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TMI Blog1979 (11) TMI 113X X X X Extracts X X X X X X X X Extracts X X X X ..... ater chilled on the outside. The cast rod is approximately triangular in shape and is continuous and is fed into a series of rollers having reducing diameter. The cross Section of the emerging rod is now approximately circular and the diameter is 3/8. This is then wound into a coil and sent to cable and wire manufacturers for final drawing and stranding into cables of wire." 3. By its letter dated 20-1-1967 Malco informed the Inspector of Central Excise, Salem, that they were commencing manufacture of properzi rods shortly and requested him to inform them of the excise duty payable on the above-mentioned rods. The Inspector of Central Excise by this letter dated 30-1-1967, replied that the Superintendent of Central Excise has given the following orders :- "Extruded rods of aluminium are assessable under Tariff Item No. 27— Aluminium Extruded rods—which will pay duty at the rate of 10 % ad valorem or Rs. 300 per tonne whichever is less plus the special excise duty of 20% on E.C.D. To determine the exact duty amount realisable on rods the duty on the basis of ad valorem assessment and that based on concession rate of Rs. 300 per tonne has to be worked out and shown in the AK-1 its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly under Tariff Item No. 27(a) and therefore suitable instructions may be issued to the Central Excise authorities at Salem for assessing Properzi Rods under Item 27(a) of the Tariff instead of under Item 27(d). On 11-8-1967, the Inspector of Central Excise Mettur Dam has informed Malco that Properzi Rods of 3/8 " diameter manufactured by them are classified under Item 27(a) of the Central Excise Tariff. Later by letter dated 9-10-1968, the Senior Superintendent (Tech) Salem wrote to Malco stating that though according to Board's orders Properzi rods produced out of bauxite alumina or both were non-excisable as those rods did not fall in any of the sub-Items of Item No. 27, of the Central Excise Tariff and Properzi rods manufactured out of imported ingots in admixture with or without bauxite or alumina or both were also non-excisable, where aluminium in crude form e.g. ingots had suffered the appropriate duty, under Item 27(a) should continue to be recovered on the crude aluminium contents of such rods, and called upon them to send an amended classification list accordingly for necessary action and approval. Accordingly Malco submitted the classification list in the revised form on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . By show cause notice dated 14-9-1974, the Assistant Collector of Central Excise called upon Malco to show cause why the claim for refund of the excise duty paid should not be rejected as time barred, on the ground that the claim for refund had not been presented within three months as prescribed under Rule 11 of the Central Excise Rules or within one year under Rule 173-J of the said Rules. On 4-11-1974 Malco submitted its reply to the aforesaid show cause notice wherein it contended that the provisions of Rule 11 or Rule 173-J of the Central Excise Rules had no application to the refund claimed by it as the levy and the payment of excise duty was illegal, without jurisdiction and without the authority of law. Malco was also given a personal hearing with reference to its claim for refund. At the personal hearing, on behalf of Malco it was submitted that the claim for refund being for the amount which was collected illegally unauthorisedly and without the authority of law, the provisions of the Rules providing limitation were not applicable, that the normal period of limitation for filing a suit for obtaining refund of money paid under a mistake of law was three years from the dat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vernment of India, the prayer for certiorari originally sought for in W.P. No. 4629 of 1975 was amended with the permission of the court as one for certiorari to quash the order of the Assistant Collector dated 24-2-1975 as ultimately confirmed by the Government of India by its order dated 8-3-1978. 11. Thus the three issues that arise for consideration before us are: (1) whether the claim for refund made by Malco is barred by time as provided in Rules 11 and 173-J of the Central Excise Rules, (2) whether the aluminium properzi rods manufactured by Malco are liable to excise duty for the period prior to the introduction of sub-Clause (aa) in Item 27 of the Central Excise Tariff and (3) if they are liable to excise duty, under what sub-Item of Item 27 they are to be assessed. 12. Rule 11 is as follows - "No duties or charges which have been paid or have been adjusted in an account current maintained with the Collector under Rule 9, and of which repayment wholly or in part is claimed in consequence of the same having been paid through inadvertences error or misconstruction, shall be refunded unless the claimant makes an application for such refund under his signature and lodges it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se authorities. 15. The question of refund of tax paid under a mistake has come up before the Supreme Court in a series of decisions. In Sales-tax Officer v. Kanhayalal Mukundlal Saraj, 9 S.T.C. 747, the Supreme Court had observed- "On a true interpretation of Section 72 (of the Contract Act) the only two circumstances that entitle the party to recover the money back are that the moneys must have been paid by mistake or under coercion. If mistake either of law or of fact is established, he is entitled to recover the moneys and the party receiving the same is bound to repay or return them irrespective of any consideration whether the moneys had been paid voluntarily ....." 