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TMI Blog1996 (12) TMI 50X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ness of the five-Judge Bench decision in Sales Tax Officer, Benars Ors. v. Kanhaiyalal Mukundlal Saraf (1959 S.C.R. 1350). When the matter came up before a seven-Judge Bench, it was brought to our notice that a seven-Judge Bench has followed the decision in Kanhaiyalal in State of Kerala v. Aluminium Industries Limited [(1965) 16 S.T.C. 689]. Accordingly, the matters were directed to be posted before a nine-Judge Bench. Meanwhile, several matters raising identical or connected issues got tagged on. Leave granted in Special Leave Petitions. 2. In the year 1991, the Parliament enacted the Central Excises and Customs Law (Amendment) Act, 1991 [being Act 40 of 1991] substantially amending the provisions relating to refund in both the Central Excises and Salt Act and the Customs Act, besides introducing several new provisions therein. Writ petitions challenging the validity of the said amendment are also posted before us. Apart from the validity, the meaning and purport of the amended provisions also falls for consideration. For the sake of convenience, we would refer to the relevant provisions in the Central Excises and Salt Act inasmuch as the relevant provisions in both the enactment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich too was introduced with effect from the same date and by the same Amendment Act [Act 25 of 1978], provides for refund of duties. Chapter-III deals with powers and duties of officers and land holders while Chapter-IV deals with transport by sea. Chapter-V contains special provisions relating to salt. Chapter-VI deals with adjudication of confiscations and penalties while Chapter VI-A introduced by the Finance No. 2 Act, 1980 [with effect from October 11, 1982] provides for appeals against the orders of the original and appellate authorities. In certain matters, a reference is provided to the concerned High Court and in other cases, a direct appeal to this Court is provided from the orders of the Tribunal. Chapter-VII contains supplementary provisions. Section 37 confers upon the Central Government the power to make rules to carry into effect the purposes of the Act and in respect of several matters mentioned therein. 5. Rules have been made by the Central Government in exercise of power conferred upon them by Section 37. The rules are very elaborate and provide for various matters and situations, to all of which it is not necessary to refer for the purposes of this case. Suffice ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9;, the words `five years' were substituted. Explanation. - (ii) relevant date'(ii) means, (a) in the case of excisable goods on which duty of excise has(a) not been levied or paid or has been short-levied or short-paid.......... (C) in any other case, the date on which the duty is to be paid(c) under this Act or the rules made thereunder; 7. Coming to Section 11B, before it was amended by Act 40 of 1991, it read as follows (again omitting portions not necessary for the present purposes) : 11B.Claim for refund of duty. Any person (1) claiming refund of any duty of excise may make an application for refund of such duty to the Assistant Collector of Central Excise before the expiry of six months from the relevant date : Provided that the limitation of six months shall not apply where any duty has been paid under protest. (2) If on receipt of any such application, the Assistant Collector of Central Excise is satisfied that the whole or any part of the duty of excise paid by the applicant should be refunded to him, he may make an order accordingly. (3) Whereas a result of any order passed in appeal or revision under this Act refund of any duty of excise becomes due to any perso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rules on the basis of the value or the rate of duty, the period of six months shall be computed from the date on which the duty is adjusted after final determination of the value or the rate of duty, as the case may be. (2) If on receipt of any such application the Assistant Collector of Central Excise is satisfied that the whole or any part of the duty paid by the applicant should be refunded to him, he may make an order accordingly. (3) Where as a result of any order passed in appeal or revision under the Act, refund of any duty becomes due to any person, the proper officer may refund the amount to such person without his having to make any claim in that behalf. (4) Save as otherwise provided by or under these rules no claim for refund of any duty shall be entertained. Explanation. - For the purposes of this rule, `refund' includes rebate referred to in Rules 12 and 12A. 10. We may now set out Section 11B, as amended by Act 40 of 1991. (Even subsequent to 1991, there have been certain minor amendments to the said section.) As it stands today, Section 11B reads as follows (portions not necessary for the purposes of the present controversy omitted) : 11B.Claim for refund of du ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Government may, by notification in the Official Gazette, specify : Provided further that no notification under clause (f) of the first proviso shall be issued unless in the opinion of the Central Government the incidence of duty has not been passed on by the persons concerned to any other person. (3) Notwithstanding anything to the contrary contained in any judgment, decree, order or direction of the Appellate Tribunal or any Court or in any other provision of this Act or the rules made thereunder or any other law for the time being in force, no refund shall be made except as provided in sub-section (2). Explanation. - For the purposes of this section,....... 