Customs, Excise and Gold Tribunal - Delhi
Collector Of Central Excise vs Decora Ceramics Private Limited on 12 December, 1985
Equivalent citations: 1986(7)ECC58, 1986(24)ELT73(TRI-DEL)
ORDER
G. Sankaran, Vice-President
1. This is an appeal filed by the Collector of Central Excise, Rajkot (hereinafter called the appellant) against the Order-in-Appeal Nos. T-332-333/RKT-27-28/85 dated 31-3-1985, passed by the Collector of Central Excise (Appeals), New Delhi at Bombay, whereby he allowed the two appeals filed by M/s. Decora Ceramics (P) Ltd., Rajkot (the respondents before us) against two orders-No. V-23 B(14) 1/84/MP/REF-CE HI/9078, dated 24-9-1984 and No. V-23 B(4) l-MP/83/1653, dated 11-2-1985-passed by the Assistant Collector of Central Excise, Rajkot. By the first order, the Assistant Collector denied to the respondents the benefit of duty exemption under Central Excise Notification No. 83/83 and rejected the claim for re-fund of duty amounting to Rs. 4,95,509.74. By the second order, the Assistant Collector confirmed a demand for duty amounting to Rs. 4,98,635.73 p from the respondents.
2. The facts of the case, briefly stated, are that the respondents are engaged in the manufacture of China and Porecelainware (Glazed Tiles), falling under Item 23-B(3) of the First Schedule to the Central Excises and Salt Act, 1944, (CET, for short). The unit commenced manufacture on 10-12-83 and clearances of the goods on 20-12-1983 for the first time. The respondents had initially filed a classification list for the goods at the full rate of duty i.e, 40% basic excise duty +5% of the basic excise duty as special excise duty. On 24-12-1983, they filed a declaration to the effect that they were entitled for duty exemption in terms of Central Excise Notification No. 83/83, dated 1-3-1983. They also commenced paying duty under protest and cleared goods worth Rs. 24,92,908.20 (ex-duty) during the year 1983-84. In due course, the respondents filed a claim for refund of the duty paid by them during the said period amounting to Rs. 4, 95, 509.74 p. In reply to the show cause notice issued by the Assistant Collector, the respondents explained that they had started clearances on payment of duty on the presumption that the total clearance value during 1983-84 might exceed Rs. 25 lakhs in view of their production capacity. But, in the light of their experience of a few days, they felt that the said expectation might not be realised. They, therefore, filed a declaration, as per para 3 of Notification No. 83/83, of the likelihood of not exceeding Rs. 25 lakhs of clearances during 1983-84. The said para 3 did not provide any time-limit for filing such declaration. The Assistant Collector held adjudication proceedings on the claim for refund of the duty paid during 1983-84 under protest. The Assistant Collector found that the respondent had cleared goods worth Rs. 24,92,908.20 till 29-3-1984 and thereafter stopped clearances to stay within the exemption limit. The Respondent's contention that they had returned the duty amount of Rs. 1,74,978.08 by way of credit notes to their dealers was repelled by the Assistant Collector on the ground that the credit notes had been issued in the name of 'self depots at Bombay, that even if the respondent's defence that the amount was being passed on to their dealers was accepted, the fact remained that the respondents were retaining to themselves the refund value of Rs. 1,74,978.08, The Assistant Collector said that this would be a clear profit to the respondents, an amount not passed on to the ultimate consumers and, hence, would form part of the price of the goods, duty being payable thereon. With the addition of the refund claim, the value of clearances would exceed Rs. 25 lakhs. On this basis, the Assistant Collector held that the respondents would not be entitled for the exemption in Notification 83/83. The Assistant Collector, therefore, rejected the refund claim by his first order dated 24-9-1984.
3. In the second case culminating in the Assistant Collector's order dated 11-2-1985, the facts, briefly stated, are that, according to the respondents, since they had not exceeded the exemption limit of Rs. 25 lakhs during 1983-84, they were entitled to the benefit of exemption as laid down in Notification No. 83/83 during the year 1984-85, also. The Assistant Collector, however, noted that the respondent's contention that they had not exceeded the exemption limit of Rs. 25 lakhs in 1983-84 had not been accepted by the department and a demand to this effect had already been confirmed. Thus, the question of availing of exemption during 1984-85 did not arise, according to the Assistant Collector. Aside from this consideration, said the Assistant Collector, the respondents had exceeded the exemption limit of Rs. 25 lakhs in April 1984 itself and in view of para 4 of the Notification No. 83/ 83, the benefit of exemption would not be available to them during 1984-85. On this basis, the Assistant Collector confirmed the demand, for duty amounting to Rs. 4,98,635.73 from the, respondents.
