Case: Garware Polyester Limited & Another Vs. Union of India & Others

R.M.S. Khandeparkar, J.1. Heard. Perused the records. The rejection of refund claim is sought to be challenged as being contrary to the directions issued by this Court in its order dated 7-12-1990 in Writ Petition No.3040 of 1982 as well as the law laid down by the Apex Court in the matter of Mafatlal Industries Limited & othes v. Union of India and others, reported in (1997) 5 SCC 536 , while challenging the legislative competency and the constitutional validity of the provision of law contained in Section 11B of the Central Excise and Salt Act, 1944.2. The petitioners have their factory at Aurangabad for manufacturing polyester films in their factory at Aurangabad and such films are metallised or lacquered at their factory at Nasik. A question arose whether the process of metallising or lacquering of the manufactured polyester films amounted to manufacture under the provisions of Section 2(f) of the Central Excise and Salt Act, 1944, hereinafter called as the said Act and in the Writ Petition No.3040 of 1982 the Division Bench of this Court held that the activity of metallising and/or lacquering of the already manufactured polyester films did not amount to manufacture within the meaning of the said expression under the said Act. Consequently, the said petition was allowed by its judgment dated 7-12-1990 in terms of prayer clauses (a) and (b) of the said writ petition. The prayer clause (a) related to quashing of the orders passed by the assessing authorities and the prayer clause (b) included direction for refund of the excess duty paid from 20-2-1982 under protest on the lacquerated and/or metallised and/or laminated films at the petitioners factory at Nasik. It was also directed that the refund should be made within a period of ten weeks from the date of the said judgment failing which the refund was to carry interest at the rate of 12% p.a. from the expiry of the said period. Along with a letter dated 31-1-1991 the petitioners forwarded a certified copy of the said judgment to the second respondent for the purpose of refund of the amount paid under protest during the period from 1-3-1982 to 30-4-1982 amounting to Rs.20,90,354.10 ps. And for further period from 1-5-1982 to 11-7-1982 amounting to Rs.13,07,038.71 ps., thus totaling to Rs.33,97,392.81 ps. Under a letter dated 15-2-1991 the third respondent called upon the petitioners to submit the refund claim in an appropriate proforma along with the relevant documents supporting the refund claim. In reply thereto, the petitioners by their letter dated 18-2-1991 filed a refund claim for the said amount of Rs.33,97,392.81 ps. Under letter dated 19-2-1991, the third respondent called upon the petitioners to report whether the refund amount claimed by them was already recovered from the customers or not. In reply, under letter dated 19-2-1991 the petitioners informed the third respondent that the petitioners did not charge excess duty from the customers as their price was the total price to the customers. By further letter dated 21-2-1991, the third respondent called upon the petitioners to submit copies of the respective invoices for the period under reference in relation to the refund claimed, along with the balance sheet. Same was furnished by the petitioners along with a letter dated 25-2-1991. Further by letter dated 25-3-1991 addressed to the respondent No.2. the petitioners sought to point out that in terms of the judgment dated 7-12-1990 of the High Court, the respondents were required to refund the excise duty within ten weeks and as the said period had already expired, the respondents were required to expedite the refund of the amount. Reminders were sent thereafter on 30-12-1991 as well as on 6-1-1992. Further the petitioners sought to draw the attention of the respondents to the judgment of the Calcutta High Court in the case of M/s. Titaghar Paper Mills Co. Ltd., reported in 1992 (57) E.L.T. 527 under a letter dated 20-2-1992. However, by his letter dated 16-11-1992 the respondent No.2 informed the petitioners that consequent to the decision of the Apex Court in the matter of Union of India v. Jain Spinners Limited, reported in 1992 (61) E.L.T. 321, the amendment brought about to the said Act in terms of the provisions of law contained in Section 11B has retrospective effect and therefore the petitioners were required to produce documentary evidence showing that the duty for which the refund was claimed was not recovered by them from their customers. The petitioners were thereafter personally heard in the matter and by order dated 23-6-1993, relying upon the decision of the Apex Court in Jain Spinners case (supra), the second respondent rejects the refund claim of the petitioners and ordered that the amount be credited to the Consumer Welfare Fund under Section 11B of the said Act. The petitioners preferred appeal before the third respondent being Appeal No.278 of 1993 which came to be rejected on 24-4-1995. The petitioners have therefore preferred the present writ petition.3. As regards the challenge to the legislative competency and the constitutional validity of Section 11B of the said Act, the same does not