2025 (7) TMI 698 - AT - Central Excise

Refund of amount paid by mistake - rejection of refund claim on the ground of time limitation - applicability of the limitation provided under Section 11B to amounts paid under mistake of law - Principles of unjust enrichment - HELD THAT - The judgment of Mafatlal Industries vs. UOI 1996 (12) TMI 50 - SUPREME COURT has been considered and interpreted by several judgments including the Karnataka High Court in KVR Construction 2009 (8) TMI 150 - KARNATAKA HIGH COURT by this Tribunal in the case of ASL Builders 2020 (1) TMI 431 - CESTAT KOLKATA by CESTAT Delhi in Credible Engineering 2021 (2) TMI 774 - CESTAT HYDERABAD . The said judgments have concluded that statutory limitation periods are not applicable to amounts paid under mistake of law. Thus it is concluded that the statutory limitation period prescribed under Section 11B is not applicable to the refund claimed by the Appellant since the amount paid by the Appellant is not a tax. Principles of unjust enrichment - HELD THAT - The Appellant in its ledger accounts first discharged the Central Excise and thereafter appended certain notings in front of the said amounts stating on hold . It is also clear that the amounts have not been expensed out as the Appellant is awaiting the outcome of the litigation. Hence the amount of Central Excise paid cannot be said to have been passed on to anyone. The Appellant shall be entitled to the refund amount along with interest - Appeal allowed.

Summary

The core legal questions considered by the Tribunal include:

1. Whether the products containing alcohol manufactured and cleared by the appellant fall within the purview of Central Excise duty or are exclusively subject to State Excise laws.

2. Whether the appellant's payment of Central Excise duty on alcoholic products and excisable goods was made under a mistake of law and thus eligible for refund.

3. The applicability of the limitation period under Section 11B of the Central Excise Act, 1944, to refund claims arising from amounts paid under mistake of law.

4. Whether the principle of unjust enrichment applies, i.e., whether the appellant passed on the duty paid to its buyers, affecting the refund claim.

5. The relevance and binding nature of judicial precedents regarding refund claims for amounts paid under mistake of law and the interpretation of limitation provisions.

Issue 1: Classification of Alcohol-Containing Products under Central Excise or State Excise

The Tribunal examined Chapter Note 5 of Chapter 30 of the Central Excise Tariff Act, 1985, which explicitly excludes pharmaceutical products and medicaments containing alcohol from Central Excise coverage. The definitions of "alcohol" as per Section 2 of the Medical and Toilet Preparations (Excise Duties) Act, 1955 were also considered, clarifying that ethyl alcohol is subject to State Excise laws.

The Court found that the products in question, containing alcohol, are outside the Central Excise net and thus not liable to Central Excise duty. The appellant's payment of duty on these products was therefore not a valid excise duty but a payment made under a mistaken legal interpretation.

Issue 2: Mistake of Law in Payment of Central Excise Duty and Refund Eligibility

The appellant contended that after excluding alcoholic products from aggregate clearances, its turnover remained below the Small Scale Industry (SSI) exemption threshold of Rs.1.5 crores for the financial years 2011-12 to 2015-16. Consequently, the duty paid on excisable goods and alcoholic products was under mistake of law.

The Tribunal noted that the appellant had not passed on the duty to buyers, supported by invoices and Chartered Accountant certificates, indicating the payment was borne by the appellant itself. The Court held that since the amount paid was not a duty of excise by law, it was a mistaken deposit and thus refundable.

Issue 3: Applicability of Limitation under Section 11B of the Central Excise Act

The Department rejected the refund claim on the ground of limitation under Section 11B, which prescribes a one-year period for refund applications. The appellant argued that this limitation does not apply when the payment was made under mistake of law and the amount was never a tax.

The Tribunal extensively reviewed judicial precedents, including rulings by various High Courts and the Supreme Court, which consistently held that statutory limitation periods under Section 11B are not applicable to refunds of amounts paid under mistake of law where the tax was never payable.

Key precedents cited include:

• KVR Constructions vs. CCE, Bangalore: Held that Section 11B applies only to refund of duty of excise and not to amounts paid without authority of law. Payment under mistaken notion does not convert the amount into a tax.
• Parijat Construction vs. CCE, Nashik: Affirmed that limitation under Section 11B does not bar refund claims for service tax paid under mistake of law.
• 3E Infotech vs. CESTAT: Emphasized that refund claims for mistaken payments cannot be disallowed solely due to limitation under Section 11B, citing Article 265 of the Constitution which prohibits tax without authority of law.
• Parimal Ray vs. Commissioner of Customs (Port): Established the equitable principle that money paid by mistake to public bodies creates a continuing obligation to refund without limitation.

The Tribunal also referred to a split decision in Credible Engineering Construction Projects Ltd., where the Third Member's opinion, subsequently accepted, held that amounts paid under mistaken notions are not subject to Section 11B limitation.

Applying these principles, the Tribunal concluded that the limitation under Section 11B does not apply to the appellant's refund claim.

Issue 4: Unjust Enrichment and Passing on of Duty

The Department argued the bar of unjust enrichment, contending that refund should be denied if the amount was passed on to buyers. The appellant demonstrated through ledger entries and CA certification that the amounts paid were borne by it and not passed on.

The Tribunal accepted this evidence, noting that the amounts were recorded as "on hold" in the appellant's accounts and not expensed, indicating no passing on. Hence, the claim was not barred by unjust enrichment principles.

Issue 5: Treatment of Competing Arguments and Final Conclusions

The Department's reliance on limitation and classification of goods as excisable was rejected based on statutory interpretation and binding judicial precedents. The appellant's argument that the amounts paid were under mistake of law and outside the scope of excise duty was accepted.

The Tribunal held that the amounts paid on alcoholic products and excisable goods (after excluding alcoholic products) were refundable with interest, as they were not legally exigible duties.

Significant Holdings:

"The above provisions make it clear that the products against which the instant refund claim has been filed do not fall under the preview of Central Excise net."

"The amount paid by the Appellant was under a mistake of law and could not take the character of Excise duty, as such the provisions of Section 11B of the Central Excise Act, 1944 and limitation envisaged in it is not applicable to the facts of the present case and on seeking refund thereof."

"When once there is lack of authority to demand 'service tax' or 'excise duty' from the assessee, the department lacks authority to levy and collect such amount and the said amount is not 'Service Tax' or 'Excise duty' and Section 11B of the Act has no application in such cases."

"A person to whom money has been paid by mistake by another person, becomes at common law a trustee for that other person with an obligation to repay the sum received... When a wrong is continuing there is no limitation for instituting a suit complaining about it."

"The limitation prescribed under section 11B of the Excise Act would not be applicable if an amount is paid under a mistaken notion as it was not required to be paid towards any duty/tax."

The Tribunal thus established the core principle that payments made under mistake of law, which are not legally exigible taxes or duties, are refundable notwithstanding statutory limitation provisions applicable to tax refunds.

Accordingly, the Tribunal allowed the appeal, set aside the impugned orders rejecting the refund claim, and directed the grant of refund with interest to the appellant.