1981 (12) TMI 40 - HC - Central Excise

Valuation - Refund of duty paid under protest on cost of packing - Duty paid under mistake of law - Excise Duty - Levy of - Scope - Writ jurisdiction

Issues Involved:
1. Legality of levy of excise duty on the cost of jute bags.
2. Entitlement to refund of excise duty paid under protest.
3. Application of the doctrine of unjust enrichment.
4. Applicability of Rule 11 of the Central Excise Rules, 1944, and Section 11B of the Central Excise Act.

Detailed Analysis:

1. Legality of Levy of Excise Duty on the Cost of Jute Bags:
The core issue in the writ petition was the legality of the levy of excise duty amounting to Rs. 22,55,795.76 on the cost of jute bags used for packing cement between 1-10-1975 and 8-1-1976. The court referred to a previous decision (Indo-National Limited, Nellore-4 and others v. Union of India and others, 1979 E.L.T. 334 (AP)) where it was held that the cost of jute bags should not be included in the assessable value of the goods. The court observed that the excise authorities had initially not included the cost of jute bags in the assessable value until 4-12-1975, but later demanded excise duty on the cost of jute bags. The court quashed the order confirming the levy of excise duty on the cost of jute bags, following the precedent set by the Division Bench.

2. Entitlement to Refund of Excise Duty Paid Under Protest:
The petitioner sought a refund of the excise duty paid under protest. The court examined several precedents, including Sales Tax Officer v. Kanhiya Lal - AIR 1959 SC 135, Patel India v. Union of India - AIR 1973 SC 1300, and State of Madhya Pradesh v. Bhailal Bhai - AIR 1964 S.C. 1006, which established that taxes paid under a mistake of law are recoverable. The court noted that there was no delay in seeking the refund and that the claim was made within the period of limitation. The court held that the petitioner was entitled to the refund of the excise duty paid under protest.

3. Application of the Doctrine of Unjust Enrichment:
The respondents contended that refunding the excise duty would result in unjust enrichment of the petitioner, as the duty had been passed on to the consumers. The court referred to various judgments, including State of Kerala v. Aluminium Industries Limited-16 STC 689 and Union of India v. Mansingka Industries Pvt. Ltd. - 1979 E.L.T. 158 (Bombay), which held that the doctrine of unjust enrichment does not apply when the duty is collected without authority of law. The court emphasized that the issue of unjust enrichment is a matter between the petitioner and its consumers and cannot be used to deny the refund.

4. Applicability of Rule 11 of the Central Excise Rules, 1944, and Section 11B of the Central Excise Act:
The court examined Rule 11 of the Central Excise Rules, 1944, which was later replaced by Section 11B of the Central Excise Act. The court noted that under Section 11B, the limitation of six months for claiming a refund does not apply if the duty was paid under protest. The court also pointed out that the doctrine of unjust enrichment is not recognized in the Act. The court held that Rule 11 could not be invoked by the Union of India where the duty was collected without the authority of law.

Conclusion:
The court quashed the order confirming the levy of excise duty on the cost of jute bags and directed the respondents to refund the amount to the petitioner. The court also recorded the petitioner's undertaking to reimburse its consumers for the excise duty collected from them, thus ruling out any unjust enrichment. The writ petition was allowed, and leave to appeal to the Supreme Court was granted on the questions of whether post-manufacturing expenses are liable to excise duty and whether the petitioner is entitled to a refund of the excise duty collected. The operation of the judgment was not stayed, but the refund was conditioned on the petitioner executing a bank guarantee for the amount in a nationalized bank.

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