Case: Industrial Plastic Corporation Private Limited Vs. Union of India

( 1 ) THE petitioner No. 1 is the Private Limited Company and, inter alia, manufactures Phenol resin. The phenolic resin is manufactured in various forms, namely, lump, solid, liquid and powder. The basic ingredients of phenolic resin are phenol and formaldehyde and the phenolic resin is the result of Phenol and Formaldehyde beingwith each other. Prior to June 1, 1971 the Phenolic resin and phenolic moulding powder were assessed for the purposes of excise duty under Item No. 15a of the First Schedule to the Central Excises and Salt Act, 1944 and the duty payable was 40% ad valorem. On June 1, 1971, the Government of India, in exercise of powers conferred by(1) of Rule 8 of the Central Excise Rules, 1944 issued Exemption notification whereby artificial or synthetic resins specified in Notification and falling under Item no. 15a of the First Schedule was exempted from so much of the duty of excise leviable thereon as is in excess of the rate specified in the corresponding entry in Column (3) of the Table. The duty payable under the Exemption Notification in respect of Phenolic resin was reduced to 20% ad valorem. The notification recites that the expression "phenolic resins" means synthetic resins manufactured by reacting any of the phenols with an aldehyde and includes chemically modified phenolic resins and liquid phenolic resins but does not include blends of the phenolic resins with other artificial or synthetic2 ) THE petitioners claim that manufacture of phenolic moulding powder falls within Item 3 read with Explanation III of the Notification dated June 1, 1971 and consequently the levy of duty cannot be at the rate of 40% ad valorem as prescribed under Item 15a of the First Schedule to central Excise Tariff. The petitioners complained that in spite of the Exemption Notification, the department unlawfully and illegally levied and recovered the duty at the rate prescribed under item 15a of the First Schedule. The petitioners thereupon preferred Writ Petition No. 413 of 1975 under Article 226 of the Constitution of India challenging the order passed by the department denying benefit of Exemption Notification No. 122/71 to the Company. The petition was allowed by decision dated April 16, 1981 delivered by one of us (Pendse, J.) and reported in 1983 (12) Excise Law Times 425 . The claim of the Department that phenolic moulding powder manufactured by the petitioners is not entitled to advantage of the Notification dated June 1, 1971 was turned down and the Department was directed to refund the excess duty paid by the petitioners. Before the date of the judgment on April 16, 1981, the Government of India had issued exemption Notification No. 7/80 on February 27, 1980 and Item No. 3 in the Table annexed to the Notification dealt with phenol formaldehyde moulding powder. The Exemption Notification provided that artificial or synthetic resins and plastic materials specified in the Table are exempt from so much of the duty of excise leviable thereon as is in excess of the duty of excise specified in the corresponding entry in the Table, provided the same is manufactured from raw Naphtha or any chemical derived therefrom and from which appropriate amount of duty of excise has already been paid. After issuance of Notification No. 7/80, the petitioner Company filed fresh classification list on February 29, 1980 claiming exemption under the said Notification. When the Notification No. 7/80 was brought to the attention of the Single Judge who delivered judgment on April 16, 1981, it was made clear that the decision recorded is in respect of application of Exemption Notification dated June 1, 1971 and application of Notification No. 7 of 1980 was not considered.( 3 ) ON April 25, 1981, the Department informed the Company that in view of the judgment delivered on April 16, 1981 by the High Court, the Company is required to file classification list under Notification 7/80 with effect from February 27, 1980. The Department also demanded differential duty at 10% from February 27, 1980 till April 25, 1981. On May 29, 1981, the department informed the Company that the products manufactured are covered under notification 7/80 and the Company is liable to pay duty at the rate of 30% ad valorem from february 27, 1980. Some correspondence then transpired between the Company and the department and ultimately shownotice dated July 29, 1981 was served on the Company demanding duty amounting to Rs. 23,54,527/for the period commencing from february 27, 1980 and ending with June 30,4 ) THE Company then filed the present petition on July 31, 1981, challenging legality of show cause notice dated July 29, 1981. The Single Judge of this Court by order dated August 3, 1981 directed the Company to file representation before the Department in respect of correct rate of duty and directed the Assistant Collector of Central Excise to dispose of the representation within four weeks. Accordingly, the representation was filed by the Company and after some correspondence, the Assistant Collector of Central Excise passed order on September 7, 1981 holding that the products manufactured by the Company are not covered either under Exemption notification dated June 1, 1971 or February 27, 1980 and the Company is liable to pay excise duty at the Tariff rate as prescribed under Item 15a of the First Schedule to the Central Excise act. The petitioners then sought amendment of the petition to challenge order dated September 7, 1981 and the amendment was granted on December 17, 1982. In the meanwhile certain events have occurred which require reference. On May 5, 1982, central Board of Excise and Customs issued circular to all the Collectors of Central Excise intimating that according to the opinion of the Chief Chemist furnished on Aril 5, 1982, transformation of phenolic formaldehyde resin into phenolic moulding powder would not amount to manufacture. The circular was confirmed subsequently on October 6, 1982 by communication issued by the Government of India, Ministry of Finance, Department of Revenue to all the Collectors of Central Excise. The communication recites that since phenolic resin includes phenolic moulding powers also, the further modification of such phenolic resin by fillers, additives, etc. does not amount to manufacture of any new or distinct product and, therefore, no further duty of excise can be levied of such modified phenolic resin, that is to say, phenolic moulding powder. In view of the decision of the Government of India, the manufacture of phenolic moulding powder was not treated as process of manufacture inviting payment of excise duty. One more event which requires reference is filing of refund claim of Rs. 10,44,863. 63 by the company before the Superintendent of Central Excise on June 17, 1982 in respect of difference of duty on phenolic formaldehyde resin and actual duty paid on phenolic formaldehyde moulding powder for the period November 12, 1981 and May 11, 1982. The refund application filed by the company had remained pending. Another refund application was also filed on June 23, 1983 for the period between May 12, 1982 and December 17, 1982.( 5 ) ON May 12, 1982, the Company filed revised classification list effective from May 12, 1982 claiming that no duty is payable on phenolic formaldehyde moulding powder in view of the decision taken by the Government and communicated by Circular dated May 5, 1982 and october 6, 1982 to all the Collectors of Central Excise in India. On July 7, 1983, the Assistant collector served notice upon the Company to explain why revised classification list effective from May 12, 1982 should not be approved from December 18, 1982. After receipt of reply from the Company on July 20, 1983, the revised classification list providing that no duty is payable on phenolic formaldehyde moulding powder was approved with effect from December 18, 1982.