4. On appeal, the Collector (Appeals) held that the respondents the appellants before him had produced 'evidence to show that, an amount of Rs. 1,74,978.08 (the duty element) had been transferred by them to their dealers, that there was, therefore, no, justification to add the said amount to the value of clearances on the ground that the benefit was retained by the respondents, that excluding the said amount incorrectly added by the Assistant Collector, the total clearances during 1983-84 remained under Rs. 23 lakhs and that they would be entitled to refund of the duty paid on them. Since the demand for duty for 1984-85 had been confirmed by the Assistant Collector on the premise that the clearances during 1983-84 had exceeded Rs. 24 lakhs and that premise itself was found to be incorrect, the Collector (Appeals) set aside the demand. In short, the Collector (Appeals) directed refund of the duty in the first case and set aside the demand in the second case. It is this order which is now under challenge before us.
5. In the appeal before us, it is contended that the respondent having filed the declaration in terms of para 3 of Notification 83/83 (claiming exemption), should not have recovered the element of excise duty from their customers and paid the same to the exchequer; that their claim that the duty amount of Rs. 4,95,509.74 had been returned to their 25 dealerson 4-8-1984 in anticipation of the sanction of the refund claim cannot be relied upon and that it can at best be considered as an arrangement between interested parties to get a huge amount from the exchequer which was actually contributed by the ultimate consumers, that, in any event, the duty amounts had not been refunded to the consumers and therefore, the duty amounts would form part of the assessable value of the goods. On this basis, it is contended that the Collector (Appeals)'s order directing refund to the respondents is incorrect.
It is further contended that as per para 4 of Notification No. 83/83, when the specified goods have been cleared for the first time on or after the 1st August in the preceding financial year (1983-84 in the present case) the exemption contained in the notification shall not be applicable if the aggregate value of clearances of all excisable goods during the financial year exceeds Rs. 25 lakhs. In the present case, the clearances in April '84 itself exceeded Rs. 25 lakhs. The Collector (Appeals) thus erred in setting aside the demand for duty of Rs. 4,98,635.73 on the mistaken basis that the Assistant Collector had confirmed the demand because the respondent had exceeded the limit of Rs. 25 lakhs in the preceding financial year 1983-84.
6. We have heard Shri G. V. Naik, Joint Chief Departmental Representative for the appellant-Collector and Shri V. J. Taraporevala, Advocate for the respondents.
7. The learned Departmental Representative vehemently urged that the method adopted by the respondents, of paying duty, collecting it from the customers, issuing credit notes for the duty to their dealers-not the customers--and, then, claiming refund of the duty paid was all part of, what he chose to call an accounting mechanism designed to pre-empt or counter legal action. No part of the refund claimed was due to the respondents as that would amount to unjust enrichment. For this, he relied on para 27 of the Gujarat High Court decision in Union of India v. New India Industries Ltd., Baroda 1983 (14) E.L.T. 1763 (Guj). In response to a query from the Bench, Shri Naik stated that he was not aware of any decision on whether this Tribunal could deny relief on this score, if relief was due otherwise. Shri Naik questioned the Collector (Appeals)'s action in relying simply on an affidavit filed by the respondents regarding the return of the duty amounts to the dealers without putting it to proof. In fact, this evidence should have been produced before the Assistant Collector. At this stage, the learned counsel for the respondents objected to this submission since this did not form part of the grounds urged in the appeal, and this submission, as could be seen from the affidavit itself had been made before the Assistant Collector, who, however, did not challenge the submission that evidence was produced before the Collector (Appeals) who accepted the same. In the course of the arguments, the learned Departmental Representative, submitted that he was not pressing ground that he was not pressing ground (ii) urged in the appeal.
As regards the demand for duty for 1984-85, the learned Departmental Representative opposed the Collector (Appeals)'s finding for the reasons spelt out in the memo of appeal.
8. In reply, the learned Counsel for the respondents submitted that the duty initially calculated was refunded to the dealers by the respondents. Therefore, there was no question of illegal collection or unjust enrichment. The department, had not produced any evidence to show that there was a flow-back of the amounts refunded by credit notes from the dealers to the respondents. And, it was no part of the respondent's duty to ascertain whether the dealers had, on their part, passed on the duty amounts to the consumers. The respondents' contracts of sale were with the dealers, not the customers. Explaining the method of the credits notes Counsel stated that the respondents issued credit notes to dealers in territories other than Bombay and to their depots-in Bombay who, in turn, issued credit notes to the dealers. In reply to a query from the Bench, it was submitted that the credit was by sale of goods because there were running credit accounts with the dealers. The Collector (Appeals) had, after examining the evidence produced accepted the respondent's stand.
