Madras High Court
Micro Labs Pvt. Ltd. vs Asst. Collector Of Central Excise And ... on 21 November, 1989
Equivalent citations: 1992(40)ECR313(MADRAS)
ORDER Bakthavatsalam, J.
1. These two writ petitions are preferred by the petitioner against the orders of the first respondent rejecting its claims for refund of excise duty.
2. The petitioner is a manufacturer of medicines under Tariff item 14-E of the I Schedule in the Central Excises and Salt Act, 1944 (for short 'the Act'). It manufactures Leavamisole (L. Tetramisole) tablets and Dipyridamole tablets, among other medicines. The petitioner preferred a claim for refund by its letter dated 3.5.1983 claiming a refund of Rs. 50,291,18 on the ground that it has wrongly paid excise duty on these tablets for the period from 16.10.1982 to 16.4.1983. It preferred another claim for refund of Rs. 2,54,307.85 on 22.4.1984 on similar ground for the period from 3.5.1980 to 15.10.1982. After considering the refund applications, the first respondent allowed the claim for the period from 7.11.1982 to 16.4.1983 in one case and rejected the claim for the period from 16.10.1982 to 6.11.1982, on the ground of limitation of the claim and for 3.5.1980 to 15.10.1982 in the other case, under Section 11-B of the Act. The petitioner has come to This Court against the orders of the first respondent rejecting its claims.
3. It is alleged in the affidavit that the petitioner started manufacturing these two tablets in May, 1980 only and that they arc proprietary medicines which fall under Tariff item 14-B of the I Schedule in the Act. If these items are included in any pharmacopoeia approved by the Central Government, they get excluded from item 14-E in view of the Explanation to that item and fall under item 68 of that Schedule. The excise duty payable is 8% during 1980-81, 1981-82 and 1982-83 and 10% during 1983-84. It is alleged that, the Central Government is publishing a Pharmacopoeia styled as 'National Formulary of India' and it is periodically revised and printed once in five yeas. In 1979, in the National Formulary of India printed on 25.6.1979, these two tablets were included. The allegation of the petitioner is that this book was not readily available and that as such, the petitioner was not aware of the inclusion of these items in the National Formulary of India and he was paying excise duty at the rates applicable to items falling under Tariff item 14-E from 3.5.1980 to 3.5.1983. It is alleged in the affidavit that if the first respondent was aware of such inclusion, he should not have accepted the duty as one under item 14-E. Even if they fall under item 68, in view of the Notifications No. 89/78-CE dated 1.3.1979, 105/80-CE dated 19.6.1980 and 77/83-CE dated 22.8.1983 issued by the second respondent the products as well as the petitioner-company are exempted from excise duty. It is alleged that in December, 1982, the petitioner company was able to procure the National Formulary of India printed on 25.6.1979 at Bombay and only after the company's consultant examined the book, it was found out that by mistake, the excise duly was wrongly paid. It is also alleged that the first respondent was also not aware of the inclusion in the National Formulary of India and as such, the collection was also made by mistake. Thus, there was mutual mistake on the part of the petitioner and the respondents. It is alleged that under Article 265 of the Constitution of India, no duly can be collected without authority of law and as such, the petitioner is entitled for refund. The petitioner alleges that the impugned order rejecting its plea based upon Section 11-B of the Act is not correct. It is alleged that there is no provision under Section 11-B to deal with the situation when duty was paid by mistake. It is stated that as soon as the notification exempting certain categories of goods from excise duty is issued, any levy and collection is violative of Article 265 of the Constitution of India because levy and collection are without authority of law and that the claim for refund is a constitutional remedy and that under Section 17 read with Article 113 of the Indian Limitation Act, 1963, refund can be claimed within three years from the date of discovery of the mistake. It is also slated that the total value of the goods cleared under self removal scheme inclusive of excise duty during the period from 3.5.1980 to 15.10.1982 is Rs. 23,15,224.59 and the actual price realised was Rs. 20,08,640.81. It is stated that though the petitioner paid excise duty of Rs. 3,04,599.03, he could not recover the said amount from the customers because of competition. It is stated that similarly the value of the goods cleared inclusive of excise duty during the period from 16.10.1982 to 6.11.1982 was Rs. 23,15,224.59 and the actual price realised was Rs. 20,08,640.81 and that excise duty of Rs. 3,06,583.78 paid could not be recovered. It is further stated that most of the sales were to Suite and Central Governments and Hospitals, and that other manufacturers might have offered lower price because they might not have paid excise duty.
