COMMISSIONER OF CENTRAL EXCISE v. M-S. BIRLA CORPORATION LTD. & ANR

Citation: [2007] 2 S.C.R. 12

Court: Supreme Court of India

Bench: ARIJIT PASAYAT, S.H. KAPADIA

Case summary

COMMISSIONER OF CENTRAL EXCISE v. M-S. BIRLA CORPORATION LTD. & ANR.pdf

Judgment text

COMMISSIONER OF CENTRAL EXCISE lo MIS. B! RLA CORPORATION LTD. & ANR. JANUARY 25, 2007 [DR. ARlJJT PASAYAT AND S. H. KAPADIA, JJ. ] Central Excise Act, 1944-S. l IB(2)(e)-Unjust enrichment-Bar of- Held, applicable to claim for refund where orir,inal payments of duty were made under protest. The question which arose for consideration in the present appeal is whether CEGAT was justified in holding that the bar of unjust enrichment does not apply to claim for refund in cases where original payments of duty were made under protest. Disposing of the appeal, and remitting the matter to Assistant Collector, the Court HELD: I. I. Section ll-B(2)(e) of Central Excise Act, 1944 conferred a right on the buyer to claim refund in cases where he proved that he had not passed on the duty to any other person. The entire scheme of Section 11-B showed the difference between the rights of a manufacturer to claim refund and the right of the buyer to claim refund as separate and distinct.

Moreover, under Section 4 of the said Act, every payment by the manufacturer whether under protest or under provisional assessment was on his own account. The accounts of the manufacturer are different from the accounts of a buyer (distributor). In view of this, the order ofCEGAT cannot ,. -be maintained. [Paras 7 & 81 [17-E-Gj 1. 2. But the crucial question ! s whether the duty element had been passed on to the customer. This is to be factually adjudicated. [Para 9[ [17-Hj Commissioner of Central Excise, Mumbai II v. Allied Photographies, 12004] 4 sec 34, followed. Ma. fat/al Industries Ltd. v. UOI, (1997) 89 ELT 247 SC; Sinkhai . ( I COMMNR. OF CENTRAL EXCISE r. BJRLA CORPN. LTD (PASAYAT, J] 13 Synthetics & Chemicals (P) ltd. v. Collector ofCentral Excise, Aurangabad, 12002] 9 SCC 416 and Commissioner ofCentral Excise, M;anbai v. Allied Photog•aphics India Ltd. , 12004] 4 SCC 55, referred to. CIVIL APPELLATE JURISDICTION : Civil Appeal Nos. 1983-1984 of 2004.

From the Final Order Nos. 263-264/2002-C dated 5. 12. 2002 ofthe Customs, Excise & Gold (Control) Appellate Tribunal, West Block, New Delhi in Appeal No. E/2009/01-C & E/1654/01-C. >- Mohan Parasaran, A. S. G. , K. Swami, Rekha Pandey and B. Krishna Prasad for the Appellant. Harish N. Salve, Ashok Sagar and Meera Mathur for the Respondent No. 2. S. K. Bagaria, Praveen Kumar for the Respondent No. l. The Judgment of the Court was delivered by DR. ARIJIT PASAYAT, J. I. Challenge in these appeals is to the judgment . - and if the order of the Tribunal is interfered with that may disturb the arrangements made. It has been stated by the respondents that the incidence was not passed on the customers and it has been borne by the assessee and, therefore, Section 11-B of the Act has no application. 7. By order dated 13. 11. 2003 as reported in Commissioner of Central Excise, Mumbai v.

Allied Photographies India Ltd, [2004] 4 SCC 55, doubting the correctness of the view expressed in Sinkhai's case (supra) reference was made to a three-Judge Bench. The three Judge Bench in Commissioner of Central Excise, Mumbai II v. Allied Photographies (speaking through one of us Kapadia; J. ) [2004] 4 SCC 34 held as follows:- "(l) Section 11-B was inserted in the Act w. e. f. 17-11-1980. Under Explanation (B)(e) to Section 11-B(l), where assessment was made provisionally the relevant date for commencement of limitation of six months was the date of adjl)stment of duty as final assessment. Entitlement to refund would thus be known only when duty was finally adjusted. Explanation (B)(e) referred to limitation in cases covered by Rule 9-B which dealt with duty paid under provisional assessment. The said rule started with a non obstante clause. Rule 9- B was a complete code by itself.