survive any more in view of the decision of the Apex Court in Mafatlal Industries case (supra) and the same has been fairly conceded by the learned Advocate for the petitioners.4. As regards rejection of the refund claimed, it is the contention of the petitioners that this Court by its judgment dated 7-12-1990 had directed the respondents to refund the said amount within a specified period and had further directed that in case the refund is not made within the specified period, then it would carry interest at the rate of 12% p.a. and there was no appeal filed against the said judgment and it had attained finality for all purposes. Being so, the respondents were obliged under the law to refund the amount in accordance with the said judgment of this Court. It is their further contention that in view of the said decision, it is apparent that the respondents collected the duty under mistake of law and considering the unamended provision of Section 11B(3) of the said Act which was in force at the relevant time, the petitioners were entitled for refund of the said amount without even applying for refund in that regard. Being so and considering the fact that the order for refund had attained finality prior to coming into force of the amended provision of Section 11B, it was not a case of pending refund application on the date of enforcement of the amended provision of Section 11B and therefore the concept of unjust enrichment could not have been applied to the case in hand. It is their further case that in the facts and circumstances of the present case, the decision of the Apex Court in Jain Spinners’ case has no application and the matter is squarely covered by the decision of the Apex Court in Mafatlal Industries’ case as well as in Union of India v. ITC Limited, reported in 1993 (67) E.L.T. 3. On the other hand, it is the contention of the respondents that the proceedings for refund were not concluded finally and unconditionally on the day or prior to the enforcement of the amended Section 11B and they were still pending on the said day. According to the learned Advocate for the respondents, the refund proceedings would attain finality or would get finally terminated only upon unconditional and on actual payment of the refund amount, and not otherwise, and that, according to him, is clear from the rulings of the Apex Court in Mafatlal Industries case as well as ITCs case (supra).5. Plain reading of the impugned order disclose that the claim for refund was rejected solely on the basis of the decision of the Apex Court in Jain Spinners case. It cannot be disputed that the point regarding retrospective applicability of the amended provision of Section 11B has been well-settled pursuant to the decision of the Apex Court in Mafatlal Industries case. While dealing with the meaning and scope of the amended Section 11B, the Apex Court in Mafatlala Industries case rejected the contention on behalf of the assesses that the provision of the amended Section 11B would not be applicable to the refund claim arising as a consequence of the appellate or superior Courts order passed prior to the enforcement of the amended Section 11B and in that regard it was observed that:-"Such a holding would run against the very grain of the entire philosophy underlying the 1991 Amendment. The idea underlying the said provisions is that no refund shall be ordered unless the claimant establishes that he has not passed on the burden to others. Sub-section (3) of the amended Section 11-B is emphatic. It leaves no room for making any exception in the case of refund claims arising as a result of the decision in appeal/reference/writ petition. There is no reason why an exception should be made in favour of such claims which would nullify the provision to a substantial degree."6. While rejecting the contention that the amended Section 11B is prospective in operation and cannot be applied to pending proceedings, it was observed that:-"It is difficult to agree with the propositions in the light of the specific and clear language of the first proviso to sub-section (1). The first proviso expressly declares that where an application for refund has been made before the commencement of the Central Excise and Customs (Amendment) Act, 1991, such application shall be deemed to have been made under this sub-section as amended by the said Act and the same shall be dealt with in accordance with the provisions of sub-section (2) substituted by that Act”. In the fact of this proviso, it is idle to contend that sub-sections (1) and (2) of Section 11-B do not apply to pending proceedings."It was further ruled that:-"They apply to all proceedings where the refund has not been made finally and unconditionally. Where the duty has been refunded under the orders of the court pending disposal of an appeal, writ or other proceedings, it would not be a case of refund finally and unconditionally, as explained in Jain Spinners and I.T.C. It is, of course, obvious that where the refund proceedings have finally terminated in the sense that the period prescribed for filing the appeal against such order has also expired before the commencement of the 1991 (Amendment) Act (19-9-1991), they cannot be reopened