1986 (1) TMI 109 - HC - Central Excise

Summary

Issues Involved:
1. Classification of the petitioners' product under Tariff Item 3-A.
2. Maintainability of a writ petition for refund under Article 226.
3. Unjust enrichment and the requirement to prove non-passing of excise duty to customers.

Issue-wise Detailed Analysis:

1. Classification of the petitioners' product under Tariff Item 3-A:
The primary issue is whether the products manufactured by the petitioners, specifically scented betel-nut powder, fall under Tariff Item 3-A of the Central Excises and Salt Act, 1944. Tariff Item 3-A defines "Pan Masala" as any preparation containing betel nuts and other ingredients, sold in unit containers, and commonly known as "Pan Masala." The court emphasized that the essential criterion is that the product must be commonly known as Pan Masala. The court found that the petitioners' product, scented betel-nut powder, is not commonly known as Pan Masala. Therefore, it cannot be classified under Tariff Item 3-A. The court relied on the principle that the classification should be based on the common parlance and commercial understanding of the product, as established in Union of India v. G.W.F. Mills and Dunlop India Ltd. v. Union of India.

2. Maintainability of a writ petition for refund under Article 226:
The court addressed whether a writ petition for a refund is maintainable under Article 226 of the Constitution. The Supreme Court in Suganmal v. State of Madhya Pradesh held that a mere writ petition for a refund is not maintainable unless the assessment is challenged and set aside. However, in this case, the petitioners sought a declaration that their product does not fall under Tariff Item 3-A, and the refund was a consequential relief. The court held that once the declaration is made in favor of the petitioners, there is no impediment to directing a refund. The court concluded that there is no justification for driving the petitioners to a suit since the issue does not involve any controversial facts or evidence. The court also noted that the remedy under the Constitution cannot be taken away by the amendment to the Central Excises and Salt Act, 1944.

3. Unjust enrichment and the requirement to prove non-passing of excise duty to customers:
The court considered the issue of unjust enrichment and the requirement for the petitioners to prove that they had not passed on the excise duty to the customers. The petitioners filed affidavits stating that they had not passed on the excise duty. The court referred to the decision in Madras Aluminum Co. Ltd. v. Union of India, which held that if the petitioners have passed on the excise duty to the consumers, they are not entitled to a refund. The court directed the Assistant Collector to examine whether the petitioners had passed on the excise duty to the customers. If the Assistant Collector concludes that the excise duty was not passed on, the petitioners should be granted a refund. Otherwise, a reasoned order should be passed, which the petitioners can challenge through appropriate legal channels.

Conclusion:
1. The product manufactured by the petitioners, scented betel-nut powder, cannot be classified as Pan Masala under Tariff Item 3-A of the Central Excises and Salt Act, 1944.
2. The impugned demand and show cause notice are quashed.
3. The petitioners are entitled to a refund subject to the decision of the Assistant Collector regarding the passing on of excise duty to customers. The Assistant Collector is directed to decide this issue based on the evidence provided by the petitioners. The writ petitions are allowed with costs.