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CASE NO.: Appeal (civil)  1983-1984 of 2004

PETITIONER: Commissioner of Central Excise, Jaipur

RESPONDENT: M/s Birla Corporation Ltd. & Anr

DATE OF JUDGMENT: 25/01/2007

BENCH: Dr. ARIJIT PASAYAT & S.H. KAPADIA

JUDGMENT:

J U D G M E N T

Dr. ARIJIT PASAYAT, J.

Challenge in these appeals is to the judgment rendered  by the Customs, Excise and Gold (Control) Appellate Tribunal,  New Delhi, (for short ’CEGAT’). By the impugned judgment the  CEGAT held that the bar of unjust enrichment does not apply  to claim for refund in cases where original payments of duty  were made under protest.  Accordingly, the orders passed by  the Central Excise Authorities were set aside.

       Background facts in a nutshell are as follows:-

Respondent no.1 was formerly known as M/s. Birla Jute  & Industries Ltd. \026 unit Chittor Cement Works.  It was  engaged in the manufacture of Cement which is classifiable  under Chapter 25 of the Schedule to the Central Excise Tariff  Act, 1985 (in short ’Tariff Act’). It claimed the benefit of rebate  of central excise duty under Notification No.36/87-CE dated  1.3.1987 which was denied by the Department.  Thereafter,  respondent no.1 paid duty at the applicable rates under  protest during the period between March 1987 to March 1990.  Initially, the respondent no.1 was held to be entitled to the  benefit of the notification in terms of the order dated  14.5.1991 passed by the Collector (Appeals), Central Excise.  Respondent no.1 by letter dated 29.5.1991 requested the  jurisdictional Assistant Collector to grant refund in compliance  of the order passed by the Collector (Appeals).  Being aggrieved  by the order of the Collector (Appeals), Revenue preferred an  appeal before the CEGAT which was dismissed.  Authorities  were of the view that respondent no.1 had passed on duty to  the customers and, therefore, notice was issued on 29.4.1994  to show-cause as to why the amount of refund should not be  credited to the Consumers Welfare Fund.  By order dated  20.12.1994, the Assistant Collector, Central Excise Division,  Udaipur, sanctioned the refund claimed but directed that only  a part of it was to be paid to respondent no.1.  The remaining  amount was ordered to be credited to the Consumer Welfare  Fund.  It is to be noted that the total claim of refund was  Rs.9,70,25,847.60 which consists of the following items:-

(i) Excise duty under refund  charged/realized from the

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purchasers. Rs.1,08,60,620.00 (ii) Excise duty under refund  not charged/realized from  the purchasers. Rs.8,60,52,179.00 (iii) Excise duty under refund  borne by the unit Rs.1,13,048.00

       The Assistant Collector, inter alia, held that the  respondent no.1 had failed to prove that the duty incidence  had not been passed on to the customers.  Respondent no.1  filed an appeal before the Commissioner (Appeals), which was  dismissed placing reliance on the decision of this Court in  Mafatlal Industries Ltd. v. UOI [1997 (89) ELT 247 SC]. It was  held that principle of unjust enrichment would apply to the  present case, since respondent no.1 had passed on the  incidence of duty to its customers. Appeals were filed before  the CEGAT by respondent No.1 which relying on the decision  of this Court in Sinkhai Synthetics & Chemicals (P) Ltd. v.  Collector of Central Excise, Aurangabad (2002 (9) SCC 416)  held that the principle of unjust enrichment was not  applicable as amount had been paid under protest.   Accordingly, the appeals were allowed.  In these appeals the  primary stand of the appellant is that the decision in Sinkhai’s  case (supra) has been held to be not properly decided by a  three-Judge Bench in Commissioner of Central Excise,  Mumbai-II v. Allied Photographics India Ltd. (2004 (4) SCC  34).   

       Learned counsel for respondent no.1 on the other hand  submitted that the amount was paid provisionally under Rule  9-B of the Central Excise Rules, 1944 (in short the ’Rules’).  The amendment to Section 11-B of Central Excise Act, 1944  (in short the ’Act’) was made on 20.9.1991. In view of position  prior to amendment, Section 11-B(3) of the Act, was applicable  and  refund was to be granted without an application.  

       Learned counsel for the respondent no.2 has submitted  that pursuant to the orders passed by the Appellate Authority  For Industrial & Financial Reconstruction, New Delhi (in short  ’AAIFR’) adjustments have been made 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.

       By order dated 13.11.2003 as reported in Commissioner  of Central Excise, Mumbai v. Allied Photographics 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 Photographics (speaking  through one of us Kapadia, J.) (2004 (4) SCC 34) held as  follows:-

"(1) 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 adjustment of duty as final

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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(1) 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 1l-B(1), 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 of the 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 20-9-1991 Section 11-B underwent a drastic  change vide 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 duty- bound 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 l1-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-B(5) that refund is on the

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account of the 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 of duty 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 1l-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 Il-B and Rule 9-B operate in  different spheres. Therefore, the respondent was  bound to comply with Section 11-B. In any event,  the application dated 11-2-1997 fell in the category  of refund claim being made after finalization of  assessment of NIIL and, therefore, Section 11-B had  to be complied with in terms of para 104 of the  judgment in Mafatlal Industries Ltd. v. Union of  India  [(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  already stated, Section 11-B dealt with the claim for  refund of duty. It did not deal with making of  refund. Therefore, Section I1-B(3) stated that no  refund shall be made except in terms of Section 11- B(2). Section 11-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  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 what has been stated above, the order of  CEGAT cannot be maintained.   

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 the matter to the Assistant

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Collector to decide this matter.  The parties shall be permitted  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.   

The appeals are accordingly disposed of without any  order as to costs.