and/or be governed by Section 11-B(3) [as amended by the 1991 (Amendment) Act]. This, however, does not mean that the power of the appellate authorities to condone delay in appropriate cases is affected in any manner by this clarification made by us."7. While dealing with the said issue of retrospective applicability of Section 11B and particularly the sub-section (3) thereof, the Apex Court has also held thus:-"The obligation to prove that duty had not been passed on to another person is always there as a precondition to claim of refund. It cannot also be said that by giving retrospective effect to Section 11-B, any vested rights of substantive rights are being taken away. The deprivation, if at all, is not real. The manufacturer has already collected the duty from his purchaser and has thus reimbursed itself. By applying for refund yet, he is trying to reap a windfall; deprivation of that cannot be said to be real or substantial prejudice or loss. A manufacturer has no vested legal right to refund even when he had passed on the burden of duty to others. No law conferred such a right in him not Article 265, nor Section 11-B. It was only on account of an incorrect view of law taken in Kanhaiya Lal (AIR 1959 SC 135 ) and that cannot be treated as a vested legal right. Correction of judicial error does not amount to deprivation of vested/substantive rights, even though a person may be deprived of an unwarranted advantage he had under the overruled decision."8. The Apex Court has also ruled in Mafatlal Industries case that:-"Section 11-B applies to all pending proceedings notwithstanding the fact that the duty may have been refunded to the petitioner/plaintiff pending the proceedings or under the orders of the Court/Tribunal/Authority or otherwise. It must be held that Union of India v. Jain Spinners and Union of India v. ITC have been correctly decided. It is, of course, obvious that where the refund proceedings have finally terminated in the sense that the appeal period has also expired before the commencement of the 1991 (Amendment) Act (19-9-1991), they cannot be reopened and/or governed by Section 11-B(3) [as amended by the 1991 (Amendment) Act]. This, however, does not mean that the power of the appellate authorities to condone delay in appropriate cases if affected in any manner by this clarification made by us.Section 11-B does not provide for the purchaser making the claim for refund provided he is able to establish that he has not passed on the burden to another person. It, therefore, cannot be said that Section 11-B is a device to retain the illegally collected taxes by the State. This is equally true of Section 27 of the Customs Act, 1962.”9. The Apex Court, therefore, has clearly held that the decisions in Jain Spinners as well as in ITC were correctly decided.10. As far as the decision in the matter of Jain Spinners is concered, it would be appropriate to take note of the facts of the said case and the law laid down by the Apex Court by the said decision. Therein, Jain Spinners were served with a show cause notice dated 12-7-1984 requiring to show cause as to why their product was not to be classified under the Tariff Item No.18III(ii) as they had misdescribed and misstated the product. The said show cause notice was sought to be challenged in the writ petition which was rejected by the High Court. Thereafter in the adjudication proceedings six show cause notices came to be issued for different amounts together totaling to Rs.1,10,81,405.95 ps. And by order dated 28-8-1985 the Assistant Collector, Central Excise, confirmed the said amount and further imposed penalty of Rs.500/-. The company sought to challenge the said order in Writ Petition No.810 of 1985, simultaneously filing appeal under Section 35 of the said Act being Appeal No. 1424 of 1985 before the Collector of Central Excise (Appeals), Bombay. When the petition came up for hearing before the High Court on 20-11-1985, while issuing rule, interim stay was granted to the impugned order on condition that the company was required to deposit an amount of Rs.56 lakhs and to give bank guarantee for further clearance regarding the disputed duty while paying the admitted amount of duty. By further order dated 19-2-1986 the Government was allowed to withdraw the amount deposited by the company on condition that the Government would be liable to pay interest at the bank rate and refund the amount along with interest within two months of the decision in the writ petition in case the company succeeds ultimately in the petition. The appeal filed by the company before the Collector of Central Excise (Appeals) came to be allowed by order dated 19-4-1991. On 31-5-1991 the company filed application for refund of Rs.56 lakhs along with interest thereon to the tune of Rs.51,44,202.73 ps, at the bank rate being the interest amount upto 31-5-1991. The said application was filed before the Assistant Collector, Central Excise, Aurangabad Division. During the pendency of the said application, the company approached the High Court on 25-6-1991 in Civil Application No.2061 of 1991 seeking relief in the nature of disposal of the writ petition consequent to the setting aside of the impugned order by