1996 (12) TMI 50 - SC - Central Excise

Refund claims - jurisdiction of civil courts Held that - The jurisdiction of civil courts is not barred in entirety regarding the attack against the levy and/or claim for refund The procedure to obtain refund is made exclusive as per Section 11B(3) of the Act. The application, therefore, shall be made under Section 11B(1) and dealt with by the concerned authority under Section 11B(2) of the Act. These provisions mandate amongst other things that the person claiming refund should substantiate that the incidence of duty has not been passed on by him to any other person. The application should also be filed within the time prescribed in the said sub-section. Section 11B(2) and Section 11B(3) go together. Under Section 11B(2), in certain specified cases, the duty paid will be refunded to the applicant. One such case is, the duty of excise paid by the manufacturer, if he had not passed on the incidence of such duty to any other person and substantiates the same. In cases not falling within the proviso to Section 11B(2) of the Act the duty collected will be credited to the Consumer Welfare Fund and the said Fund will be utilised as per Section 12D of the Act. As stated, Section 11B(2) and Section 11B(3) go together. The applications for refund made before the commencement of the Amendment Act, 1991, shall be deemed to have been made under Section 11B(1) of the Act as amended and it shall be dealt with in accordance with Section 11B(2) of the Act. The Section contemplates disposal of the applications pending on the date of the Amendment Act as also fresh applications filed after the Amendment Act, 1991, as per the amended provisions. Counsel for the assessees urged that the provisions relating to refund and, in particular, Section 11B(2) and (3) as amended in 1991 cannot apply to Refund' made or due as per orders passed by Courts, in a suit1. or in a petition under Article 226 of the Constitution of India, which have become final. Refunds ordered by the statutory authority concerned which have become final. It need hardly be stated, that Section 11B(1), the proviso(I) thereto, Section 11B(2) and Section 11B(3) read together will apply, only to (1) refund applications made under the statute and filed before the Amendment of the Act and still pending on the date of commencement of Amendment Act, 1991 and (2) applications contemplated under law to obtain refund and filed after the commencement of the Amendment Act, 1991.

Summary

Issues Involved:
1. Refund of excise duty paid under mistake of law.
2. Applicability of the doctrine of unjust enrichment.
3. Constitutional validity of the amendments made by the Central Excises and Customs Laws (Amendment) Act, 1991.
4. Jurisdiction of civil courts in tax matters.
5. Impact of the amendments on pending and future refund claims.
6. Interpretation of Article 265 of the Constitution.
7. The concept of "passing on" the tax burden to consumers.
8. The role of the Consumer Welfare Fund.

Detailed Analysis:

1. Refund of Excise Duty Paid Under Mistake of Law:
The primary issue revolves around whether a refund of excise duty paid under a mistake of law can be withheld on the ground of unjust enrichment. The court held that if the person claiming the refund has passed on the burden of duty to another and has not really suffered any loss or prejudice, there is no question of reimbursing him. He cannot successfully sustain an action for restitution based on Section 72 of the Indian Contract Act. The court emphasized that the person claiming restitution should prove "loss or injury" to him, which means he has not passed on the liability.

2. Applicability of the Doctrine of Unjust Enrichment:
The court discussed the doctrine of unjust enrichment, which is founded upon the principle that no person can seek to collect the duty from both ends. If a person has passed on the burden of duty to another, he has not suffered any real loss or prejudice. The court held that the doctrine of unjust enrichment is a just and salutary doctrine and should be applied to prevent a person from being unjustly enriched at the expense of others.

3. Constitutional Validity of the Amendments Made by the Central Excises and Customs Laws (Amendment) Act, 1991:
The court examined the amendments made by the 1991 Act, which introduced Sections 11B, 11D, and 12A to 12D. The amendments were challenged on the grounds of being unconstitutional, arbitrary, and unreasonable. The court held that the amendments are constitutionally valid and unexceptionable, except to the extent that they apply to refunds already ordered by the court or statutory authorities, which have become final.

4. Jurisdiction of Civil Courts in Tax Matters:
The court reiterated the principles laid down in previous cases, stating that the jurisdiction of civil courts is not entirely barred in tax matters. An action by way of suit or writ petition under Article 226 of the Constitution is maintainable to assail the levy or order which is illegal, void, or unauthorized, and to claim a refund in cases where the levy is unconstitutional or illegal.

5. Impact of the Amendments on Pending and Future Refund Claims:
The court clarified that the amendments to Section 11B apply to all pending proceedings where the refund has not been made finally and unconditionally. However, the amendments do not apply to refunds already ordered by the court or statutory authorities, which have become final. The court also directed that in cases where writ petitions, writ appeals, or suits claiming refund of excise duties/customs duties are pending as on the date of the judgment, the petitioners/appellants/plaintiffs may file applications for refund under Section 11B within sixty days from the date of the judgment.

6. Interpretation of Article 265 of the Constitution:
The court emphasized that Article 265 of the Constitution, which states that no tax shall be levied or collected except by authority of law, must be interpreted in light of the goal and ideals set out in the Preamble to the Constitution and in Articles 38 and 39. The court held that the concept of economic justice demands that in the case of indirect taxes, the tax collected without the authority of law shall not be refunded to the petitioner/plaintiff unless he establishes that he has not passed on the burden of duty to a third party.

7. The Concept of "Passing On" the Tax Burden to Consumers:
The court discussed the concept of "passing on" the tax burden to consumers and held that the burden of proving that the liability has not been passed on lies on the taxpayer. The court noted that this is a matter within the exclusive knowledge of the taxpayer, and the Revenue will not be in a position to have an in-depth analysis in the innumerable cases to ascertain and find out whether the taxpayer has passed on the liability.

8. The Role of the Consumer Welfare Fund:
The court examined the provisions related to the Consumer Welfare Fund, which was established by the 1991 amendments. The court held that the provisions related to the Fund are not a device to retain illegally collected taxes by the State. The Fund is meant to be utilized for the welfare of consumers, and the court directed that the scheme or set-up envisaged by Sections 12C and 12D should be evaluated in-depth to ensure that it is meaningful and effective.

Conclusion:
The court upheld the constitutional validity of the amendments made by the Central Excises and Customs Laws (Amendment) Act, 1991, except to the extent that they apply to refunds already ordered by the court or statutory authorities, which have become final. The court also emphasized the importance of Article 265 of the Constitution and held that any tax collected without the authority of law must be refunded to the person from whom it was collected, unless it is established that the burden of duty has been passed on to another person. The court directed that pending writ petitions, writ appeals, or suits claiming refund of excise duties/customs duties may be disposed of in light of the principles laid down in the judgment.