9. Continuing, Shri Taraporevala submitted that the Tribunal was bound by the statute. Section 11B of the Act did not require that refund of duty should be passed on to the consumer. Even assuming that there was unjust enrichment, so long as it was proved that the clearances in 1983-84 were less than 25 lakhs, the department was bound to refund the duty paid in 1984-85. The Counsel further submitted that Notification 83/83 did not stipulate that the declaration thereunder had to be submitted on the day of the first clearance itself. In the instant case, it was submitted in five days. Relying on the Andhra Pradesh High Court decision in Auric Engineering Pvt. Ltd. v. Assistant Collector of Central Excise and Ors. 1980 E.L.T. 620 (A.P.), he submitted that the claim for refund could be made even after the end of the financial year. Referring to the demand for duty for the year 1984-85, Shri Taraporevala submitted that the duty exemption was admissible in respect of the first clearances worth Rs. 25 lakhs. The term "financial year" in para 4 of the notification had been misconstrued by the Assistant Collector. It referred to the preceding financial year and not the current financial year. In this context, he drew our attention to the Bombay High Court decision in Shankerbhai Trikamdass Patel v. Ranchhodbhai Naraindas-1950 B.L.R. Vol. LIII-172.
10. We have carefully considered the submission before us. At the outset, we would like to say that unlike Courts of law (the High Courts and the Supreme Court) which, in their extraordinary jurisdiction, may decline to grant relief on the ground that it would amount to unjust enrichment of the claimant, this Tribunal, acting within the statute, has no power to deny relief on this ground, if relief is due on the merits of the dispute before it. Central Excise Law does not authorise denial of relief on the score of unjust enrichment nor does it make refund of duty conditional on the relief being passed on to the ultimate consumer.
11. In Union of India v. New India Industries Ltd., Baroda-1983 E.L.T. 1763-The Gujarat High Court held that where recovery of indirect taxes is held unlawful and the manufacturer who has passed on the incidence of the tax to the consumer, succeeds in establishing his case, it is incumbent for the Civil Court to mould the relief suitably and prevent the plaintiff from securing unjust enrichment so that the benefit of the same is restored to whom the money belonged, because it is not he, the manufacturer, who pays the tax but the incidence is passed on to the consumer. We do not see how this judgment would support the learned Departmental Representative's stand that this Tribunal should not direct relief on the ground that it would result in unjust enrichment of the respondent.
12. In the present case, it is seen from the Assistant Collector's order of 24-9-1984 that be had examined the respondent's submission that they bad returned the duty amount to dealers by credit notes. The Assistant Collector, however, noted that credits for Rs. 1,74,978.08 had been issued in the name of 'self depots at Bombay, and, therefore, he held that, even if the respondents' contention that the amount was returned to the dealers was accepted, the aforesaid amount remained with the respondents and thus constituted Clear profit. Of course, he held that the amounts not having been passed on to the ultimate consumers, would form part of the price of the goods and hence, of the assessable value. The Collector (Appeals), it is seen from the impugned order, was satisfied from the evidence produced before him that the aforesaid amount of Rs. 1,74,978.08 had been transferred back to the dealers and he held that the Assistant Collector was not justified in adding the said amount to the value of clearances on the ground that the benefit was retained by the respondents. As submitted by Shri Taraporevala, the Department has not produced any evidence before us, indeed there is not even an allegation, that there has been a flow-back of the duty amounts returned by the respondents to their dealers in the reverse direction. If there was evidence of such nature, the case might have taken on a different aspect. But such is not the case here. No material has been placed before us to warrant modification of the Collector (Appeal)'s finding. On this point which, as seen from his Order, was based on his appreciation of the evidence placed before him when, as noted earlier, the appellant has not produced any evidence in rebuttal.
13. Now para 3 of Notification 83/83, dated 1-3-1983 provides that "Where a manufacturer has not cleared any specified goods in the preceding financial year, or has cleared any such goods for the first time on or after the 1st day of August in the preceding financial year, the exemption contained in this notification shall be applicable to such manufacturer:
(1) if he files a declaration with the Assistant Collector of Central Excise that the aggregate value of clearances of all excisable goods by him or on his behalf, for home consumption, from one or more factories, during the financial year is not likely to exceed rupees twenty-five lakhs, and (2) if the aggregate value of clearances of all excisable goods by him or on his behalf, for home consumption, from one or more factories, during the financial year does not exceed rupees twenty-five lakhs."