16. In State of Madhya Pradesh v. Bhailal Bhai, 1964 - 6 S.C.R. 261, there was imposition of sales-tax on the sale of imported tobacco in the State of Madhya Bharat while there was no such tax on the sale of indigenous tobacco. On the basis that the sales tax imposed on the sale of imported tobacco was violative of Article 301 of the Constitution, a writ of Mandamus was sought for refund of the sales tax paid on imported tobacco as having been paid under a mistake of law under Section 72 of the Indian Contract ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct, and there is no question of estoppel when the mistake of law is common to both the assessee and the taxing authority... If refund is not made, remedy through court is open, subject to the same restrictions and also to the bar of limitation under Article 96 of the Limitation Act, 1908, namely, 3 years from the date when the mistake becomes known to the person who has made the payment by mistake. It is the duty of the State to investigate the facts when the mistake is brought to its notice and to make a refund if the mistake is proved and the claim is made within the period of limitation." The above decisions of the Supreme Court clearly lay down that the refund of the amount paid under a mutual mistake can be claimed either before the civil court or under writ proceedings provided the claim is made within 3 years from the date of the discovery of the mistake. Rule 11 contains an interdiction on the excise authorities not to refund the tax if a written claim has not been lodged with the proper officer within three months and a similar interdiction is there in Rule 173-J if the claim has not been made within one year. It may be that in view of the above provisions providing for a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing a suit which is now barred by limitation. 18. Coming to the second issue as to whether the aluminium properzi rods manufactured by Malco is liable to excise duty at all, it will be clear from the facts set out ahove that originally in May 1967 the Assistant Collector of Central Excise, Salem classified properzi rods as coming under Item 27(d) of the Central Excise Tariff providing for 20 per cent ad valorem as basic duty and 20 per cent special excise duty, that later in August 1967 the same Item was classified as coming under Item 27(a) providing for a duty at 950 per metric tonne and 20 per cent special excise duty, and that on 15-9-1967 a decision was given by the Central Board of Excise and Customs that the aluminium wire rods other than extruded ones are not covered by any of the Items of Central Excise Tariff and, therefore, they are not liable to excise duty. In or about October 1968 the Senior Superintendent, Salem took up the stand that though according to the Board's orders properzi rods produced out of bauxite or alumina or those manufactured out of imported ingots in admixture with or without alumina were non-excisable as the rods do not fall in any of the sub-Item ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... liable to excise duty with reference to its aluminium content under Item 27(a). The question is whether the properzi rods are liable to duty with reference to its aluminium content under Item 27(a) as contended by the respondents. 19. For a proper appreciation of the rival contentions it is necessary to scan through Item 27(a) of the Central Excise Tariff as it existed before 1-3-1969 which, was as follows :- "Item 27(a). Aluminium in any crude form including ingots, bars, blocks, slabs, billets, shots and pellets." The following sub-Item (aa) was introduced by Section 30(xxi) of the Finance Act, 1969 with effect from 1-3-1969:- "(aa) Wire bars, wire rods and castings not otherwise specified." By Section 32 of the Finance Act of 1970 a new Item 27 was substituted in the place of the old Item 27 and under the amended Item 27(a)(ii), wire rods and castings not otherwise specified were made excisable at 25 per cent ad valorem. At this stage, it is necessary to refer to a few provisions of the Indian Tariff Act, 1934. Section 2A of that Act provided for a levy of countervailing duty on articles which is imported into India equal to the excise duty leviable on a like articles if pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Crude aluminium wire rods, other than extruded are not covered by any of the Items in the Central Excise Tariff and accordingly they are not, on import, liable to additional duty under Section 2A of the Indian Tariff Act." 21. In a subsequent decision of the Kerala High Court in O.P. No. 4027 of 1973 in which the Indian Aluminium Co. Ltd. is the petitioner, the question arose whether the aluminium properzi rods manufactured by that company were dutiable. After considering the scope of Item 27 of the Central Excise Tariff in detail, the court took the view that they were not liable to pay excise duty till Clause (aa) was introduced by the Finance Act of 1969 with effect from 1-3-1969 and, therefore, the excise duty collected on the properzi rods manufactured by them has to be refunded. A contention similar to the one advanced in this case that duty is not collected on properzi rods as such but the levy is made on the aluminium content in the crude form under Item 27(a) was put forward in that case. But the court did not go into the feasibility of such a contention on the ground that such a contention was not open to the Revenue in view of the fact that the Government of India in re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y in this connection to note the various stages in the production of aluminium properzi rods, and the nature of the manufacturing process. 