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TMI Blog1984 (4) TMI 58X X X X Extracts X X X X X X X X Extracts X X X X ..... anufactured or produced blended yarn with the combination of synthetic staple fibre and cotton fibre and blended yarn produced by the Mills was used by almost all the Mills themselves for manufacture of fabric popularly known as "art silk" fabric. The production of blended yarn was commenced by different Mills at different times. The claim for refund of excise duty, which is the subject-matter of these appeals, is confined to the period prior to March 16/17, 1972 - All the Mills paid excise duty on blended yarn manufactured by them for their own use under tariff item 18 or 18A of the First Schedule to the Central Excises and Salt Act, 1944 (hereinafter referred to as the "Excise Act"). By the Finance Act, 1972, the Excise Act was amended with effect from March 16, 1972 and by the said amendment tariff item 18E was introduced in the First Schedule. The said tariff item 18E reads as fellows :- '18E. Yarn all sorts of N.E.S. -"It covers yarn containing partly synthetic staple fibre of non-cellulosic origin and partly wool or partly acrylic fibre or partly cotton fibre etc". 3. It is not disputed that with the introduction of tariff item l8E, blended yarn manufactured by the Mills wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . It may, however, be mentioned that the rate at which interest is claimed and the date from which it is claimed are not uniform. In other words, each of the Mills has claimed interest from different dates at different rates. 5. The suits were resisted by the Revenue on various grounds. The main grounds were as follows :- (i) The duty levied and recovered on blended yam are legal (It may be mentioned here that the decision of the Division Bench of this court referred to above is under challenge before the Supreme Court). (ii) The suits filed by the Mills are barred by limitation. (iii) Even if the Mills are entitled to refund of the excise duty paid by them on blended yarn, they are not entitled to claim interest. (iv) The excise duty having been passed on to the consumers, the Mills are not entitled to restitution as claimed by them. 6. The suits which were filed by the Mills in different Courts have been decreed. The Trial courts have allowed the claims of the Mills for refund of excise duty in full. The Mills' claims for interest on refund of excise duty have also been allowed by the trial courts but their decisions vary as regards the rate of interest and the date f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ls did not know that recovery of excise duty on blended yarn was illegal until this court, by its decision rendered in the Calico Mills case, held it to be so. Therefore, according to the Mills, it was only on January 15, 1976, that they discovered that excise duty was paid on blended yarn under a mistake. The period of limitation would, therefore begin to run only from. January 15, 1976, and the Mills are entitled to claim refund of the entire excise duty paid by them on blended yarn upto March 16/17, 1972 by filing suits within three years from January 15, 1976. As pointed out above, it is not disputed that all the suits are filed within three years from January 15, 1976, and, therefore, if the view canvassed on behalf of the Mills is correct, the suits cannot be dismissed as being barred by limitation. 9. Before the enactment of Limitation Act, 1963, suits of the nature filed by the Mills were governed by Article 96 of the First Schedule to the Indian Limitation Act, 1908. Article 96 related to suit for relief on the ground of mistake and it prescribed three years' period of limitation from the date the mistake became known to the Plaintiff. In the 1963 Act, there is no Article ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... riod of limitation of three years commences to run when the mistake became known to the Plaintiff. This provision, it would appear, is now taken care of by Section 17(1) of the 1963 Act. If the suit for relief on the ground of mistake is covered by Section 17(1), the period of limitation would not begin to run until the Plaintiff discovers the mistake or could with reasonable diligence have discovered it. This would be the position irrespective of the accrual of cause of action. In other words, although Article 113 provides that limitation period of three years would begin to run from the date of accrual of cause of action in view of the provision contained in Section 17, it would not so begin to run until the mistake is discovered or could with reasonable diligence have been discovered. Therefore, the crucial question is whether the suits filed by the Mills are covered by Section 17(1) of the Act, 1963 Act. The Supreme Court in Venkataraman and Co. v. State of Madras, AIR 1966 S.C. 1089 held that the suit of the nature filed by the Mills was governed by Article 96 of the 1908 Act. In that case also, the suit was filed for recovery of amounts paid to the State of Madras under a mis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urt has said that the starting point of limitation is from the date on which the judgment declaring as void the particular law under which the tax was paid was rendered, as that would normally be the date on which the mistake becomes known to the party ... ..." 