Gujarat High Court
G.H. Industries vs Collector Of Central Excise, Ahmedabad on 25 October, 1991
Equivalent citations: 1997(94)ELT483(GUJ)
JUDGMENT Ravani, J.
1. When there is no provision for payment of interest on the amount of refund of excise duty, can the petitioner claim interest on such amount ? If such relief is granted, would it not amount to doing effective injustice to the society and inflicting injury upon the society ? These are some of the questions which have arisen in this petition.
The petitioner is a partnership firm. During the years 1980 to 1986 it manufactured stainless patta-patti. The department classified the goods manufactured by the petitioner as 'strip' and not as ' patta-patti'. On account of this dispute the petitioner's goods were classified under Tariff Item No. 26AA(iii) up to 1-8-1983. Thereafter the same was classified in Tariff Item No. 25(12)(ic) up to 1-3-1986. After 1-3-1986 the goods were classified under chapter Heading No. 72.11. According to the petitioner, the article manufactured by it was "patta-patti" and therefore it was falling within Tariff Item No. 26AA(iA) or 25(8). (since the description of the respective item is not material for determining the question at issue discription of each item is not mentioned). The petitioner had made claim of refund of the amount of excise duty paid by it on account of wrong classification. Ultimately, the case of the petitioner as regards proper classification was upheld and an amount of Rs. 6,05,122.62 ps. (Rupees six lacs five thousand one hundred twenty-two and paise sixty-two only) and another amount of Rs. 7,18,098.25 ps. (Rupees seven lacs eighteen thousand ninety-eight and paise twenty-five only) i.e. total amount of Rs. 13,23,820.88 ps. (Rupees thirteen lacs twenty-three thousand eight hundred twenty and paise eighty-eight only) have been ordered to be refunded to the petitioner. The amount of refund has been paid to the petitioner.
2. The petitioner filed claim for compensation of use and retention of its money collected unauthorisedly by the department. The compensation is measured in terms of interest at the rate of 18% and the amount claimed was Rs. 14,67,748.44 ps. (Rupees fourteen lacs sixty-seven thousand seven hundred forty-eight and paise forty-four only). The claim for interest was made on May 1, 1990. The Assistant Collector of Central Excise, Division-I, Ahmedabad, issued show cause notice dated October 10, 1990 calling upon the petitioner to show cause as to for the claim was sustainable in law and why the same should not be rejected inasmuch as there was no provision in the Central Excise Law to pay interest calculated by the petitioner for the alleged wrongful collection of duty. The petitioner appeared before the Assistant Collector of Central Excise and missed several contentions. Ultimately after hearing the petitioner the Assistant Collector, by his order dated April 5, 1991 rejected the claim of compensation by way of interest at the rate of 18% amounting to Rs. 14,67,748.44 (Rupees fourteen lacs sixty-seven thousand seven hundred forty eight and paise forty-four only). The said order is produced at Annexure-B to the petition. In this petition the petitioner has prayed for emphasing the aforesaid order passed by the Assistant Collector and has also prayed to command the respondents to pay to the petitioner by way of compensation interest at the rate of 18% per annum from the date, the excise duty "was illegally and authorisedly levied and collected" from the petitioner till the date of refund i.e. April 9, 1990.
3. It is conceded that there is no provision under the Central Excises and Salt Act, 1944 (for short 'the Act') which would entitle the petitioner to claim interest on the ground that the amount of duty was wrongly collected. In view of this position of law it is evident that under the provisions of the Act or under the Rules framed thereunder claim of interest is not maintainable.
4. Learned Counsel for the petitioner submits that the claim of interest is on the basis that the amount of duty was wrongly collected. This action of wrongful collection was an act akin to tort. He further submitted and conceded that such wrongful collection would not be tort in the strict sense of the term because it is governmental sovereign function. However, action of the Government is contrary to law and therefore the petitioner claims interest. In short it is submitted that the petitioner has been adversely affected on account of the wrongful action of the Government and therefore the petitioner should be compensated. It is contended that the claim of interest by the petitioner is wrongly denied by the department. It is also contended that the provisions of Section 40 of the Act which extends protection to the Government and its officers for actions taken in good faith would not control the powers of this Court under Article 226 of the Constitution of India. It is further submitted that the petitioner claims interest by way of damages. Interest is claimed as quantified damages, that is the only possible way to quantify damages and therefore it is termed as interest.