In the instant case the specified goods were manufactured from 10-12-1983 arid cleared for the first time on 20-12-1983. In the preceding financial year, there was no manufacture and no clearance. On 24-12-1983, the respondent filed the requisite declaration in terms of para 3 (a). We can find nothing in the express words employed in the notification to suggest that the declaration should be filed on the very first day of the first clearance. It may be that exemption may not be available in the absence of the required declaration. In the present case, the declaration was filed within 5 days, i.e. almost immediately after clearances commenced. We do not see how that this delay of 5 days could come in the way of grant of relief in this case, if it is otherwise due. In the context of this point, Shri Taraporevala referred to the Andhra Pradesh High Court judgment in the Auric Engineering Pvt. Ltd. case (supra) and submitted that the refund claim could be filed even after the end of the financial year. The notification construed in that case was 84/74, dated 1-5-1974 which, unlike the one before us, did not contain a condition, in terms, requiring a declaration. Moreover, in that case, the issue was whether a claim filed at the end of the financial year was barred by limitation. No question of limitation has been raised in the present case. We do not think the cited decision is relevant to the facts of the case before us.
14. In the result, therefore, we uphold the impugned Order in so far as it relates to the refund claimed by the respondents of the duty paid in respect of the clearances made during 1983-84. The respondents are entitled to the refund of this duty amount.
15. Turning to the second aspect, viz. the demand for duty made by the Assistant Collector in respect of the clearances during 1984-85, para 4 of Notification 83/83 reads :-
"Where the specified goods have not been cleared from any factory in the preceding financial year, or have been cleared for the first time on or after the 1st day of August in the preceding financial year, the exemption contained in this notification shall not be applicable if the aggregate value of clearances of all excisable goods from such factory by or on behalf of one or more manufacturers, for home consumption, during the financial year, exceeds rupees twenty-five lakhs."
It is Shri Taraporevala's contention that "the financial years" appearing towards the close of the above para 4 of the notification refers to "the preceding financial year" appearing soon after the commencement of the passage and not the current financial year i.e. the year for which the benefit of the notification is claimed. For this, he relies on the Bombay High Court decision in 1950 BLR (Vol. LIII) 172. The learned counsel was referring us to that part of the Judgment which said:
"Apart from that, the use of the definitive article before "two years" clearly shows that "the two years" which are contemplated are the two years indicated and specified in the sub-section itself and these two years which are indicated and specified are the two years immediately preceding the date of coming into operation of this Act". This was with reference to a provision in the Bombay Agricultural Debtor's Relief Act-
"Who has been cultivating land personally for the cultivating seasons in the two years immediately preceding the date of the coming into operation of this Act or of the establishment of the Board concerned under the repealed Act."
In the context of the said section, it is easy to see the rationale of the Court's decision. However, we have to see the setting in which the phrase "the financial year" occurs in para 4 of the Notification 83/83. As can be seen from the opening passage in the first para of the Notification, it exempts goods cleared for home consumption on or after the 1st day in "any financial year". Paras 3 and 4 lay down certain conditions regarding clearances during the "preceding financial year" for being eligible for exemption during "the financial year". It is clear that the two phrases have not been used synonymously. "The financial year" signifies the year for which exemption is claimed. To be more precise, 1983-84 is the "preceding financial year". Any other view would render paras 3 and 4 meaningless. For, there can be no question of a manufacturer who has not cleared any specified goods in the preceding financial year/a factory from which any specified goods has not been cleared during the preceding financial year, being considered for exemption during the same year. Exemption can only be when there is production and clearance of goods. We are therefore, unable to accept Shri Taraporevala's submission in this behalf.
16. In the above view of the matter, the clearances by the respondent during 1984-85 having exceeded Rs. 25 lakhs, the demand for duty on the goods cleared after availment of the concession in Notification No. 83/83 was correctly made. The Collector (Appeals) has fallen into error in setting aside the Assistant Collector's order on the basis that the clearances in the preceding financial year (1983-84) had been within the Rs. 25 lakhs limit. In respect of manufacturers/factories whose cases are governed by paras 3/4 of the notification, there is an outside limit to the clearances during "the financial year", of Rs. 25 lakhs. The exemption is admissible only if the clearances in "the financial year" do not exceed Rs. 25 lakhs.
17. In the result, therefore, we set aside the Collector (appeals)'s Order in so far as it grants relief by setting aside the duty demand in respect of the clearances made in 1984-85. The respondent is liable to pay the duty demanded.
18. The appeal is disposed of with the above directions.