1990 (9) TMI 83 - HC - Central Excise

Refund Writ jurisdiction Duty paid under mistake of law is without authority of law Limitation Unjust enrichment

Summary

Issues:
1. Classification of adhesive under Tariff Item No. 15(1) (i) of the Central Excises and Salt Act, 1944.
2. Claim for refund of excise duty paid under mistake of law.
3. Entitlement to refund under Article 226 of the Constitution.
4. Concept of unjust enrichment and its application in the case.

Analysis:

Issue 1: Classification of adhesive under Tariff Item No. 15(1) (i)
The petitioners manufactured 'Insulation Adhesive P80' by dissolving polyvinyl alcohol powder in water. Initially, excise duty was paid at 30% ad valorem, later increased to 40% ad valorem. A communication from the Collector of Central Excise stated that changing the form of duty paid resins by adding water did not amount to manufacture. The petitioners sought a revised classification, which was approved, leading to a refund claim for duty paid under a mistaken classification.

Issue 2: Claim for Refund under Mistake of Law
The petitioners realized the duty was paid under a mistake of law after the communication from the Collector. They applied for a refund for the period of incorrect classification. The Assistant Collector granted one refund claim but rejected another, stating it was not entertainable under the Central Excise Rules. The Assistant Collector acknowledged the duty was paid under a mistake of law, leading to a challenge of this decision.

Issue 3: Entitlement to Refund under Article 226 of the Constitution
The petitioners argued that the defense of limitation was not available to the department in proceedings under Article 226 when duty was paid under a mistake of law. It was contended that the duty recovered without legal authority must be refunded, as established by previous court decisions. The Assistant Collector's finding of duty paid under a mistake of law supported the petitioners' claim for refund.

Issue 4: Concept of Unjust Enrichment
The respondents raised the concept of unjust enrichment, arguing that refunding the duty would lead to unjust enrichment. Citing a Full Bench decision, it was noted that the burden of proof regarding unjust enrichment lies with the revenue department. The court found that the revenue department failed to establish that the tax burden had been shifted to customers, thus rejecting the plea of unjust enrichment. Consequently, the impugned order was set aside, and the petitioners were entitled to a refund of the duty wrongly paid.

In conclusion, the High Court ruled in favor of the petitioners, setting aside the Assistant Collector's order and remitting the proceedings for the determination of the refund amount. The Assistant Collector was directed to refund the duty by a specified date, with interest payable by the department if the refund was delayed. The court made no order as to costs in the circumstances of the case.