5. As for as the impugned order dated April 5, 1991 passed by the Assistant Collector of Central Excise produced at Annexure-B is concerned, it cannot be said that the order is in any way unlawful, unjust or arbitrary. Be it noted that the officers appointed under 'the Act' and exercising powers under 'the Act' are bound by 'the Act'. They are creatures of the statute. They cannot go beyond the provisions of the statute. Learned Counsel for the petitioner has fairly conceded that the Act and the Rules framed thereunder did not make any provision whatsoever for payment of interest in respect of alleged or proved unlawful recovery of amount of excise duty. The Act and the Rules only provide in certain circumstances for refund of the amount of duty wrongly collected. The Act and the Rules did not provide for payment of interest on such wrongful collection of amount of tax. Therefore the order passed by the Assistant Collector of Central Excise cannot be said to be in any way unlawful.
6. On the contrary there is provision in Section 40 of 'the Act' which protects the Government and its officers for "anything done or intended to be done in good faith in pursuance of 'the Act' or the Rules made thereunder". Section 40 of the Act inter alia provides that no suit, prosecution or other legal proceedings shall lie against the Central Government or any officer of the Central Government or the State Government for anything which is done or intended to be done in good faith in pursuance of this Act or under the Rules framed thereunder. Sub-section (2) of section 40 of the Act inter alia provides that no proceedings against Central Government or State Government or any of its officers shall be commenced except without one month's previous notice in writing to such Government or to its officers. It is not even the case of the petitioner that the action of collection of duty by the officers of the Central Excise Department was lacking in good faith. It is true that despite the trade notice dated July 14, 1978 issued by the Deputy Collector to the effect that the product in question may merit classification in sub-item (iA) of Item No. 26AA of the Central Excise Tariff, the product was classified in sub item No. (iii) of Item No. 26AA. But this circumstance only indicates that there was an error on the part of the officer who made classification of the article. The error may be serious one. But all the same it was an error. It cannot be said to be an act lacking in good faith. It may also be noted that similar mistakes were committed in other parts of the country also.
7. A specific question was put to the learned counsel for the petitioner to the effect that as to what was the practice of the Department so far as Ahmedabad Collectorate is concerned, is frankly conceded that it was not the article manufactured by the petitioner's unit alone which was being classified in this fashion. All the other manufacturing units were treated alike. Therefore there is no question of lack of bona fides on the part of the Central Government and its officers. It may also be noted that similar view was taken by the officers exercising powers even in Rajasthan area. Thus there was a scope for difference of opinion as regards correct classification of the product in question. Precisely such cases are covered by the provisions of Section 40 of the 'the Act'. Hence even if it is assumed that on account of the erroneous interpretation of the provisions of Central Excise Tariff the petitioner was made to pay excise duty in excess of something which was lawfully payable, it cannot be said that the department has acted with mala fides or that the action of the department was lacking good faith. In view of the aforesaid position of law not only there is no provision for payment of interest but there is contrary provision which protects the Government and its officers in the event of any such erroneous action. In view of this position of law, the order passed by the Assistant Collector refusing to pay interest is eminently just and proper and the same cannot be said to be in any way contrary to law.
8. Realising the aforesaid difficulty the learned counsel for the petitioner submitted that this Court should exercise its power under Article 226 of the Constitution of India which is not controlled by the provisions of Section 40 of the Act. There is some misconception as regards the underlying object of the provisions of Article 226 of the Constitution of India and the purpose for which the powers under Article of the Constitution of India are conferred upon the High Court. Article 226 of the Constitution of India is an extraordinary remedy and confers almost unlimited powers on the High Court. But these powers are conferred to do justice uncontrolled by the procedural shackles and such other formalities. Again, this is an extraordinary remedy. If the ordinary remedy provided under the statute is not sufficient and adequate then only these powers are to be exercised by the High Court. But they are not to be exercised for overriding or for superseding the provisions of ordinary law. Keeping in view this underlying object and the purposes for which the powers are conferred upon the High Court the desirability or otherwise of entertaining petition is required to be examined. Discretionary powers are conferred in order to see that the fundamental rights and other rights of the citizens are enforced. If there is any breach of any of the rights of the citizens, the citizen can pray for any of the writs under Article 226 of the Constitution of India. The phrase "for any other purpose" occurring in Article 226 of the Constitution of India makes the scope of the provision very wide. Even so, the powers are to be exercised by the High Court in aid of justice, i.e. doing justice or to prevent injustice being done to a citizen. In this view of the matter the discretion conferred upon the High Court can be exercised provided the petitioner proves entitlement to the claim. Article 226 of the Constitution does not confer power upon the High Court to make charity or to direct the Government to do charity and pass order by which the loss that may be incurred by businessmen in the course of their business be recouped from the public exchequer. The object of Article 226 is not to ignore the provisions of ordinary law and create a chaotic situation in which a person who is not entitled to any claim under ordinary law may be granted some benefits.