4. A common counter-affidavit has been filed by both the respondents. The facts are not disputed. It is stated that the authorities functioning under the statute are bound by the time limit as laid down under the statute. It is also stated that though the duty was paid by mistake, the petitioner is not entitled to refund inasmuch as the petitioner has collected the same from their customers. It is also stated that preliminary investigations conducted by the first respondent revealed that the petitioner has collected duty from the customers. The counter-affidavit refers to an unreported decision of a Division Bench of This Court dated 5.10.1988 in Writ Appeal Nos. 445 and 446 of 1982 and states that apart from the fact that refund claims are time-barred, the petitioner having passed on the duty amount, has not suffered any loss. It is slated that unless and until it is established that the petitioner had not passed on the excise duty to the consuming public it cannot claim refund. It is also stated that if refund is ordered in such cases, it would amount to unjust enrichment.
5. Mr. R.Alagar, learned Counsel appearing for the petitioner contends that the limitation prescribed under Section 11-B of the Act will not apply to the facts of the case since the excise duty has been paid by mistake, that too, mutual mistake both on the part of the department and the petitioner. The learned Counsel further argues that limitation period of six months fixed therein cannot apply to the petitioner's case and it is violative of Article 265 of the Constitution. Learned Counsel further argues that there is no unjust enrichment in the case because the excise duty has not been passed on to the customers and that even if it is so, since all the sales are only to State or Central Govt. Departments, and the Hospitals, the Department could have easily verified before rejecting its claim. Learned Counsel refers to a decision of the Division Bench of the Andhra Pradesh (U Foam Private Ltd. v. Asst. Collector CE a decision of the Supreme Court reported in 1984 (16) E.L.T. 171 (S.C.) : 1984 ECR 841 (SC) : ECR C 702 SC Shri Vallabh Glass Works Ltd. v. Union of India a decision of the Bombay High Court reported in 1986 (25) E.L.T. 625 (Bombay) Shalimar Textile Mfg. Pvt. Ltd. v. Union of India and a decision of the Supreme Court reported in A.I.R. 1980 Supreme Court 1037 : ECR C 645 SC Shiv Shankar Dal Mills v. State of Haryana and argues that under Article 265 of the Constitution the petitioner is entitled to refund as the duty has been paid and collected without authority of law.
6. Mr. T. Somasundaram, learned Additional Central Government Standing Counsel contends that Section 11-B of the Act came into force on 17.11.1980 and the judgments relied upon by the learned Counsel for the petitioner had not considered the effect of Section 11-B of the Act, since all the decisions related to old Rule 11 and the cases cited by the learned Counsel will not apply to the facts of this case. The learned Counsel heavily relies upon another Division Bench judgment of the Andhra Pradesh High Court which is reported in 1984 (18) E.L.T. 732 (A.P.) Godavari Plywoods Ltd. v. Union of India which is different from that of Bombay High Court reported in 1983 ELT 2106 (Bom) : 1987 (11) ECR 204 (Bombay) Leukoplast (India) Ltd. v. Union of India) and the judgment of the Supreme Court reported in 1983 E.L.T. 1579 (SC) : 1985 ECR 2298 SC : ECR C Cus 954 SC Madras Rubber Factory Ltd. v. Union of India which arose under the Customs Act. Learned Counsel further argues that even on the principle of unjust enrichment, the petitioner is not entitled to get the benefit of refund. Learned Counsel produced the invoice to show whether the excise duty is inclusive or exclusive is silent. Learned Counsel argues that so far as the petitioner has not proved that the excise duty has not been passed on to the customers, it is not entitled to refund.