On compliance with the conditions therein, the proper officer was duty-bound to refund the duty without requiring the assessee to make a separate refund application. The said rule, therefore, provided for making of refund. On the other hand, Section 11-B(l) dealt with claiming of refund by the person who had paid duty on his own accord. In this connection, Section 4 of the Act is relevant. It dealt with assessment which means determination of tax liability. Under the Act, duty was payable by the manufacturer on his own account. Hence, under Section 11-B( I), such a person had to claim refund by making an application within six months from the relevant date except in cases where duty was paid under protest in terms ofthe proviso. However, even in such cases, the person claiming refund had to pay the duty under protest in terms of the prescribed rules. Thus, Section 11-B(1) refers to claim for refund as against making of refund by the proper officer under Rule 9-B.

(2) On 20-9-1991Section11-B underwent a drastic change v1de Central Excises and Customs Laws (Amendment) Act 40 of 1991 (for short "the Amendment Act"). By the Amendment Act, the concept of unjust enrichment as undeserved profit was introduced. (3) According to Statement of Objects and Reasons for enacting the "" Amendment Act, the Public Accounts Committee had recommended introduction of suitable legislation to amend the Act to deny refunds in cases of unjust enrichment. By the Amendment Act, Section 11- B(3) was amended and clause (e) to Explanation (B) was substituted by a new clause (e). However, although clause (e) as it stood prior to 20-9-1991 dealt with the limitation period in cases of refund of duty paid under provisional assessment, the substantive provision for provisional assessment of duty was Rule 9-B. Therefore, even with the deletion of old clause (e), Rule 9-B continued during the relevant period.

Therefore, Section 11-B (as amended) applied to claiming of refunds where the burden was on the applicant to apply within time and prove that the incidence of duty had not been passed on whereas Rule 9-B covered cases of ordering of refund/making of refund, where on satisfaction ·of the conditions, the officer concerned was dutybound to make the order of refund and in which case question of limitation did not arise and, therefore, there was no requirement on the part of the assessee to apply under Section 11-B. Lastly, Rule 9-B referred to payment of duty on provisional basis by the assessee on )' his own account and, therefore, in cases where the manufacturer is allowed to invoke this rule and refund accrues on adjustment under Rule 9-8(5) that refund is on the account ofthe manufacturer and not on the account of the buyer.

If one reads Section 11-B on one hand and Rule 9-B on the other hand, both indicate payment by the assessee on his own account and refund becomes due on that account alone. (4) The Bench found no merit in the stand that payment ofduty under protest and payment of duty under provisional assessment are both "on-account" payments under the Act. There is a basic difference between duty paid under protest and duty paid under Rule 9-B. The duty paid under protest falls under Section 11-B whereas duty paid under provisional assessment falls under Rule 9-B. That Section 11- B deals with claim for refund whereas Rule 9-B deals with making of refund, in which case the assessee has not to comply with Section 11-B. Therefore, Section 11-B and Rule 9-B operate in different spheres. Therefore, the respondent was bound to comply with Section 11-B.

Jn any event, the application dated 11-2-1997 fell in the category of refund claim being made after finalization of assessment ofNIIL and, therefore, Section I1-B had to be complied with in terms of para 104 of the judgment in Mafatlal Industries Ltd v. Union ofIndia, [1997] .. 5 SCC 536. Since there was failure to comply with Section 11-B, the respondent was not entitled to refund. The basis on which a manufacturer claims refund is different from the basis on which a buyer claims refund. The cost of purchase to the buyer consists of purchase price including taxes and duties payable on the date of purchase (other than the refund which is subsequently recoverable by the buyer from the Department). Consequently, it is not open to the buyer to include the refund amount in the cost of purchase on the date when he buys the goods as the right to refund accrues to him at a date after completion of the purchase depending upon his success in the assessment. Lastly, as .

J, already stated, Section 11-B dealt with the claim for refund of duty. It did not deal with making of refund. Therefore, Section Il-B(3) stated that no refund shall be made except in terms of Section 11-8(2). Section l l-B(2)(e) conferred a right on the buyer to claim refund in cases where he proved that he had not passed on the duty to any other person. The entire scheme of Section 11-B showed the difference between the rights of a manufacturer to claim refund and the right of the buyer to claim refund as separate and distinct. Moreover, under p Section 4 ofthe said Act, every payment by the manufacturer whether under protest or under provisional assessment was on his own account. The accounts of the manufacturer are different from the accounts of a buyer (distributor). " 8. In view of what has been stated above, the order of CEGAT cannot be maintained. 9. But the crucial question is whether the duty element had been passed on to the customer. This is to be factually adjudicated.

We, therefore, remit A the matter to the Assistant Collector to decide this matter. The parties shall be pemiittcd to place materials in support of their respective stand. We make it clear that we have not expressed any opinion as to the effect of the adjudication to be made by the Assistant Collector in the proceedings before the AAIFR. B I0. The appeals are accordingly disposed of without any order as to costs. D. G. Appeal disposed of.