9. No businessman would make payment of excise duty out of his own pocket. In order that the manufacturer can legitimately pass on the burden of excise duty to the consumers provision is made way back in the year 1940 in the Sale of Goods Act, 1930. By amending the provisions of Sale of Goods Act, Section 64A has been inserted and the vendor will be in a position to pass on the additional burden to excise duty, if before the delivery of the goods excise duty is increased. Similarly, the purchaser would be entitled to say that he would pay less amount if the amount of excise duty is decreased. Later on in this section similar provision is made with regard to the amount of sales tax also. This indicates that the legislature is conscious of the reality of the world of business and commerce. It is also settled position of law that the duty of excise is indirect tax or it is a tax on commodity. It is not required to be borne by the manufacturer or the subsequent seller. The burden of it is made to pass on to the ultimate consumer. That is why in economic jargon it is also called commodity tax. This position of law is made clear by the Supreme Court in the case of R.C. Jall v. Union of India, reported in AIR 1962 SC 1281. In view of the aforesaid position of law and having regard to the realities of the world of commerce, one would be acting in unbusiness like fashion if one were to believe that businessmen knowing the ways of the world of commerce would pay excise duty from their own pocket and would not pass on the burden of the same to the subsequent purchaser and ultimately on to the consumers. For doing justice the court is required to go by the realities of life and not by imaginary telltale stories. In view of this ground reality it is difficult to infer that what was paid by the petitioner was not the amount collected by it from its customers and that it was paid from the funds of the petitioner firm. Therefore if the Court were to exercise its power under Article 226 of the Constitution of India for awarding interest it would amount to awarding interest on the amount which did not belong to the petitioner. The petitioner had collected the amount from the customers. The customers were deprived of their amount on account of the mistake committed by the department. For this mistake the petitioner has no right to claim any compensation whatsoever. Therefore the question of exercising discretion in favour of the petitioner does not arise since the petitioner does not establish entitlement to the claim.
10. It is argued by the learned counsel for the petitioner that on account of heavy burden of excise duty it had to take loans from banks and had to pay heavy rate of interest and the petitioner could not withstand the competition in the market and ultimately the petitioner had to close down its unit. It is difficult to believe this story. There may be many reasons for closing down the business. Inefficient management may be one of the main reasons for closing down the unit; labour problems may be another reason; one's own mismanagement or miscalculations may also be a reason. Thus it cannot be said that excess payment of duty was the reason for closing down the business and the loss suffered by the petitioner.
11. Again it may be noted that even if it is assumed for the sake of argument that the action of the Government of unlawful recovery of excise duty was the reason for the hardship and ultimate loss suffered by the petitioner, then also the Central Government cannot be made liable to pay compensation in view of the provisions of Section 40 of 'the Act'. Thus in the world of business one may get wind-fall gain and sometimes one may have to suffer loss also. This is associated with the business, as business always involves element of risk. Business means adventure. It does not mean safe and regular return on capital invested. If there is no risk there is no profit. One who enters the world of business enters the same with open eyes and calculated risk. In some such adventures one may suffer loss. This court at the most may sympathise with such entrepreneurs. But for such loss such unfortunate entrepreneurs cannot make any claim and even if such claim is made the High Court would not exercise its power under Article 226 of the Constitution of India because while exercising such powers in favour of businessmen the court would not be acting in aid of justice or preventing injustice, instead the court may inflict injury on the society and may do effective injustice to the society.