12. There is, therefore, no doubt whatsoever that Section 17(l)(c) covers both the mistake of fact as well as law. It was then urged on behalf of the Revenue that in any case the Mills would with reasonable diligence have discovered the mistake of law on the date on which they paid excise duty. It was submitted that no question of interpretation of any of the provisions of the Excise Act or tariff items of the Schedule was involved. All that the Mills had to do was to peruse the tariff items in the Schedule to find out whether any excise duty was payable on blended yarn. If they had carefully perused the tariff items, they would have known on the date they started paying the excise duty that there was no tariff item under which duty was payable on blended yarn. Therefore, according to the Revenue, the period of limitation of three years would begin to run from the date the excise duty was first paid and therefore on e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of mistake. In our opinion, whether or not the Mills succeed on merits, their claim cannot be rejected on the ground of limitation. In other words, the claim made in respect of the payment of excise duty on blended yarn prior to March 16/17, 1972, must be held to be within time. We, therefore, reject the Revenue's contention that the suits are barred by limitation. 14. We will now proceed to examine on merits the claims for refund of excise duty made by the Mills. The basis of their claim is that they had paid the excise duty on blended yarn under a mistake of law. Since the excise duty was paid under a mistake, the Revenue, which cannot retain it, is liable to repay it to them under Section 72 of the Contract Act. It would thus appear that the Mills base their claim on Section 72 of the Contract Act, which reads as under :- "72. Liability of person to whom money is paid or thing delivered by mistake or under coercion,- A person to whom money has been paid or anything delivered by mistake or under coercion, must repay or return it. Illustrations (a) A and B jointly owe 100 rupees to C. A alone pays the amount to C and B, not knowing this fact, pays 100 rupees over again ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... might have been occasioned to the person making payment or delivering thing on account of payment of money or delivery of thing by mistake or under coercion. No one can be allowed to enrich himself unjustly at the cost or the expense of another. And it is with this object in view that Section 72 is enacted. In Bibrosa v. Pairbarin, 1943 A.C. 32, Lord Wright has stated the legal position as follows :- "......any civilised system of law is bound to provide remedies for cases of what has been called unjust enrichment or unjust benefit, that is, to prevent a man from retaining the money of or same benefit derived from another which it is against conscience that he should keep. Such remedies in English law are generically different from remedies in contract or in tort, and are now recognised to fall within a third category of the common law which has been called quasi-contract or restitution." 18. In Nelson v. Larholt, (1948) I KB 339, Lord Denning has observed as follows :- "It is no longer appropriate to draw a distinction between law and equity. Principles have not to be stated in the light of their combined effect. Nor is it necessary to canvass the niceties of the old form ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r in respect of, or to restore the thing so done or delivered. One of the questions which arose before the Supreme Court was whether the appellant was entitled to claim refund of Rs. 10,000/- which he was required to deposit towards the right to collect lac from the forests under the contract which were not valid as the provisions of Article 299 of the Constitution were not complied with and the contract was void. In other words, the refund was claimed on the basis that there was no valid contract. The trial Court held that the appellant was not entitled to refund of Rs. 10,000/- firstly on the ground that the contract was good even though not in conformity with Article 299 of the Constitution and secondly, because the appellant was alleged to enjoy the right of collecting lac and the appellant actually availed himself of that right. The High Court of Madhya Pradesh, however, allowed the appeal filed by the State of Madhya Pradesh and set aside the decree passed by the trial Court. The finding of the trial Court was affirmed by the High Court in the appeal preferred by the State of Madhya Pradesh and it came to the conclusion that the appellant has worked for some time on the basis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... c in the jungles in the year 1951 but later on abandoned the working of his own accord. It is well established that a person who seeks restitution has a duty to account to the defendant for what he has received in the transaction from which his right to restitution arises. In other words, an accounting by the plaintiff is a condition of restitution from the defendant (See "Restatement of the Law of Restitution", Americal Law Institute, 1937 Ean. p. 634). The appellant did not produce sufficient evidence to show to what extent he worked the contract and what was the profit made by him in the year 1951 and the succeeding years. In the absence of reliable evidence on this point the appellant was not entitled to restitution or refund of the deposit he had made. The case of the appellant with regard to this part of his claim was therefore rightly disallowed both by the trial Court and the High Court and the respondent is therefore not liable to refund the amount of deposit." In our opinion the above principles will apply with equal force to a case arising under Section 72 of the Contract Act. As held by the Supreme Court, a person who seeks restitution has a duty to account to the defe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laims made by the Mills were to be allowed or granted, that would undoubtedly result in unjust enrichment of the Mills for though they have not suffered any loss or injury they would get the refund of excise duty paid by them to the Revenue. That is not the object with which Section 72 of the Contract Act is enacted. 