7. He further contends all these propositions have been dealt with in an unreported decision of a Division Bench of This Court dated 5.10.1988 in writ Appeal Nos. 445 and 446 of 1982, to which I was a party. Learned Counsel also points out that Nainar Sundaram, J. has referred a similar matter to the Full Bench on the question as to whether a refund has to be made if it is proved that the duty has not been passed on to the customers. Learned Counsel heavily relies upon Sub-section (5) of Section 11-B of the Act, which runs as follows:
5. Notwithstanding anything contained in any other law, the provisions of this section shall 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.
and argues that in view of the non-obstante clause in the sub-section, the Indian Limitation Act will not apply and as such, the period of three years is not applicable now after the amendment. Learned Counsel further argues that in view of this sub-section, This Court sitting under Article 226 of the Constitution also will not have jurisdiction to order refund even if it exceeds the time limit prescribed under Sub-section (1) of Section 11-B of the Act, i.e., six months from the relevant date.
8. I considered the arguments of Mr. Alagar, learned Counsel for the petitioner and Mr. T.Somasundaram, learned Counsel appearing for the Department.
9. Section 11-B of the Act was substituted by the Act II of 1980 and it came into force on 17.11.1980. Sub-section (1) of Section 11-B runs as follows:
1. Any person claiming refund of any duty of excise may make an application for refund of such duty to the Assistant Collector of Central Excise before the expiry of six months from the relevant date.
** The other sub-sections are not relevant for our purpose. The only other sub-section which is relevant for our purpose is Sub-section (5) of Section 11-B which Has already been extracted in the previous paragraph 7. An explanation is included rebate of duty of excise on excisable rebate duty in India or on excisable materials used in the manufacture of goods which are exported out of India. "Relevant date" is also defined in Explanation (B). In view of this section an argument is built upon by the learned Counsel for the respondents that This Court cannot order refund on the facts of this case. A Division Bench of the Andhra Pradesh High Court has considered this question in a case reported in 1988 (36) E.L.T. 551 (A.P.) U Foam Pvt. Ltd. v. Collector of Central Excise. The Division Bench has held that for the duty paid under a mistake of law and collected without the sanction, the time limit specified in Rule 11 of the Central Excise Rules, 1944 (for short 'the rules') and Section 11-B of the Act was inapplicable. The Division Bench considered the question in detail, **provided that the limitation of six months shall not apply where any duty has been paid, under protest.
and referred to the judgment of the Supreme Court in the State of Madhya Pradesh v. Bhailal Bhai (1964) 6 S.C.R. 261 which held that the period of limitation within which the application for securing refund of duty paid under a mistake of law is three years from the date when the mistake is known. Though that judgment has not considered Section 11-B, it considered Rule 11 of the Rules. The very same Bench in the case U Foam Private Ltd. v. Asst. Collector C.E. reported in the very same volume at page 537 i.e. 1988 (36) E.L.T. 537 (A.P.) has held that when the matter was decided under Article 226 of the Constitution, the court is entitled to determine the period of limitation by applying the general principle of law. So also to this effect is the decision of the Division Bench of the Bombay High Court reported in 1983 ELT 2106 (Bom.) : 1987 (11) ECR 204 (Bombay).
10. In the decision reported in 1984 (16) E.L.T. 171 (SC) : 1984 ECR 841 (SC) : ECR C 702 SC Shri Vallabh Glass Works Ltd. v. Union of India) the Supreme Court had considered this question and observed as follows at page 176:
It is not disputed that the High Courts have power, for the purpose of enforcement of fundamental rights and statutory rights, to make consequential orders for repayment of money realised by Government without the authority of law under Article 226 of the Constitution. This is an alternative remedy provided by the Constitution in addition to but not in supersession of the ordinary remedy by way of suit in the absence of any provision which would bar such a suit either expressly or by necessary implication. While there are different periods of limitation prescribed for the institution of different kinds of suits by the Limitation Act, 1963, there is no such period prescribed by law in respect of petitions filed under Article 226 of the Constitution. Whether relief should be granted to a petitioner under Article 226 of the Constitution where the cause of action had arisen in the remote past is a matter of sound judicial discretion governed by the doctrine of laches. Where a petitioner who could have availed of the alternative remedy by way of suit approaches the High Court under Article 226 of the Constitution, it is appropriate ordinarily to construe that any unexplained delay in the filing of the writ petition after the expiry of the period of limitation prescribed for filing a suit as unreasonable. This rule, however, cannot be a rigid formula. There may be cases where even a delay of a shorter period may be considered to be sufficient to refuse relief in a petition under Article 226 of the Constitution. There may also be cases where there may be circumstances which may persuade the court to grant relief even though the petition period may have been filed beyond the period of limitation, prescribed for a suit. Each case has to be judged on its own facts and circumstances touching the conduct of the parties, the change in situation, the prejudice which is likely to be caused to the opposite party or to the general public etc.