23. The process of manufacturing properzi rods was invented by an Italian Engineer Sig. Ilari Properzi and now this is generally followed in all countries of the world including India. The said rods are manufactured by Malco by use of the properzi plan imported by them in the year 1966. The rods are machine wrought in nature and the process of production of these rods is as under-Properzi rods are manufactured either out of imported aluminium ingots in admixture with or without bauxite or alumina or both, or out of bauxite or alumina ore directly. Malco is manufacturing properzi rods not out of imported ingots but out of alumina ore. Initially the alumina ore is put into the furnace and converted into liquid form, and subjected to degasification and fluxing. After removing the impurities the aluminium in a molten form is collected in electroli pots and thereafter the said liquid aluminium produced is fed through a cast iron tube into a rotating water-cooled copper wheel, which also chilled on the outside'. The cast rod is approximately triangul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the market and subject them to different processes before applying hydrogenation to produce Vanaspathi. According to the excise authorities, before finally producing Vanaspathi the manufacturers produce at an intermediate stage what is known as 'refined oil' in the market and although they may not sell' it and although Vanaspathi when produced was liable to excise duty under another Item, the manufacturers are liable to pay duty under Item 23 of the excise tariff which refers to 'vegetable non-essential oils', on such refined oil. The Supreme Court in that case held that the processes to which the oils purchased in the market are subjected to before applying hydrogenation cannot be equated to a manufacture, which means bringing into existence a new substance, therefore, the manufacturers of Vanaspathi cannot be taken to have produced or manufactured refined oil at the intermediate stage, that the so-called refined oil said to be produced by the manufacturer at the intermediate stage is not refined oil as known to the market, for what is known as refined oil in the market has undergone the process of deodorisation and that in that particular case as the process of deodorisation had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of us was a party, had Ruled that Section 3(1) of the Central Excises and Salt Act which is the charging Section does not make any distinction between the goods manufactured for one's own use and consumption, and those manufactured for sale. Therefore, these decisions seem to suggest that even though the molten aluminium produced by the petitioners are not actually sold in market but are only used as raw material for manufacturing properzi rods, the same has to bear excise duty if there is in fact a manufacture of aluminium in crude form which is covered by Item 27(a). 27. In Messrs Geep Flashlight Industries Ltd. v. Union of India - 1979 E.L.T. (J 674) = 1979 Tax L.R. 19, a Division Bench of the Allahabad High Court had to consider whether the flat form of zinc is covered by Item 26B(2) of the Central Excise Tariff. In that case there was manufacture of dry cell batteries and in the process of manufacture, zinc cans manufactured out of zinc ingots were needed. The process of manufacture of dry cell batteries involved melting of zinc ingots in a furnace and then pressing the same into moulds to form zinc slabs. These slabs are heated and rolled into a flat form with the help of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nium in any crude form'. That molten aluminium can be taken to be aluminium in crude form is not disputed by the learned Counsel for the petitioners. But what is pointed out by him is that the molten aluminium is not removed from the properzi machine but it is used in the continuous process of the manufacture of properzi rods and as such the petitioners cannot be taken to be manufacturing aluminium in crude form. It is true, molten aluminium is not removed from the machine and stored either for the purpose of sale or for the purpose of levy of duty thereon. But the fact remains that during the process of manufacture of properzi rods, crude aluminium is manufactured at a certain stage and the same is retained in the manufacturing plant. Since the manufacture of properzi rods is a continuing process and molten aluminium cannot be removed from the machine at an intermediary stage without causing serious and considerable inconvenience to the manufacturers, the aluminium in crude form which is produced at the intermediate stage as represented by the end product namely aluminium properzi rods can be taken for the purpose of excise duty under Item 27(a). In other words, this is a case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... chosen to ask for refund of the duty on the basis the properzi rods are not dutiable. Now that we have held that though properzi rods per se fell outside Item 27 of the Excise Tariff, molten aluminium produced by the petitioners at the intermediate stage is subject to excise duty under Item 27(a) as aluminium in crude form taking molten aluminium as represented by the end product. The petitioners can therefore claim refund only if there is any excess collection during the period between 1-1-1967 to 11-8-1967 when Item 27(d) was invoked by the authorities. 