the Collector of Central Excise (Appeals) and for further direction to pay the sum of Rs.56 lakhs with interest thereon at the rate of 17.5% p.a. within two months to the company. The application was resisted on behalf of the Government contending that the company had already recovered the duty in question from others and that therefore they would not be entitled for refund. The High Court by its order dated 19-9-1991 allowed the application of the company permitting withdrawal of the writ petition while observing that the ground of unjust enrichment could not be considered at that stage since the interim order of 19-2-1986 where under the Government was permitted to withdraw the amount deposited by the company in the High Court was subject to condition that the Government would be liable to pay interest at the bank rate and refund the amount with interest within two months in case the company succeeds ultimately in the matter. On the very next day i.e., 20-9-1991 the Central Excise and Customs Laws (Amendment) Act, 1991 came into operation making the amended provision of Section 11B applicable with retrospective effect to all pending claim for refund of duty. Consequent thereto the Union of India took the stand that irrespective of the order of the High Court dated 19-2-1986 or 19-9-1991 it was the duty of the Assistant Collector to satisfy himself that no part of the duty in respect of which refund was claimed was recovered by the company from other person before making any order of refund and therefore on 16-11-1991 the Government filed an application being Civil Application No.3553 of 1991 seeking leave of the Court to consider the application for refund in accordance with the amended provision of Section 11B of the said Act. Simultaneously the company also filed an application for contempt proceedings making grievance about non-compliance of the order of the High Court by the Government. The High Court by its order dated 19-2-1992 rejected the application filed by the Government being Civil Application No.3553 of 1991 holding that in view of the order dated 19-9-1991 passed by the Division Bench while disposing the main Writ Petition No.810 of 1985, the application was to be rejected. The contempt application filed by the company came up for hearing on 18-3-1992 and while disposing the same the High Court while taking note of the submission on behalf of the Government that the question regarding the application of the Central Excise and Customs Laws (Amendment) Act, 1991 was under consideration of the Government and therefore it required four weeks time, adjourned the matter for four weeks. On 13-4-1992 the Assistant Collector, Central Excise passed a detail order holding that since the company had passed on the incidence of duty to others, they were not entitled for refund of the amount of Rs.56 lakhs or the interest thereof and rejected the claim for refund. Thereafter in the contempt proceedings the High Court holding that the decision of the Assistant Collector was not the decision of the Government on the point of applicability of the amended provisions of the Act and since the Government had not conveyed its decision in that regard within four weeks as was directed under the order dated 18-3-1992-directed the Government to deposit the entire amount of Rs.56 lakhs together with bank interest thereon on or before 24-4-1992. The matter thereupon was taken up before the Apex Court.11. From the facts of the Jain Spinners case narrated above, it is clear that the judgment regarding entitlement of refund of the amount was finally decided in favour of the company by the Collector (Appeals) on 19-4-1991. There was no appeal filed against the same by the Department. In other words, for all purposes the order of the Collector (Appeals) had attained finality much before the day the amended provision of Section 11B came into force (20-9-1991). At the same time, it is also to be noted that the amount which was deposited by the company in the Court during the pendency of the writ petition and which was withdrawn by the Government was towards the duty which was assessed by the Assistant Collector, Central Excise. In the background of the facts of the said case, the Apex Court held that:-"Since we are of the view that the order of 19-2-1986 attracts the provisions of sub-section (3) of Section 11B of the Act which has come into force on 20-9-1991, the respondents are not entitled to take advantage of the said order unless they succeed in showing to the statutory authorities that they had not passed on the whole or any part of the duty in question to others."12. The analysis of the facts of the decision in Jain Spinners case and the ruling by the Apex Court therein clearly disclose that it was in relation to the excise duty payable by the assessee which was assessed by the Assistant Collector on 28-8-1985 and the amount payable thereunder was paid by the assessee-company in the year 1986 which was held to be refundable to the company by order dated 19-4-1991 and this order of 19-4-1991 had attained finality the prior to coming into force of the amended provision of Section 11B of the said Act. Even the application for refund in accordance with the