http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 6  

CASE NO.: Appeal (civil)  3980 of 2006

PETITIONER: Commnr. Of Central Excise, Calcutta

RESPONDENT: M/s. Panihati Rubber Ltd

DATE OF JUDGMENT: 08/09/2006

BENCH: S.B. Sinha & Dalveer Bhandari

JUDGMENT: J U D G M E N T (Arising out of SLP(C)No.17735/2004)

S.B. Sinha, J.

       Leave granted.   

The respondent, which is a Company incorporated and registered  under the Indian Companies Act, manufactures ’Hose Pipe’.  It supplies  goods manufactured by it to the Indian Railways.  The goods are  manufactured in terms of the specifications of the railway administration.   Supplies are, however, made against specific contracts.  The respondents  used to pay 30% basic excise duty and 15% special duty.  The goods came  to be classified under Sub-Heading 4009.92.  The said classification was in  dispute.  The contention of the manufacturers was that it is classifiable under  Sub-Heading 4009.99.  The lis ended in favour of the respondent.  It,  however, obtained clearance of the goods on payment of duties under protest  as the products had been classified under classification 4009.92.  The  respondent filed two applications for refund of Rs.6.30 lakhs, which had  already been paid by way of excise duty.  The said applications were  rejected by the authorities under the Act (Central Excise and Salt Act, 1944)  opining that the same would amount to unjust enrichment.  The respondent  preferred an appeal before the Customs, Excise & Gold (Control) Appellate  Tribunal, which was registered as Appeal No.E/R-79/98.  The question,  which arose before the Tribunal, was : "As to whether the goods supplied to  the railway administration included the element of excise duty?"  The  Tribunal for determining the issue went through the correspondences  exchanged by and between the contracting parties, as also the certificate  issued by the railway administration and held :         "I have perused the records and considered the  rival submissions.  According to the contract, the prices  were inclusive of excise duty.  The subsequent letter  from the railways indicated that no amount was provided  towards excise duty while pricing was worked out.  One  letter specifically stated "E.D.-Nil".  This would suggest  that the price fixed under the contract did not provide for  an element towards the Central Excise duty."

While arriving at the said finding, the Tribunal relied upon its own  judgment in Cimmco Ltd. Vs. Collector of Central Excise, Jaipur [1999  (107) ELT 246 (Tribunal)], wherein it was held :

"We have given careful consideration to the rival  submissions.  The clue to the problem in this case lies in  a proper understanding of the provisions in the work  order particularly with reference to the rates.  There is an  apparent conflict in what is stated in different parts of the  schedule of rates.  Thus, as against a note that the rates

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 6  

are inclusive of all duties, taxes and to and fro handling  charges in one place there is another remark regarding  the rates under the caption condition of contract which is  more elaborate than the earlier referred to sentence.  This  reads as follows :

(1)     Rates

The rates are inclusive of all materials, labour,  equipment, lifts, leads, Sales tax, octroi required in  connection with completion of work to the entire  satisfaction of the Corporation.  All the materials are to  be supplied by the Contractor unless otherwise stated.

(2)     Rates shall be valid till the entire work is  100% complete, and no escalation will be considered at  any stage."

An application for reference was filed by the appellant herein before  the Calcutta High Court.  The Tribunal was directed to refer to the High  Court the following questions:

"(i)    Whether or not the bar of unjust enrichment will  be attracted in a case where duty has been passed on to  the buyer of goods not separately as duty but by inclusion  in the price as one component of the same?

(ii)    Whether the Learned Tribunal was justified in  holding that the bar of unjust enrichment would not be  attracted when the price is inclusive of duties and taxes  following the case of CIMMCO Ltd. Reported in 1999  (107) ELT 246 (Tribunal)?  

(iii)   Whether the Hon’ble Tribunal was justified in  passing the order ignoring the principles of law laid down  in the case of Mafatlal Industries reported in 1997 (89)  ELT 247 (SC) and the findings of the department  indicated in the order in original?"     