12. Even assuming that we were to decide the case on the basis that suit for claim of compensation is filed, then also the case of the petitioner is not on sound footing. One of the basic principles of awarding of damages in tort is that damages should not be remote. Remoteness of damages is good ground for denial of compensation. To say that the petitioner could not withstand the competition in the open market on account of excess payment of excise duty and the market forces operated in such a way that the profit margin of the petitioner was reduced and thereby the petitioner suffered loss is such a remote cause that the same cannot be directly linked with the alleged unlawful action of excess recovery of the amount of excise duty. Therefore also the petitioner's case for compensation measured in terms of interest cannot be granted.
13. If the legislature intended that on, the amount of excise duty unauthorisedly collected by the Revenue interest should be paid, it would have made specific provision as it is made in the Income Tax Act, 1961. It may also be noted that the Central Excises and Salt Act, 1944 is a complete code. It provides for refund of the amount of duty of excise (see S. 11B of the Act). Similarly it also provides for recovery of the duty of excise in case the amount of duty is short-levied, short-paid, not levied, not paid or erroneously refunded. Be it noted that in case of recovery of duty short-levied, short paid, not levied, not paid or erroneously refunded, there is no provision for charging interest by the Revenue. Thus having regard to the entire provision of 'the Act' and particularly the provisions of Section 40 of 'the Act' it becomes clear that whenever the authority has exercised powers under the Act the claim of interest cannot be sustained even on the principle of justice, equity and good conscience or on any such other ground.
14. Learned counsel for the petitioner has relied upon the decision of the Supreme Court in the case of LIC of India v. Gangadhar Vishwanath Ranade, reported in AIR 1990 SC 195. In that case the question arose as to whether LIC was liable to pay interest for the period after the date of maturity of policy in case of delay in payment. Supreme Court, after considering the provisions of Section 34 of the Civil Procedure Code (5 of 1908) and the provisions of Section 38 of the Insurance Act (4 of 1938) held that the directions given by the High Court to LIC to pay interest at the rate of 15% was eminently just and proper. This decision of the Supreme Court will not be of any help to the petitioner for the simple reason that LIC is doing business in insurance. In case of delayed payment of premium it charges interest. Similarly in case of delayed payment of the amount of policy on maturity, LIC is bound to pay interest to the policy holders. In fact the principal question before the Supreme Court was as regards the rate of interest. The High Court has granted 15% interest considering the same to be reasonable. It was contended that 12% interest should have been awarded and not 15%. In this connection the Supreme Court has inter alia observed as follows :
"We are not impressed by this argument. The High Court has relied on the fact that interest @ 15% p.a. is reasonable, in the present case, particularly in view of the fact that the LIC itself charges interest at that rate. It is sufficient for us to state that there is no material produced, in the present case, to suggest that award of interest @ 15% p.a. is excessive to permit interference with the rate in this appeal particularly when the High Court has come to the conclusion that this is the reasonable rate. This argument also is, therefore, rejected."
For the aforesaid reasons, the decision is of no help to the petitioner.
15. Learned Counsel for the petitioner has relied upon the case of Geep Industrial Syndicate Ltd. v. Union of India, reported in 1990 (47) E.L.T. 311 (All.). In that case the Division Bench of the Allahabad High Court has relied upon the case of LIC (supra) and awarded interest on the excess amount of excise duty unauthorisedly recovered. It was a case in which the petitioner was manufacturing brass barrel. According to the petitioner the article was not excisable at all, while the Department held it to be exigible to excise duty and levied and collected the amount of excise duty thereon. Ultimately the said amount was ordered to be refunded. According to the petitioner he was deprived of the use of that amount during the period from April 11, 1983 to August 26, 1986 and therefore he claimed interest. The learned Judges of the Allahabad High Court relied upon the decision of the Supreme Court in the case of LIC (supra) and inter alia observed that Article 226 grants extraordinary remedy and though it fit to exercise this "flexible power to pass such order as public interest dictates and equity projects".