said order of the Collector (Appeal) was filed by the company on 31-5-1991. Taking note of all these facts, as already observed above. The Apex Court in no uncertain terms held that The High Courts order of 19-2-1986 under which alone the refund was claimed could not be an exception to the said provisions nor could the High Court have made such order after 20-9-1991 directing the payment contrary to the said provisions. and further held the order of 20-4-1992 to be wholly unwarranted and band in law.13. The decision of the Apex Court in Jain Spinners read with the decision in Mafatlal Industries wherein the Apex Court has held that the matter in Jain Spinners was correctly decided, while simultaneously ruling that the provision of Section 11B, as amended, would apply to all the proceedings where the refund has not been finally and unconditionally made. It is apparent that the finality spoken of relates to conclusive termination of the refund proceedings. This is also apparent from the ruling of the Apex Court in the case of Mafatlal Industries wherein it has been held that where refund proceedings have been finally terminated. The finality spoken of is essentially and directly related to the factum of refund. The proceedings regarding the refund cannot be said to have been concluded or terminated unless the amount repayable as refund is actually paid without any reservation by the department. It would not attain finality to the act of refund unless the actual payment is made unconditionally. Indeed, otherwise the purpose is made unconditionally. Indeed, otherwise the purpose behind the amended Section 11B would be defeated. It is also apparent that the concept of finality or termination of the refund proceedings has been clarified by the judicial pronouncements bearing in mind that it is necessary to put an end to those cases wherein refund has already been paid prior to coming into force of Section 11B and in those cases they should not be allowed to be re-opened. Otherwise, it would have led to a chaotic situation resulting in harassment and great prejudice to the manufacturers.14. In ITC Limiteds case, the contention of the company was that under a mistake of law regarding the true interpretation of Section 4(a) of the said Act, it had cleared its product and had paid excess excise duty under the impression that the price charged by the wholesale dealers to the secondary wholesalers would from the correct basis of assessment and not the price at which the goods were sold to the wholesale dealers. Two application pertaining to the period from 1-9-1976 to 28-5-1971 and 1-6-1971 to 19-2-1972 involving refund of Rs.23,68,686.85 and Rs.26,21,356.16 respectively came to be filed along with three other applications relating to the period from 20-2-1972 to 28-2-1973. All the five applications were rejected by the Assistant Collector by his order dated 9-10-1973. In the appeals preferred by the company, the Collector (Appeals) allowed the appeals by order dated 30-2-1975 in relation to three revision applications pertaining to the period 20-2-1972 to 28-2-1973 granting consequent relief in favour of the company directing refund of the excess excise duty. While rejecting the other two applications on the ground of bar of limitation. The company filed Writ Petition No.971 of 1976 against the order of rejection of the appeals and the Division Bench of the Delhi High Court considering that on account of mistake of law excess excise duty was paid by the company and received by the department, held that the Government was under legal obligation to return the same to the company and, therefore, while allowing the petition ordered that the company could not be non-suited on the ground of limitation and therefore set aside the orders of the Collector (Appeals) as well as of the Assistant Collector, and directed refund of sum of Rs.49,90,043,01 to the company which was to be made within a period of six months from the date of the judgment i.e., from 12-4-1982. The department preferred S.L.P. which was granted and upon hearing the appeal, the Apex Court while dealing with the points raised on the basis of applicability of Section 11B, as amended, held that:-"The thrust of the amendment vide Section 11B(2) of the Act is that the refund of duty paid by the manufacturer can be allowed, if due, only in cases where the assessee has not passed on the incidence of such duty to any other person."It was further held that:-"Under Section 11B(3) (supra) no refund shall be made except as provided for in sub-section (2), as amended, notwithstanding anything to the contrary contained in any judgment, order or direction of the Appellate Tribunal or any court or in any other provisions of the Act or the Rules made thereunder or under any other law for the time being in force."The Apex Court relying upon the decision in Jain Spinners case rejected the plea raised on behalf of the company that the prohibition contained in Section 11B(3) of the Act would not apply to the facts and circumstances of that case, more so because the judgment and order of the High Court directing refund was pending final adjudication by the Apex Court when the amended provision of Section 11B(3) of