21. Our view that money paid in the form of excise duty to the Revenue does not belong to the Mills derives support from the provisions contained in Section 64A of the Sale of Goods Act, 1930. This section reads as follows :- "64A. (1) Unless a different intention appears from the terms of the contract, in the event of any tax of the nature described in sub-section (2) being imposed, increased, decreased or remitted in respect of any goods after the making of any contract for the sale or purchase of such goods without stipulation as to the payment of tax where tax was not chargeable at the time of the making of the contract, or for the sale or purchase of such goods tax paid where tax was chargeable at that time,- (a) if such imposition or increase so takes effect that the tax or increased tax, as the case may be, or any part of such tax is paid or is payable, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is to be refunded or repaid, it would amount to remission within the meaning of Section 64A (1) of the Sale of Goods Act. Therefore, it would be the buyer of the fabric to whom the burden of excise duty paid on blended yarn is passed on would be entitled to the remission and not the Mills. Under these circumstances, it is impossible to hold that the money which is to be refunded on the ground that the excise duty is illegally recovered, can be said to belong to the Mills. It belongs to the buyers of the fabric. Since the money does not belong to the Mills, they cannot claim restitution under Section 72 of the Contract Act. It is, however, argued on behalf of the Mills that levy of excise duty is on the manufacture or on production of goods and therefore, it is the liability of the manufacturer to pay the excise duty on the goods manufactured. It was having regard to this liability of the manufacturer that under Section 11-B of the Excise Act, right has been conferred on the manufacturer who has paid the duty to claim refund of duty. Under Section 11-B the person who has paid duty is entitled to make application for refund within six months from the date of payment. Relying on this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cost structure of the fabric manufactured by the Mills. It is also not disputed that while fixing the sale price of the fabric the cost of blended yarn including the excise duty paid thereon was taken into account. The cost of yarn including the excise duty paid thereon and the profit formed the basis for determining the sale price of fabric. The Mills had to pay excise duty on fabric but that was added to the sale price when fabric was sold to the buyer. The Mills paid excise duty on the yarn as well as the fabric manufactured by them as per their liability to do so under the Excise Act. It, therefore, cannot be gainsaid that excise duty paid on blended yarn as well as fabric had been passed on to the buyer of the fabric. It is immaterial that blended yarn was consumed by the Mills themselves. 23. It was urged on behalf of some of the Mills that sometimes the manufacturer has to sell his goods at a price which may be less than the cost. In such cases, burden of excise duty may not be passed on to the buyer or customer of the goods. It would, therefore, not be correct to say that in no case manufacturer would be entitled to refund of the excise duty. We are not concerned wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... refund of excise duty paid on the yarn. And to permit the Mills to receive refund of excise duty, which they have already passed on to or recovered from the buyer of the fabric, would undoubtedly result in unjust enrichment of the Mills. 24. It was, however, strongly urged on behalf of the Mills that in cases similar to those before us, where tax or duty was paid under a mistake, the Supreme Court has allowed refund to the persons who have paid tax or duty. In case where excise duty was paid by mistake, the manufacturer of the goods on which such excise duty was paid had been allowed to receive refund. In all those cases, it is submitted, refunds have been allowed under Section 72 of the Contract Act. It was urged that in view of the decisions of the Supreme Court, it is not open to us to hold that in order to claim restitution under Section 72, it is necessary to prove injury or loss. Decision of the Supreme Court in Sales Tax Officer v. Kanhaiya Lal (supra), is one of the decisions on which reliance was placed in support of the above argument. In that case, mainly, two questions arose before the Supreme Court, namely, (i) whether term 'mistake' used in Section 72 of the C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gible as tax under the Act. Section 11(2) provided that amounts collected by way of tax though not exigible as tax under the Act, should be paid over to Government, and if not paid over, they should be recovered from such person as if they were arrears of land revenue. The Supreme Court held that unless the money collected by the dealers was due as tax, the State cannot by law make it recoverable simply because it had been wrongly collected by the dealer. That could not have done directly, for it was not a tax at all within the meaning of Entry 54 of List II, nor could the State Legislature under the guise of incidental or ancillary powers do indirectly what it could not do directly. Section 11(2) was not, therefore, within the competence of the State Legislature under Entry 54 of List II. The provision contained in Section 20 (c) being consequential to Section 11(2) would also fall along with it. While taking the above view, the Supreme Court observed that if a dealer had collected anything from a purchaser which is not authorised by the taxing law, that is a matter between him and the purchaser and the purchaser may be entitled to recover the amount from the dealer. Relying on th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct. The Supreme Court held that Section 37(1) (a) and Section 46(2) of the said Act were not ultra vires the State legislature. It would, therefore, be clear that if the dealers had wrongly collected moneys from the customers, the said moneys can be forfeited by the Government. Therefore, the above argument which was advanced on behalf of the Mills relying on the observations made by the Supreme Court in Abdul Quadar and Co. 