16. With utmost respect, it is difficult to agree with the view taken by the learned Judges of the Allahabad High Court as regards the question before the Supreme Court in the case of LIC (supra). The question never arose before the Supreme Court even as regards payment of interest. As far as Article 226 of the Constitution is concerned, in our view this extraordinary remedy can be invoked and can be called in aid provided there is some right and the petitioner proves infringement of right or some legal injury. If there is no right, the question of entitlement does not arise. Powers under Article 226 of the Constitution can be invoked and exercised if the entitlement is proved. Thereafter High Court may ignore procedural or technical formalities and may pass appropriate order to see that a person gets what he is entitled to. In absence of proof of entitlement there would be no case for calling in aid the powers under Article 226 of the Constitution of India. In fact the learned Judges of the Allahabad High Court also observed that the remedy under Article 226 is essentially discretionary and founded on legal injury. In case of payment of excise duty, ordinarily businessman does not suffer any injury whatsoever inasmuch as the burden of excise duty is passed on to the consumers. This is the view taken by this High Court in the case of Union of India v. Bharat Vijay Mills, reported in 1988 (35) E.L.T. 88 (Guj.) 1991 (2) 28 GLR page 111. [See also Dhrangadhra Municipality v. Dhrangadhra Chemical Works Ltd., reported in 1988 (34) E.L.T. 605 (Guj.) = 29 (1) GLR 388 and Union of India v. Wood Papers Ltd. reported in 30 (2) GLR 1323]. For these reasons we are unable to persuade ourselves to agree with the view taken by the learned Judges of Allahabad High Court.
17. Learned Counsel for the petitioner has relied upon the decision of the Rajasthan High Court in the case of Swastik Metals v. Union of India, reported in 1990 (49) E.L.T. 45 (Raj.). This is a case in which the same product, i.e. stainless steel patta/patti was in question. It was wrongly classified as falling in Tariff Item No. 26AA(ii). The manufacturer paid duty under protest. However, ultimately the manufacturer succeeded at the highest level, i.e. at the stage of Tribunal under the Act. No reason is assigned as to why the manufacturer should be awarded interest although there is no provision in the Act. There is no reference to the provisions of Section 40 of the Act. In view of this position also we are not in a position to persuade ourselves to agree with the view taken by the Rajasthan High Court.
18. Be it noted that the case of Swastik Metals (supra) before Rajasthan High Court indicates that even in other parts of the country this very article was classified differently. This indicates that it is not that the case of the petitioner has been considered by the department with malice. At any rate this is not a case of lack of good faith, but it is definitely a case of bona fide mistake.
19. Learned Counsel for the petitioner also relied upon the decision of the Bombay High Court in the case of Metal Distributors Ltd. v. Union of India and Others, 1988 (33) E.L.T. 321 (Bom.). It was a case of wrong classification of an article which was imported. Learned Judges of the Bombay High Court had proceeded only on the footing that the amount of customs duty was recovered without authority of law. In view of this conclusion, learned Judges of the Bombay High Court felt that there was no reason why the importer should be deprived of the interest till the date of filing of revision application. In this decision the question whether interest can be awarded even though there may not be any such provisions in the Act has not been considered. Further the question as to whether the importers had suffered injury or not also has not been considered. Provisions of Section 165 of the Customs which is pari materia with Section 40 of the Act have also not been taken into consideration by the learned Judges of the Bombay High Court. For these reasons we are unable to persuade ourselves to agree with the judgment of the Bombay High Court also.
20. Learned Counsel for the petitioner relied upon the judgment of the Delhi High Court in the case of Redihot Electricals v. Union of India, reported in 1989 (43) E.L.T. 253 (Del.). We are unable to persuade ourselves with the judgment of the Delhi High Court for the same reasons that weighed with us while considering the judgment of the Bombay High Court referred to hereinabove.
21. Learned Counsel for the petitioner has relied upon the following two decisions of the Supreme Court :
(1) Devki Nandan Prasad v. State of Bihar and Others, reported in 1983 (2) SLR p. 97; and (2) Ram Pal Singh v. Union of India and Others, reported in 1983 (3) SLR p. 291.