the Act had come into force with effect from 20-9-1991 and ruled that All pending claims for refund on or before 20-9-1991, are required to be dealt with and disposed of only in accordance with the amended provisions of law, by reason of the amended Section 11B(3) and the present case is no exception."15. Reverting to the facts of the case, as already observed above, in the case in hand, undoubtedly the High Court on the basis that the process of metallising or lacquering of the already manufactured polyester films does not amount to manufacture under the said Act had allowed the Writ Petition No.3040 of 1982 by its judgment dated 7-12-1990 and therefore it directed refund of the excess duty paid by the petitioners during the relevant period. There was no conclusive termination of the proceedings relating to the refund consequent to the said order, on the day when the provisions of the amended Section 11B had come into force. Undisputedly, the refund was not granted till the said day. Neither the issue regarding unjust enrichment was finally and conclusively adjudicated. Applying the law laid down by the Apex Court in the matters of Jain Spinners, ITC Limited and Mafatlal Industries to the facts of the case in hand, it would therefore be apparent that the claim for refund at the instance of the petitioners were still pending on the day when the provisions of the amended Section 11B came into force and therefore the authorities were perfectly justified in issuing the show cause notice in terms of Section 11B(3) of the said Act.16. Bearing in mind the law laid down by the Apex Court in Jain Spinners, ITC Limited and Mafatlal Industries, all the objections sought to be raised on behalf of the petitioners are without substance and no fault can be found with order rejecting the refund claim in question as the same is in consonance with the law laid down by the Apex Court in the said decisions.

Decision reasoning: 0[ds]12. The analysis of the facts of the decision in Jain Spinners case and the ruling by the Apex Court therein clearly disclose that it was in relation to the excise duty payable by the assessee which was assessed by the Assistant Collector onand the amount payable thereunder was paid by thein the year 1986 which was held to be refundable to the company by order datedand this order ofhad attained finality the prior to coming into force of the amended provision of Section 11B of the said Act. Even the application for refund in accordance with the said order of the Collector (Appeal) was filed by the company onTaking note of all these facts, as already observed above. The Apex Court in no uncertain terms held that The High Courts order ofunder which alone the refund was claimed could not be an exception to the said provisions nor could the High Court have made such order afterdirecting the payment contrary to the said provisions. and further held the order ofto be wholly unwarranted and band inApex Court relying upon the decision in Jain Spinners case rejected the plea raised on behalf of the company that the prohibition contained in Section 11B(3) of the Act would not apply to the facts and circumstances of that case, more so because the judgment and order of the High Court directing refund was pending final adjudication by the Apex Court when the amended provision of Section 11B(3) of the Act had come into force with effect fromand ruled that All pending claims for refund on or beforeare required to be dealt with and disposed of only in accordance with the amended provisions of law, by reason of the amended Section 11B(3) and the present case is no exception."15. Reverting to the facts of the case, as already observed above, in the case in hand, undoubtedly the High Court on the basis that the process of metallising or lacquering of the already manufactured polyester films does not amount to manufacture under the said Act had allowed the Writ Petition No.3040 of 1982 by its judgment datedand therefore it directed refund of the excess duty paid by the petitioners during the relevant period. There was no conclusive termination of the proceedings relating to the refund consequent to the said order, on the day when the provisions of the amended Section 11B had come into force. Undisputedly, the refund was not granted till the said day. Neither the issue regarding unjust enrichment was finally and conclusively adjudicated. Applying the law laid down by the Apex Court in the matters of Jain Spinners, ITC Limited and Mafatlal Industries to the facts of the case in hand, it would therefore be apparent that the claim for refund at the instance of the petitioners were still pending on the day when the provisions of the amended Section 11B came into force and therefore the authorities were perfectly justified in issuing the show cause notice in terms of Section 11B(3) of the said Act.16. Bearing in mind the law laid down by the Apex Court in Jain Spinners, ITC Limited and Mafatlal Industries, all the objections sought to be raised on behalf of the petitioners are without substance and no fault can be found with order rejecting the refund claim in question as the same is in consonance with the law laid down by the Apex Court in the said decisions.