 1350 must be held to have been wrongly decided insofar as it lays down or is understood to have laid down propositions contrary to the propositions enunciated in (i) to (vii) above. It must equally be held that the subsequent decisions of this Court following and applying the said propositions in Kanhaiyalal have also been wrongly decided to the above extent. This declaration - or the law laid down in propositions (i) to (vii) above - shall not however entitle the State to recover the taxes/duties already refunded and in respect whereof no proceedings are pending before any Authority/Tribunal or Court as on this date. All pending matters shall, however, be governed by the law declared herein notwithstanding that the tax or duty has been refunded pending those proceedings, whether under the orders of an Authority, Tribunal or Court or otherwise.
(ix) The amendments made and the provisions inserted by the Central Excises and Customs Law (Amendment) Act, 1991 in the Central Excises and Salt Act and Customs Act are constitutionally valid and are unexceptionable.
(x) By virtue of Sub-section (3) to Section 11B of the Central Excises and Salt Act, as amended by the aforesaid Amendment Act, and by virtue of the provisions contained in Sub-section (3) of Section 27 of the Customs Act, 1962, as amended by the said Amendment Act, all claims for refund (excepting those which arise as a result of declaration of unconstitutionality of a provision whereunder the levy was created) have to be preferred and adjudicated only under the provisions of the respective enactment. No suit for refund of duty is maintainable in that behalf. So far as the jurisdiction of the High Courts under Article 226 of the Constitution or of this Court under Article 32 - is concerned, it remains unaffected by the provisions of the Act. Even so, the Court would, while exercising the jurisdiction under the said articles, have due regard to the legislative intent manifested by the provisions of the Act. The writ petition would naturally be considered and disposed of in the light of and in accordance with the provisions of Section 11B. This is for the reason that the power under Article 226 has to be exercised to effectuate the regime of law and not for abrogating it. Even while acting in exercise of the said constitutional power, the High Court cannot ignore the law nor can it override it. The power under Article 226 is conceived to serve the ends of law and not to transgress them.
(xi) Section 11B applies to all pending proceedings notwithstanding the fact that the duty may have been refunded to the petitioner/plaintiff pending the proceedings or under the orders of the Court/Tribunal/Authority or otherwise. It must be held that Union of India v. Jain Spinners and Union of India v. l.T.C. 1993 Suppl. (4) S.C.C. 326 have been correctly decided. It is, of course, obvious that where the refund proceedings have finally terminated - in the sense that the appeal period has also expired - before the commencement of the 1991 (Amendment) Act [September 19,1991], they cannot be re-opened and/or governed by Section 11B(3) [as amended by the 1991 (Amendment) Act], This, however, does not mean that the power of the Appellate Authorities to condone delay in appropriate cases is affected in any manner by this clarification made by us.
(xii) Section 11B does provide for the purchaser making the claim for refund provided he is able to establish that he has not passed on the burden to another person. It, therefore, cannot be said that Section 11B is a device to retain the illegally collected taxes by the State. This is equally true of Section 27 of the Customs Act, 1962.
6.1 It is not in dispute that service was provided by the ICI India Ltd. to the appellant. Both parties also relied on the agreement dated 29-8-1996 to have stand of each other. Therefore, it was necessary to decide the incidence of tax on the basis of the said agreement as to whether the nature of activity carried out by the ICI (India) Ltd. was clearing and forwarding agent in terms of Section 65(25) read with Section 65(105)(j) of Finance Act, 1994. Such a controversy was elaborately dealt by Tribunal in its different decisions which were not at all before the learned Commissioner (Appeals) while passing the impugned order. In paras 7 to 10 of the reported decision in the case of Mahavir Cenerics v. CCE, Bangalore 2006 (3) S.T.R. 276 (Tribunal), the Tribunal on examination of various terms of agreement came to conclusion that the appellant in that case had not acted as clearing and forwarding agent. For convenience of reading the same is reproduced below.
7. On going through the terms of the agreement between M/s. Cipla Limited and the appellant we notice the following clauses as relevant:
1. AND WHEREAS the Principal has agreed to appoint the AGENT as its Consignment Agent for the sale of the product throughout India on the following terms and conditions:
2. The Principal will supply the product from any of its depots and loan licence (as per Annexure 1) to the Agent on a consignment basis through a Stock Transfer Note for sale by him as the Agent of the Principal. The Principal undertakes to deliver the Products to the Agent's godown at Bangalore at his cost.
5. The Agent will sell the Products as Consignment Agent of the Principal and the prices at which the Products can be sold shall be fixed by the Principal from time to time after mutual consultation, between the Agent and the Principal considering market conditions.
6. The Agent will register himself as a Dealer under the Local Sales Tax Act and the General Sales Tax Act and will furnish the Sales Tax Registration numbers to the Principal before the first despatch of the product commences.
15. The Agent shall be responsible for collecting and remitting the Principal value of all the sales of the Principal's Products done by him.
16. Collection being the responsibility of the Agent, the risk of any non-collection will be to the Agent's Account.
17. For the efforts put in by the Agent he will be compensated as follow:
(a) The Agent will be entitled to a commission of 5% on net price (excluding commission and sales tax) on all products excluding liquid preparations. The commission so calculated shall be paid to him directly on the previous month's sales.
(b) The Agent will be entitled to a commission of 9% on net price (excluding commission and sales tax) on liquid preparations. The commission so calculated shall be paid to him directly on the previous month's sales.