Court's reasoning:
The submission is correct and deservesview of these subsequent events, which inter alia support the petitioners, the question of validity of order dated September 7, 1981 or order dated July 20, 1983 accepting revised classification of price list claiming no duty payable only from December 18, 1982 instead of May 12, 1982 loses all its significance and is only of academic interest. It is, therefore, not necessary to examine as to whether the petitioner Company was entitled to advantage of exemption Notifications dated June 1, 1971 and February 27, 1982 as the petitioner Company was not liable to pay any excise duty allsubmission is not correct. The Supreme Court was examining the question as to what is the point from which the limitation will commence to run when mistake became known and in that context observed that relief in respect of payments made beyond the period of three years may not be granted. We are unable to read the decision of the Supreme Court as laying down that the assessee who has paid the duty under mistake is not entitled to refund for a period beyond three years from the date of filing of the petition even though the mistake came to be known just prior to filing of petition. The issue was squarely canvassed before this High Court and in the decision reported in 1986 (25) ELT 625 (Shalimar textile Mfg. Pvt. Ltd. v. Union of India and Others) one of us (Pendse, J.) held that under Article 265 of the Constitution, no tax can be levied or collected except by authority of law, and in case any such tax is levied and collected without and authority of law, then it would not be permissible for the Department to refuse of such amount on the spacious ground that the claim for refund was made belatedly. It was further held that the authority which was recovering tax without jurisdiction cannot be permitted to retain the amount merely because the tax payer was not aware that the recovery was without jurisdiction and consequently if recovery is illegal and without jurisdiction, the claim of refund is not governed by law of limitation. It was further held that the refund would be admissible irrespective of the period covered by the refund application and not restricted only for a period of three years prior to the date of knowledge of mistake of law. Another single Judge in the decision reported in 1986 (25) ELT 638 (Bombay) (Devidayal electronics and Wires Ltd. v. Union of India and Others) after considering the decision of the supreme Court in Shri Vallabh Glass Works Limited case reached the identical conclusion. We are in respectful agreement with the view taken by the Single Judges and the claim made by the petitioners for refund of duty from year 1962 cannot be denied on the ground ofare not impressed by this submission for more than oneare not impressed by this submission for more than onereason. Indeed, by catena of decisions of this Court, the claim for unjust enrichment raised by the Department has been turned down. The Full Bench of this Court in the decision reported in 1990 (46) ELT 23 (Bom.) (New india Industries Ltd. v. Union of India) observed that Court ought not presume that the burden of tax has been passed to the consumers and upon that assumption reject the consequential payer for refund. The Full Bench further observed that it is for the Department to raise such a plea on affidavit and Court should decide the question according to the facts and circumstances of the case. The Court is required to satisfy itself that the tax burden has been shifted to the consumers and the order of refund would result in securing unjust enrichment. The Full Bench then observed that even when in a given case the Court is satisfied that the burden of tax has been passed on to the consumers, still there would be no uniform formula for moulding the consequential relief for benefiting those who had ultimately borne the burden. In the affidavit in the present case on behalf of the Department, there is no averment that the burden was infact shifted to the consumers save and except claiming that the excise duty is invariably passed on to the customers. It is not the averment which is sufficient to examine the claim of unjust enrichment by Writ Court in absence of any data produced by Department. In accordance with the decision of the Full Bench, it is not possible to examine the claim of unjust enrichment, even assuming that such plea is permissible. A contention that the Government should not be directed to make refund because the Government has spent the duty amount received is only required to be stated to be rejected. If such contention is to be accepted, then there would be no refund even to the assessees under the Income Tax Act because normally the duty or tax collected is immediately spent by the Government. It is no defence that the amount is spent when the recovery of dues is without authority. In our judgment, the Department is liable to refund the duty wrongfully recovered.