11. In the decision reported in A.I.R. 1980 Supreme Court 1037 : ECR C 645 SC Shiv Shanker Dal Mills v. Slate of Haryana Krishna Iyer, J. observed as follows:
Article 226 grants an extraordinary remedy which is essentially discretionary, although founded on legal injury. It is perfectly open for the court, exercising this flexible power, to pass such order as public interest dictates and equity projects.
Where public bodies, under colour of public laws, recover people's moneys, later discovered to be erroneous levies the Dharma of the situation admits of no equivocation. There is no law of limitation, especially for public bodies, on the virtue of returning what was wrongly recovered to whom it belongs. Nor is it palatable to our jurisprudence to turn down the prayer for high prerogative writs, on the negative plea of 'alternative remedy' since the root principle of law married to justice, is ubi jus ibi remedium-
12. Nainar Sundaram, J. in the case reported in 1984 (18) E.L.T. 152 (Madras) : 1985 ECR 1637 Madras Asia Tobacco Co. Ltd. v. Union of India has allowed refund after considering the effect of Section 11-B of the Act. The learned Judge held that once it is found that the levy and collection of duty are invalid in law or in other words have no sanction in law, This Court can direct refund of duty illegally collected, under Article 226 of the Constitution, irrespective of the restrictions as to limitations prescribed under the relevant Act and the Rules. The learned Judge also considered that if both the parties were suffering from misconception of the legal position, then the time limit for refund prescribed in the special statute, i.e., under Section 11-B of the Act, did not apply but the ordinary law of limitation will apply. I respectfully agree with the view taken by the learned Judge and I prefer to follow this judgment.
13. The Supreme Court has again considered the question of refund of sales-tax and the jurisdiction of This Court under Article 226 of the Constitution in the case reported in (1988) 69 STC 290 (SC) Salonah Tea Co. Ltd. v. Superintendent of Taxes Nowgong. The Supreme Court observed that taxes, if collected without the authority of law from a citizen should be refunded because no State has the right to receive or to retain taxes or monies realised from citizens without the authority of law. The court, in an application under Article 226 of the Constitution has power to direct the refund unless there have been avoidable laches on the part of the petitioner, which indicate either the abandonment of his claims, or for which there is no probable explanation or which will cause injury to either the respondent or any third party. The Supreme Court has also held that the period of three years, prescribed under the Limitation Act as the time within which recovery of money paid under a mistake must be claimed by a suit in a civil Court, is ordinarily taken as the period beyond which the court shall not grant relief under Article 226, but this is not an inflexible rule. The Supreme Court had recognised the principle that where the demand of justice is compelling, the High Court may in the exercise of discretion, interfere in the order impugned.
14. A Division Bench of this Court has considered the question of refund of a surcharge in a case reported in (1986) 63 S.T.C. 63. The Associated Cement Companies Ltd. v. The State of Tamil Nadu. The Division Bench has observed at page 72 as follows:
It is at once clear from the decisions referred to above and the observations extracted therefrom that the view taken by the Tribunal that in the appeals preferred by the company, it is not open to it to raise a dispute with reference to a subject-matter, which did not figure either before the assessing authority or before the first appellate authority, is plainly erroneous. Normally, on such a conclusion, the company would be permitted to raise the dispute again before the Tribunal and obtain relief at its hands. That again on the facts of the case would only be insisting upon the company going through a formality almost with a vengeance, for even as per the letter dated 15th March, 1979, referred to earlier, the surcharge had been collected without any authority of law and justice and equity demand the refund of the amounts so collected to the Company.