In the aforesaid cases the Supreme Court was concerned with the delayed payment of retirement benefits to the employee. Such cases stand on a different footing. Employee is entitled to his wages on the due date and he is also entitled to terminal benefits on his retirement. These terminal benefits are required to be paid within reasonable time after the retirement. In such cases liability to pay interest arises on account of the provisions of the Interest Act, 1978 inasmuch as the amount of wages as and when it becomes due forms the character of debt. Again, it is a sum certain. In such cases payment of interest is considered as an implied term of contract of employment. If such term is not read as part of the contract of employment no employer would pay the amount of wages and retirement benefits on due dates. In the contract of employment, it is necessary to read the condition of payment of interest as implied term of contract. This is the view taken by a Division Bench of this High Court in the case of Saijpur Bogha Nagarpalika Octroi Karmachari Mandal v. Ahmedabad Municipal Corporation, reported in 1991(2) G.L.H. 186. For these reasons the decisions of the Supreme Court in the case of Devaki Nandan Prasad (supra) and in the case of Ram Pal Singh (supra) are of no help to the petitioner.
22. Learned Counsel for the petitioner relied upon an unreported decision of the Delhi High Court in Civil Writ Petition No. 2422/90. It was a reverse case. In that case the petitioners had obtained stay from the court and withheld the amount of additional duties of excise collected by it. Ultimately the petitioner failed. While passing final order Delhi High Court directed the petitioner to pay the amount of duty together with interest at the rate of 17 1/2 %. This decision is of no help to the petitioner for the simple reason that the petitioner therein had enjoyed protection of the order of the court. While vacating the interim order the High Court directed the petitioner to pay interest because the petitioner had enjoyed the protection of the order of the Court. By doing so the High Court tried to put the parties at the same level as they were before the protection of interim order was granted by the Court. No such eventuality arises in this case. This decision is of no help to the petitioner.
23. Reference was made to a Division Bench judgment of this Court in the case of M/s. Vijay Textile v. Union of India, reported in 1979 (4) E.L.T. (J 181) (Guj.) = 20 GLR p. 944. In that case Division Bench of this High Court had awarded interest in respect of the amount of excise duty which was held to have been collected illegally by the Government. The said decision has been reversed by the Supreme Court in the case of M/s. Ujagar Prints v. Union of India, reported in 1988 (38) E.L.T. 535 (S.C.) = AIR 1989 SC 516. It may be noted that the decision of this High Court in the case of M/s. Vijay Textile (supra) has also been considered in Special Civil Application No. 998 of 1980 decided on March 6, 1991. For the same reasons and particularly for the reason that the decision has been reversed by the Supreme court, it does not survive and therefore it cannot be treated as a valid precedent.
24. In an unreported decision of this Court (Special Civil Application No. 998/1980 decided on March 6, 1991) this Court has taken the view that claim of interest on the ground of tax unauthorisedly collected is not maintainable. While taking this view Division Bench of this High Court has also considered the decision of the Supreme Court in the case of India Cement Ltd. v. Collector of Central Excise, reported in 1989 (41) E.L.T. 358 (S.C.) = AIR 1989 SC p. 1496 and has distinguished the same. In the aforesaid decision the Division of this High Court has referred to and relied upon a decision of the Bombay High Court in the case of Municipal Borough, Ahmedabad v. Vadilal, reported in AIR (31) 1944 Bombay pg. 233. In that case the case question arose before Bombay High Court as to whether the tax payer was entitled to claim refund with interest on the amount of tax illegally recovered. The lower court had allowed the claim of interest made by the tax payer. Beaumont C.J. reversed the judgment of the trial court and held that interest can be claimed only in circumstances provided under the Interest Act. Negativing the contention that interest can be claimed on the principle of justice, equity and good conscience, it is inter alia observed that interest cannot be allowed by way of damages. It may be allowed where there is an agreement for the payment of interest or it is payable by the usage of trade having the force of law. It is also held that the claim of interest would not be maintainable even in tort. Reference was made to Section 206 of Bombay Municipal Boroughs Act, 1925 which protected the Municipality and the officers for actions taken in good faith. While deciding Special Civil Application No. 998 of 1980, the Division Bench of this High Court agreed with the decision of the Bombay High Court. We are also in respectful agreement with the view taken by the learned single Judge of the Bombay High Court. Thus in view of the law laid down by the Bombay High Court and by this Court, claim for damages measured in terms of interest on the amount of tax unauthorisedly collected is not maintainable.
25. There is no substance in the petition. Hence rejected. Rule discharged.