1979 (11) TMI 113 - HC - Central Excise

Molten aluminium - Liability to duty - Properzi rods - Liability to duty - Duty paid under mistake - Writ jurisdiction

Summary

Issues Involved:
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.
3. If they are liable to excise duty, under what sub-Item of Item 27 they are to be assessed.

Issue-wise Detailed Analysis:

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:

Rule 11 states that no duties or charges which have been paid or adjusted in an account current maintained with the Collector under Rule 9, and of which repayment is claimed in consequence of the same having been paid through inadvertence, error, or misconstruction, shall be refunded unless the claimant makes an application within three months from the date of such payment or adjustment. Rule 173-J extends this period to one year.

Malco contended that the excise duty was paid under a mutual mistake, and the claim for refund should be subject to the general limitation period of three years from the date of discovery of the mistake, as per Section 72 of the Indian Contract Act. The court referenced Supreme Court decisions, including Sales-tax Officer v. Kanhayalal Mukundlal Saraj and State of Madhya Pradesh v. Bhailal Bhai, which held that money paid under a mistake of law is recoverable within three years from the date the mistake becomes known. The court concluded that the claims for refund cannot be rejected merely on the ground that they are barred under Rules 11 and 173-J, as the petitioners filed the writ petitions within the time frame in which they could have filed a suit.

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:

Initially, the Assistant Collector of Central Excise classified properzi rods under Item 27(d) and later under Item 27(a). The Central Board of Excise and Customs later decided that aluminium wire rods other than extruded ones were not covered by any of the Items of the Central Excise Tariff and hence were non-excisable. The Gujarat High Court and Kerala High Court held that aluminium properzi rods were not liable to excise duty until sub-Item (aa) was introduced in 1969. The respondents argued that even though properzi rods per se are non-excisable, the aluminium content in crude form is liable to duty under Item 27(a). The court noted that the manufacturing process of properzi rods involves a stage where molten aluminium, which is aluminium in crude form, is produced. Therefore, the court held that the aluminium content of properzi rods is liable to excise duty under Item 27(a).

3. If they are liable to excise duty, under what sub-Item of Item 27 they are to be assessed:

The court examined the process of manufacturing properzi rods, which involves producing molten aluminium from alumina ore. This molten aluminium is considered aluminium in crude form and falls under Item 27(a) of the Central Excise Tariff. The court held that the production of aluminium properzi rods involves two processes: manufacturing aluminium in crude form and then manufacturing properzi rods. The duty on molten aluminium can be postponed to the stage of manufacturing properzi rods for convenience. Therefore, the court concluded that the petitioners are liable to pay duty on the aluminium content under Item 27(a).

Conclusion:

The court dismissed the writ petitions, stating that the claims for refund cannot be rejected on the ground of being time-barred under Rules 11 and 173-J. The aluminium properzi rods are liable to excise duty based on their aluminium content under Item 27(a). However, since the excise duty has been passed on to the consumers, the petitioners are not entitled to a refund, as it would result in unjust enrichment. The court emphasized that the ultimate incidence of excise duty is on the consumer, and any refund should benefit the consumers who bore the burden of the excise duty. The court granted leave to appeal to the Supreme Court, recognizing the substantial questions of law involved.