8. The agreement, with specific reference to the clauses quoted above, would show that the appellant was not acting as a clearing and forwarding agent. Unless its service can be treated as one to a client by a clearing and forwarding agent in relation to clearing and forwarding operations in any manner, the service cannot be taxed even if the consignment agent is brought under the definition of clearing and forwarding agent. Under the scheme of the Finance Act, 1994 with relation to service tax, the tax liability is attached to the taxable service. So long as the appellant is not providing a taxable service, the appellant cannot be brought under the net of service tax.
9. On going through the facts of Prabhat Zardn Factory (India) Ltd., the decision relied on by the learned SDR we find that under the terms of the agreement the agent M/s. Rama Zarda Company (RZC) had no authority to sell the goods belonging to Principal as in the present case. The agent's responsibility was only to procure orders and to act for improving the market conditions. It was under these circumstances, the Tribunal took the view that they were rendering the services in the nature of clearing and forwarding agent.
10. In the facts of the present case it is clear that the appellants are neither clearing any goods nor forwarding any goods. Products of the principal are supplied to the appellant on consignment basis and the appellant sells the products to the customers. Such an activity would not come within the service provided to a client by clearing and forwarding agent in relation to clearing and forwarding operation. Merely because the appellant had once got registered as a clearing and forwarding agent for the purpose of Service Tax under a misunderstanding of the correct legal position they cannot be compelled to continue such registration if they under law are not liable. In the light of the above, we set aside the order impugned and allow the appeal.
6.2 Larger Bench of the Tribunal in the case of Larsen & Toubro Ltd. v. Commr. of C.E., Chennai 2006 (3) S.T.R. 321 (Tri.- LB) held that service connected with clearing and forwarding operation shall only bring a service into net of tax. The Tribunal in para 9.1 of the decision held as under:
From the above definition of "clearing and forwarding agent", it is borne out that the service should be connected with clearing and forwarding operations. The 'clearing and forwarding' operations would be various activities having bearing on clearance of goods which would involve documentary processes and arrangements for transfer of goods to their destination, which process may also involve clearance at subsequent stages during forwarding operations. The procurer of orders on commission basis renders services, which are not connected with such clearing and forwarding operations which have bearing on the movement of goods.
6.3 In para 9.3 of the order, the Tribunal has also discussed the various types of activities whether shall come within the fold of clearing and forwarding agent. It was finally held in para 11 that merely procuring or booking orders for the principal by a agent on payment of commission basis would not amount to providing of services as clearing and forwarding agent within the meaning of 65 (25) of Finance Act, 1994.
6.4 On the basis of the agreement between the appellant and the ICI India Ltd., and that was relied by both sides, it may be held that there was a relation between the parties as principal and agent following definition of agent given by Section 182 of Indian Contract Act, 1872 which reads as under:
"Agent" and "principal" defined - An "agent" is a person employed to do any act for another or to represent another in dealing with third person. The person for whom such act is done, or who is so represented, is called the "principal.
6.5 It may also be stated that so far as validation of the action taken on the law declared invalid was subject matter in the case of Prism Cement Ltd. v. Commr, of Central Excise, Raipur before the Delhi Bench of the Tribunal and by Order Nos. 729-31/2005-S.T. dated 4-7-2005 reported in 2006 (2) S.T.R. 145 (Tri.-Del.). The Tribunal held that during pendency of refund claim if a revalidation Act validates an invalid law, action taken under the Validation Act is unassilable. In para 3 of the order, the Tribunal held as under:
3. The appellant filed a refund claim of service tax paid in relation to the goods transport operators and clearing and forwarding agents in pursuance to the decision of the Hon'ble Supreme Court in the case of Laghu Udyog Bharti v. Union of India reported at . During the pendency of the refund claim, the provisions of the law were revalidated retrospectively by Section 117 of Finance Act, 2000. In view of the revalidation Act, the levy of service tax, during the relevant period, is a valid levy. The Commissioner (Appeals) followed the decision of the Tribunal in the case of Hindalco Industries Ltd. and Anr. v. C.C.E. reported in 2003 (58) R.L.T. 578. In view of the above decisions, we find no infirmity in the impugned order, the appeals are dismissed.
6.6 It may be appreciated that granting refund by Administrative authority in respect of taxes realized by mistake is nothing impermissible in view of judgment of Hon'ble High Court of Allahabad in the case of Prism Cement Limited v. Union of India 2006 (2) S.T.R. 291 (Allahabad). The Hon'ble Court held that the judgment in Mafatlal Industries Ltd. v. Union of India, has not denied administrative justice. The Hon'ble Court in para 3 of the judgment to held as under:
The judgment cannot be read to mean that the appropriate authority under the Central Excise Act or the Customs Act cannot grant a refund, even though the payment was made by mistake or the amount was recovered illegally except in a suit Court issues decree or in a writ petition filed by the claimant of the High Court issues an appropriate writ in the matter. The proposition laid down by the Hon'ble Supreme Court seems to be that if the appropriate authority does not grant the refund the remedy of the person concerned is to file a suit or writ. The Hon'ble Supreme Court could not have intended that the department concerned should withhold the amount which a claimant is entitled to receive, and drive the claimant to litigation.
7. In view of the aforesaid position of law stated by us, the learned Appellate Authority may examine entire fact with reference to agreement between the parties and real nature of arrangement by them with the law of the land and come to a conclusion whether the ICI India Ltd. was a clearing and forwarding agent and incidence of tax may be decided accordingly. Of course if the Authority come to conclusion that there shall not be liability, refund if any that may arise may be subject to test of principles of unjust enrichment if the facts and circumstances so warrant.
8. In the result, the appeal is allowed by remand.
(Pronounced in the court on 3-10-2007)