31. There is one other impediment in the way of the petitioners claiming refund of excise duty in this case. The petitioners, after paying the excise duty as per the classification made by the excise authorities, have passed on the same to the actual consumers and in fact, the actual consumers have borne the entire liability towards excise duty. The petitioners admit that they are not able to trace at this stage as to who are the ultimate consumers in respect of the goods which have suffered excise duty, in respect of which refund is now sought for by them. Though excise duty is levied at the production or manufacture of goods f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rne by the consumers and if it is found that the excise duty is not exigible, then the excise duty is to be refunded only to the consumer who had been made to pay the excise duty illegally and who is entitled to get return of the same. As pointed out in Boddu Paidanna's case, 1942 F.C.R. 90, referred to above, it is only on the payment of excise duty by the .petitioners, they can pass on the excise duty to the consumers. But for the payment of excise duty to the State, it would not have been possible for them to pass on the same to the consumers. It is the payment of excise duty by the petitioners which has enabled them to pass it on to the consumers and, therefore, if it is found that the excise duty is not exigible, the benefit of the refund should go only to the consumer. 34. In respect of sales tax paid by the dealers and which has been passed on to the consumers courts have held that the money paid as tax primarily belonged to the consumers who paid it and not to the dealers (vide 16 STC 973, 1962-I S.C.R. 735 and 30 STC 120). Therefore, the petitioners having passed on the excise duty, paid by them to the State, to the consumers, they cannot have any beneficial interest on t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the petitioners by such a direction. Admittedly the petitioners have passed on the excise duty to the consumers and this was done on the basis that they have paid excise duty to the State. But for the payment of excise duty to the State the petitioners will not be entitled to or enabled to pass on the duty to the consumers. Therefore, if there is no possibility of excise duty being refunded to the actual consumers, the petitioners will have the benefit of both the collection of excise duty from the consumers and the benefit of refund from the State. Thus the court will indirectly and unjustly be enriching the petitioners by directing a refund of the excise duty paid by them. We are, therefore, satisfied that having regard to all the circumstances the petitioners are not entitled to get a refund of the excise duty if they are not in a position to trace the actual consumers and pay back the excise duty collected from them. The discretionary jurisdiction of this court under Article 226 of the Constitution should be exercised for public good and not to facilitate the petitioners to make an unlawful gain at the instance of the public (consumers) on the one hand and the State on the othe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee who had no beneficial interest in these amounts from making a profit out of the tax collected, the Legislature enacted that the amount so deposited shall be claimable only by the persons who has paid the amounts to the dealer and not by the dealer, it must be held that the restrictions on the right of the assessees to obtain refund was lawfully circumscribed in the interest of the general public." 36. Dealing with a claim for refund of tax which was held to be illegally collected, a Division Bench of the Andhra Pradesh High Court in G.S.G.A. and Co. v. State of Andhra Pradesh, 30 STC 120 expressed: "More than anything else, one fact which must strongly weigh against the claim of the refund of sales tax by the petitioners is that the petitioners have already collected the tax and any direction in these writ petitions to refund such tax as they have paid would result in allowing them to retain the tax illegally collected from the consumers and thus make an unauthorised gain for themselves, while the State is in charge of the public funds and which has collected the tax as per the final orders of assessment, would be now obliged to return the same for the personal bene ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt out at pro rata to the actual consumers who come forward and prove their claims for refund. 39. There is another reason as to why the excess collection, if any, should be directed tobe retained by the State as a deposit for the benefit of the actual consumers. An action for 'money had and received' lies for money paid by mistake or upon a consideration which happened to fail or money got through imposition or extortion or oppression, and the relief in such action is based on the theory of unjust enrichment according to which it would be unjust to allow the defendant to retain a benefit received at the plaintiff's expense. Therefore, a direction to refund the duty illegally collected to the petitioners is based on the theory of unjust enrichment. But on the facts of the present case, a direction to refund the duty to the petitioners so as to prevent the State from enriching itself by imposing a levy not authorised by law, the court will be unjustly enriching the petitioners as they have already recouped themselves to the extent of the excise duty paid by them to the State and there is no possibility of their refunding it in their turn to the actual consumers who have borne the e ..... X X X X Extracts X X X X X X X X Extracts X X X X
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