The High Court, by its impugned judgment, affirmed the findings of  the Tribunal, holding :

"Having regard to the definite view expressed by  the learned Tribunal that the bar of unjust enrichment  was not attracted in the instant case the questions as  framed in our view do not require any answer since we  agree that having paid the excise duty under protest and  there being a subsequent finding that no excise duty was  payable in respect of the goods, the respondent company  was entitled to refund and there was no question of unjust  enrichment in the instant case."

Mr. Harish Chander, learned Senior Counsel appearing on behalf of  the appellant submitted that \026

(i)     The Tribunal and consequently, the High Court committed an  error in passing the impugned judgment in so far as they failed to take into  consideration that the question, ’As to whether the price included excise  duty or not?’, was a comprehensible one, having regard to the terms of the  contract.   

(ii)    Subsequent correspondence by and between the respondent and  the railway administration were wholly irrelevant.  

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 6  

Mr. K.V. Vishwanathan, learned counsel appearing on behalf of the  respondent, on the other hand, contended\026

i)      The findings of the Tribunal being findings of fact, this Court  should not interfere therewith.  ii)    The question as to whether the assessee has passed on the  element of excise duty to its customers, being essentially question of fact,  this Court may not exercise its jurisdiction under Article 136 of the  Constitution of India.  

It is now well settled that despite levy of excise duty in a given  situation being held to be illegal, in the event it is found that the assessee in  fact passed on the burden of excise duty to its customers, applying the  principle of unjust enrichment, the Court would not ordinarily direct refund  thereof.          

The question whether the excise duty had been passed on to the  consumer, however, is essentially a question of fact.  It is not in dispute that  prior to 1993 goods were being classified under the Sub-Heading 4009.92 of  the Schedule appended to the Central Excise Tariff Act, 1985 attracting  @30% advalorem as basic excise duty and 15% as special basic duty.  It is  furthermore not in dispute that the Bombay High Court in the case of M/s.  Rubber Products Ltd. vs. Union of India, reported in 1992 (43) ECR 520  held :

"The duty was recovered from the Company on  the basis that the product manufactured attracts sub- heading 4009.92 of the Tariff and that was the basis of  order passed by the Assistant Collector.  The order of  the Assistant Collector was set aside by the Appellate  Collector and it was ordered that the duty is payable  under sub-heading 4009.99 of the Tariff.  The order of  the Appellate Collector has acquired finality and,  therefore, excess duty recovered by the Department is  liable to be refunded."       In this case also, the respondent had, in view of the decision rendered  by the excise authorities as affirmed by the High Court in M/s. Rubber  Products Ltd. (supra), filed a revised classification list.  It is only during the  pendency of the said application it received four orders from the Railway  Administration.  The prices fixed for the goods were as under :

"Order Date                             Price per unit   16.02.1993                            Rs. 48.90 p.   18.02.1993                            Rs. 46.90 p.   06.04.1993                            Rs. 47.90 p.   10.05.1993                            Rs. 48.65 p."

The excise duty was specified as ’Nil’ in the order dated 10th May,  1993.  So far as the order dated 6th April, 1993 is concerned, no excise duty  was specified.  However, in the order dated 16th February, 1993 a stipulation  was made by the Railway Administration that the price was inclusive of  duty, with a view to avoid the claim made by the respondent at a later stage  on the ground that a duty had to be paid.  It is also not in dispute that  clarifications were obtained by the respondent from the Railway  Administration specifically in this behalf.  The railway administration by its  letter stated :

"Assistant Controller                Controller of Stores        Central Excise Department               N. Rly. Khardah Division                                Bonda House         4,Barabourne Road                       New Delhi.         Calcutta-700 001         Sub : This Office Purchase order of 07938759101595                 Dt. 10.5.93 for the supply of Hose Pipe VB-504/

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 6  

               M Fix 10,000.                                                    Ref :   Firm Letter No.BPE/Sales/M2 (19-D-11-7-01).

