1988 (4) TMI 13 - HC - Income Tax

Summary

Issues Involved:
1. Applicability of Rule 11 of the Central Excise Rules, 1944, or Section 11B of the Central Excises and Salt Act, 1944.
2. Classification of articles manufactured from polyurethane foam waste.
3. Entitlement to refund of excise duty paid.
4. Limitation period for claiming refund.

Issue-wise Detailed Analysis:

1. Applicability of Rule 11 or Section 11B:
The primary question referred was whether Rule 11 of the Central Excise Rules, 1944, or Section 11B of the Central Excises and Salt Act, 1944, would apply to the refund claim. The court clarified that Section 11B, which came into force on November 17, 1980, could not apply to the case since the refund application was filed on October 26, 1978. Therefore, Rule 11, as it existed prior to the introduction of Section 11B, was applicable. The court noted that the dispute was not about the applicability of Section 11B but about whether the time-limit specified under Rule 11 applied to the assessee's case.

2. Classification of Articles:
The assessee manufactured articles from polyurethane foam waste, which were classified under tariff item No. 15A(4). The Assistant Collector of Central Excise initially classified these articles under tariff item No. 15A(3), but this was later overturned by the Government of India, which upheld that the articles fell under tariff item No. 15A(4) and were entitled to exemption under the notifications issued.

3. Entitlement to Refund:
The assessee claimed a refund of Rs. 53,16,683.74 for the duty paid from August 21, 1971, to August 31, 1978, based on the exemption notifications. The Assistant Collector rejected the claim for the period from March 1, 1978, to August 31, 1978, citing the six-month limitation under Rule 11. The Appellate Collector modified this to allow the refund for the period from May 3, 1978, to November 3, 1978. The Tribunal upheld this decision. However, the High Court found that the duty was collected illegally and without the sanction of law, thus Rule 11's time-limit did not apply. The court held that the assessee was entitled to a refund for the entire period claimed.

4. Limitation Period for Claiming Refund:
The court referred to the Supreme Court's decision in D. Cawasji and Co. v. State of Mysore, which established that the limitation period for claiming a refund of duty paid under a mistake of law is three years from the date the mistake is discovered. The court found that the assessee was engaged in continuous correspondence with the authorities from 1971 to 1978, and the matter was settled only when the Government of India passed its revision order on December 14, 1977. Therefore, the application for refund filed on October 26, 1978, was within the limitation period under the general law.

Conclusion:
The High Court reframed the question to address the real controversy and held that the application for refund dated October 26, 1978, was within the period of limitation and the assessee was entitled to the refund of the duty paid from August 21, 1971, to May 2, 1978. The reference was answered in favor of the assessee and against the Revenue, with no order as to costs. An oral application for leave to appeal to the Supreme Court was refused.