's case is of no avail to them. 26. The next case on which reliance was placed on behalf of the Mills was the case of D. Cawasji and Co. (supra). In that case, the Supreme Court held that a writ petition for recovery of money paid under mistake would lie within the period of limitation prescribed that is within three years of the knowledge of the mistake. The Supreme Court then proceeded to observe : "We are aware that the result of this view would be to enable a person to recover the amount paid as tax even after several years of the date of payment, if some other party could successfully challenge the validity of the law under which the payment was made and if only a suit or writ petition is filed for refund by the person within three years from the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsideration before a Division Bench of this Court consisting of V.V. Vedarkar & A.P. Ravani, JJ. The Division Bench was dealing with an appeal arising out of a suit for refund of excise duty. The Division Bench observed : "We ourselves also believe that in a situation where the plaintiff himself has not suffered injury and simply on technical legal grounds claims refund and wishes to be compensated without expressing slightest intention or desire to refund the amount to the consumers who have ultimately suffered the incidence of the tax, it would be quite just and proper for the court to refuse the relief of refund of the amount so claimed." In our opinion, as pointed out above, since the Mills have not suffered any injury, they are not entitled to claim refund of excise duty and the suits filed by them, must, therefore, fail. 30. In the view which we are taking, it is not necessary for us to consider the claim for interest on the amounts of excise duty of which refund is sought. However, since the learned Counsel for the parties have addressed us at length on this question, we propose to briefly deal with it. Broadly speaking, claim for interest is made on either of the fol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment for the payment of interest at a fixed rate, or it is payable by usage of trade having the force of law, or under the provision of any substantive law entitling the plaintiff to recover interest as for instance the Court may award interest at the rate of 6 per cent per annum, when no rate of interest is specified in a promissory note or bill of exchange under Section 80 of the Negotiable Instruments Act. So far as the proviso is concerned, the Privy Council held that the proviso to Section 1 applies to a case in which the Court of equity exercises jurisdiction to allow interest. But in order to invoke a rule of equity, it is necessary in the first instance to establish the existence of a state of circumstances which attracts the equitable jurisdiction. 32. The above decision of the Privy Council was relied upon by the Supreme Court in Thawardas v. Union of India, AIR 1955 S.C. 468. The Supreme Court held that Interest Act applies share interest is not otherwise payable by law. It further held that following among other conditions must be fulfilled before interest can be awarded the Act: (i) there must be a debt or a sum certain; (ii) it must be payable at a certain time ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n times; on the dissolution of a partnership; on the arrears of an annuity where there has been misconduct or improper delay in payment; or in the case of money obtained or retained by fraud. It may also be allowed where the defendant ought to have done something which would have entitled the plaintiff to interest at common law or has wrongfully prevented the plaintiff from doing something which would have so entitled him." 33. The Mills' claim does not fall under any of the aforesaid categories. Therefore, in our opinion, they are not entitled to claim interest on the ground of equity. At the best, the Mills can claim interest from the date demand was made in writing for refund of the amount. However, there is no evidence to prove as to what was the current rate of interest at which the Mills can claim interest from the date of demand made in writing. Under the circumstances, in our opinion, the Mills cannot claim interest at the rate of 18 or 15 per cent per annum as urged on their behalf. However, since the Mills fail on merit, the question of computing interest in this case does not arise. 34. Now, although the Mills are not entitled to claim refund of the excise duty p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not think that in New India Industries case, the court intended to lay down any rigid rules while formulating directions for moulding relief. It, however, cannot be gainsaid that the Revenue was not entitled to levy or recover the excise duty on blended yarn prior to March 16/17,1972, in view of the decision of this Court in Calico Mills case. Blended yarn on which excise duty was paid was woven into fabric and fabric must have been purchased by a large number of consumers whom it would be difficult, if not possible, to identify or locate. In other words, the buyers of fabric to whom excise duty has been passed on by the Mills are innumerable and unidentifiable. Under the circumstances, we do not think it practical to give directions of the nature given by the Supreme Court in Nawabganj Sugar Mills case. In Nawabganj Sugar Mills case, the Supreme Court was dealing with a private party who had illegally recovered moneys from the customers to whom sugar was sold at a higher or excessive rate. In the cases before us, the excise duty which was not recoverable was paid to the Government. The Government in a democratic State represents the people. In other words, all citizens including b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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