       This Office Purchase order 07923259101595 dated  10-5-93 for the supply of Hose Pipe VB-504/M @Rs.  48.65 each and 4/CST \026 E.DC Nil Spare copy of the  same enclosed for your ready reference :-

                                               Sd/- Illegible                                         For Controller of Stores"          A certificate was also issued by the Railway Administration on  26.9.1994 stating :         "This is to certify that M/s. BAJORIA RUBBER  INDUSTRIES LIMITED, CALCUTTA had supplied the  full quantity of 7,000 Nos. of Vaccum Hose Pipe VB- 504/M at Rs.48.90 each (inclusive of Excise Duty) plus  CST 4%.  It is confirmed that the firm has supplied the  materials at the ordered rate and payment has been  arranged at contracted rate which was always payable  irrespective of the Central Excise Duty rate being NIL or  otherwise.  No separate payment has been arranged for  actual CED."

In a letter dated 18.7.1995, the Eastern Railway Administration  furthermore contended as under :

"To                                             Dated 18.7.95.  

The Assistant Collector Central Excise Khardah Division, 4, Braboune Road, Calcutta-700001.

Dear Sir,

Sub:    Purchase from M/s. Bajoria Rubber       Industries Ltd. 27, Bentinck Street Calcutta-1.

Ref:    Letter No. i) Case No.V(18)\026KDH/BRU/94/                                    2600 dt. 21.6.95.                                                         ii) Case No.V(18) 1\026KDH/BRU/  94/57 dt.4.1.95.                                  In case of Purchase order No.11/98/23/4/1/81288  dated    .4.93, the rate was Rs.47.90 each and WBST @  4.6% extra, Ex. duty not mentioned in the said P/O  payment was made to the diem as purchasers of the P/O.

In case of P.O. No. 11/93/2313/1/78290 dated  18.2.93, the rate was Rs. 46.90 each inclusive of Excise  duty and WBST @ 4.6% extra.  Payment made  accordingly."          

       If the price for supply of Hose Pipes in respect of the contract dated  10th May, 1993 being @ Rs. 48.65p. did not include the element of excise  duty, the same being ’Nil’, the Tribunal may be correct in its opinion that the  question of excise duty having been passed by the respondent to the Railway  Administration would not arise.  In respect of the other three orders, wherein  the rates quoted was Rs.46.90p., Rs.47.90p. and Rs.48.65p. also the said  question would not arise as the rate included the element of excise duty.

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 5 of 6  

  The respondents, in our opinion, rightly contended that as the Central  Excise Authorities were unwilling to accept the classification under the Sub- Heading 4009.99 with ’Nil’ rate of duty, they had no other option but to  clear the said goods upon payment of duty under protest, wherein they were  required to compute the value in terms of Section 4(4)(d) of the Central  Excise Act, 1944.   

The respondent, in his counter affidavit, categorically stated :  

".....According to the said provision, the value on which  duty was payable did not include the amount of excise  duty payable.  Accordingly, though the contract price did  not include any amount on account of duty, the  respondent had to deduct from the contract price the  amount of duty it was required by the Central Excise  Authorities to pay under sub-heading No. 4009.92 in  order to arrive at the value and the amount paid under  protest was worked out accordingly.  In the Central  Excise gate-passes in form No. GP-1 and the Central  Excise price-lists filed under rule 173C of the Central  Excise Rules, 1944 (hereinafter referred to as "the  Rules"), the respondent mentioned the assessable value  and duty in accordance with the provisions of Section  4(4)(d)(ii) by breaking up the contract price although the  same did not include any amount on account of excise  duty.  In the invoices raised on the Railways, the  respondent mentioned the contract-price without any  break-up.  In this connection, specimen copies of excise  gate-passes in form GP-1 and corresponding invoices  raised on the Railways are annexed hereto and  collectively marked "D"."