15. Considering the decision relied upon by Mr. T. Somasundaram, learned Counsel for the respondents, which is reported in 1984 (18) E.L.T. 732 (A.P.) Godavari Plywoods Ltd. v. Union of India which considered the effect of Section 11-B of the Act in extenso, I am unable to agree with the view taken by the Division Bench of the Andhra Pradesh High Court. In fact later decisions appeal to me which have been referred to by me earlier and reported in 1988 (36) E.L.T. 537 (A.P.) and in 1988 (36) E.L.T. 551 (AP) and I am bound by the judgment of Nainar Sundaram, J. also as stated supra.
16. As such, I am of the view that the petitioner is entitled to get refund in this case and Section 11(B) of the Act cannot bind This Court from issuing a writ for the refund. Of course, it is subject to the normal period of limitation as has been held by the Supreme Court in the decision reported in 1984 (16) E.L.T. 171 (SC) : 1984 ECR 841 (SC) : ECR C 702 SC Shri Vallabh Glass Works Ltd. v. Union of India. In my view each case has to be decided on its own merits.
17. Considering the facts of this case, I am of the view that the petitioner is justified in asking for refund. When the petition came to know that the two tablets manufactured arc exempted from excise duty, a refund application has been made. It-is not the case of the respondents also that its publication, 'National Formulary of India' was made available to each and every manufacturer and it is also not clear whether this was published throughout the country by way of Gazette publication. In such circumstances, the petitioner's case has to be accepted that as and when it came to know, it is entitled to the exemption as per the notification and consequently, they are entitled to get refund.
18. Having held that the petitioner is entitled to get refund and that Section 11-B of the Act cannot be a bar, the other question, which is to be considered is, unjust enrichment.
19. In paragraph 8 of the counter-affidavit, it is stated that preliminary investigations conducted by the first respondent revealed that the petitioner has collected duty from the customers. It is also stated that the question of refund, if any, due to it is subject to an important qualification based on the equitable doctrine of unjust enrichment. A reading of the affidavits filed by the petitioner and the counter-affidavits filed by the respondents shows that the facts of this case were not examined in that angle by the authority concerned. In an unreported decision rendered by a Division Bench of This Court in writ Appeal Nos. 445 and 446 of 1982 dated 5.10.1988 to which I am a party, it has been held, after referring to Rule 11 of the Rules, as follows:
It is well-settled in law that refund cannot be ordered as a matte of course. It is subject to an important qualification based on the equitable doctrine of unjust enrichment, in that the manufacturer had not passed on the excise duty to the consuming public. This is the law, as settled by the three decisions cited supra. Therefore, unless and until it is established that the respondents had not passed on the excise duty to the consuming public, they cannot claim refund. Should refund be ordered in such cases, it would amount to unjust enrichment.
20. In view of the aforesaid judgment of the Division Bench of This Court, I am inclined to set aside the orders impugned in these cases and remand the matter back to the first respondent to consider whether factually the petitioner has passed on the excise duty collected to the customers. If it is found that the petitioner has passed it on to the customers, it is not entitled to refund. As such the impugned orders are set aside and the matter should go back to the first respondent. The first respondent is directed to take back the applications and consider the matter afresh in the light of the observations given above.
21. One other factor, which has to be considered is the alternative remedy raised by the learned Counsel for the respondents. It is true that under Sections 35 and 35-B of the Act, there is a remedy by way of appeal to the Collector of Central Excise (Appeals) and thereafter to the Appellate Tribunal. But, I think that the filing of such appeals in these matters is a sort of exercise in futility as the question raised by the petitioner is regarding refund of the duty paid by mistake of law, which can only be considered by this Court also think it is unnecessary to drive back the petitioner to the appellate forum now a.) these petitions have been pending for the past four years in This Court.
22. For the reasons stated above, both the writ petitions will stand allowed. No.