It is well settled that the findings of fact arrived at by the Tribunal  should ordinarily be accepted by this Court.  It is not the case of the  appellant that while arriving at its finding that the respondent had not passed  the amount of excise duty, the Tribunal had not considered all relevant facts.   The contention of the appellant herein that the railway administration  colluded with the respondent herein in issuing the aforementioned letters and  certain certificate is, in our considered opinion, wholly misconceived.  We  have no hesitation to reject the same.   

Our attention has been drawn to a decision of this Court in  Commissioner of Central Excise, Mumbai-II vs. Allied Photographics  India Ltd. [(2004) 4 SCC 34], wherein this Court opined that the doctrine of  unjust enrichment would be attracted, although, the duty might have been  paid under protest.  In that case the manufacturer has passed on the burden  of duty to the distributor.  The question, therefore, which fell for  consideration was : "Whether the distributor in turn passed on a duty burden  to its dealers?"  It was in the said factual matrix held :

"\005\005.It is important to note that M/s AGIL was the sole  distributor of NIIL.  Therefore, it is highly improbable  for a distributor to incur cost of purchase which included  20% element of duty in addition to the purchase price  without passing on the burden to its dealers. From the  record it appears that during the disputed period 1974 to  1984, M/s AGIL was in trading which further supports  the above improbability. In the present case, there is no  material placed on record by M/s AGIL as to how it had  accounted for the cost of purchase in its books and the  accounting treatment it gave to the said item at the time  of payment of the purchase price. No record as to costing  of that item has been produced. This material was  relevant as in the present case NIIL conceded that it had

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 6 of 6  

passed on the burden of duty to its distributor M/s AGIL  (buyer) and it was the buyer who claimed refund. It has  been urged on behalf of the respondent and which  argument has been accepted by the authorities below that  20% of the total price paid by M/s AGIL to NIIL  represented total excess excise duty levied and not the  excess duty collected by NIIL in the form of sale price  from its distributor M/s NIIL. It was argued that excess  duty collected by NIIL represented only 1.62% of the  total price. It was argued that resale price charged by M/s  AGIL to its dealers had no relevance to excess excise  duty paid by M/s AGIL to NIIL at the time of purchase  as the sale price charged by M/s AGIL to its dealers was  based on the prevailing market price. We do not find any  merit in this argument. In the present case, the refund  claim is made by a buyer and not by the manufacturer.  The buyer says that he has not passed on the burden to its  dealers. The buyer has bought the goods from the  manufacturer paying the purchase price which included  cost of purchase plus taxes and duties on the date of  purchase. In such cases, cost of purchase to the buyer is a  relevant factor. None of the authorities below have  looked into this aspect. Even the Appellate Tribunal has  not gone into this relevant factor. It has merely quoted  the passages from the order of the lower authority, whose  order was impugned before it. Costing of the goods in the  hands of the distributor, the cost element and the  treatment given to purchases by the buyer in his own  account were relevant circumstances which the  authorities below failed to examine. It was submitted that  cost of purchase was not a relevant factor. It was  submitted on behalf of the respondent that the resale  price charged by the buyer was not a relevant factor. It  was submitted that since the sale price of the goods  before and after the assessment remained the same, the  burden of excess duty was absorbed by the respondent. It  was submitted that in any event the sale price of the  goods increased much less than the amount of duty  (differential) involved in this case and, therefore,  incidence of duty was not passed on to the consumers." The said decision, therefore, was rendered on its own facts.  We,  however, as noticed hereinbefore, are not in a position to agree with the  contention of the appellant that the finding of fact arrived at by the tribunal  is based on no material.   

There is, thus, no merit in this appeal.  It is accordingly dismissed.   The appellant is directed to comply with the Tribunal’s order within four  weeks from today.  The appellant shall bear the costs of the respondent  which is assessed at Rs.10,000/-.