'relevant date' means (f) in any other case, the date of payment of duty. 11. The said Amendment Act also amended Section 11C, besides introducing Section 11D and an entire new chapter, Chapter IIA. Since Section 11C does not fall for our consideration, we need not refer to it. Section 11D reads as follows : 11D. Duties of excise collected from the buyer to be deposited with the Central Government. Notwithstanding anything to the- (1) contrary contained in any order or direction of the appellate Tribunal or any Court o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urposes of this Fund. 12D. Utilisation of the FundAny money. - (1) credited to the Fund shall be utilised by the Central Government for the welfare of the consumers in accordance with such rules as that Government may make in this behalf. (2) The Central Government shall maintain or, if it thinks fit, specify the authority which shall maintain, proper and separate account and other relevant records in relation to the Fund in such form as may be prescribed in consultation with the Comptroller and Auditor-General of India. 13. The refund of excise duties - which is the main topic of the controversy herein - was thus governed by different provisions over the years. To wit : (i) upto August 6, 1977, the refund of duties was governed by Rule 11, as it stood upto that date; (ii) between August 6, 1977 and November 16, 1980, refund of duties was governed by Rule 11, as it obtained during the said period; (iii) From November 16, 1980 upto September 19, 1991 [date of coming into force of 1991 (Amendment) Act], the refund of duties was governed by Section 11B, as it stood during the said period; (iv) with effect from September 19, 1991, the refund of duties is governed by Section 11B, as ame ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting to refund - and conversely the bar to other proceedings created by them - is specific to the subject of refund and is apart from and in addition to the general bar implicit in the Act or expressed in some of its other provisions, as the case may be. Because the Act creates new rights and liabilities and also provides the machinery for assessment and adjudication of those rights and liabilities, a bar to the jurisdiction to civil court arises by necessary implication - an aspect dealt with at some length later. [Also see Principle No. 3 enunciated in Kamala Mills Ltd. v. State of Bombay [1966 (1) S.C.R. 64] dealt with in Paras 30 to 33.] The point to be stressed is that the exclusive nature of the refund provisions expressly declared in Rule 11 and Section 11B, at all points of time, is an express and specific one contained in a special statute. It is not the usual finality clause found in several statutes; it is much more. 15. The validity of the aforesaid provisions (providing a period of limitation for making claims of refund and declaring that no refund claim shall be entertained except under and in accordance with the said provisions) has never been challenged seriously. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich tax is levied is struck down as unconstitutional for transgressing the constitutional limitations. This class of cases, we may call, for the sake of convenience, as cases of unconstitutional levy . In this class of cases, the claim for refund arises outside the provisions of the Act, for this is not a situation contemplated by the Act. 18. Second situation is where the tax is collected by the authorities under the Act by mis-construction or wrong interpretation of the provisions of the Act, Rules and Notifications or by an erroneous determination of the relevant facts, i.e., an erroneous finding of fact. This class of cases may be called, for the sake of convenience, as illegal levy. In this class of cases, the claim for refund arises under the provisions of the Act. In other words, these are situations contemplated by, and provided for by, the Act and the Rules. 19. The above distinction is not only accepted in all jurisdictions but is also not disputed before us. 20. So far as the first category (unconstitutional levy) is concerned, there is no dispute before us that it is open to the person claiming refund to either file a suit for recovery of the tax collected from him or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the duty paid by him on the ground that he has discovered the mistake of law when the Supreme Court has declared the law in the case of another manufacturer and whether he can say that he will be entitled to file a suit or a writ petition for refund of the duty paid by him within three years of such discovery of mistake? Instances of this nature can be multiplied. It may not be a decision of the Supreme Court that lead `X' to discover his mistake; it may be a decision of the High Court. It may also be a case where `X' fights up to first appellate or second appellate stage, gives up the fight, pays the tax and then pleads that he has discovered the mistake of law when the High Court has declared the law. The fact is that such claims have been entertained both in writ petitions and suits until now, purporting to follow the law declared in Kanhaiyalal, and are being allowed and decreed, sometimes even with interest. The Union of India says that this can never be. It says, a manufacturer must fight his own battle and only if he succeeds therein, can he claim refund. He cannot take advantage of success of another manufacturer and that no suit or writ is maintainable by him for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... res the Uttar Pradesh Legislature. The respondent applied for refund of tax paid by it basing its claim on Budh Prakash Jai Prakash. It was declined by the Commissioner of Sales Tax. Thereupon, the respondent filed a writ petition in the Allahabad High Court seeking the quashing of the aforesaid three assessment orders and for a direction to refund the tax collected. Meanwhile, the judgment of the Allahabad High Court in Budh Prakash Jai Prakash was affirmed by this Court on May 3, 1954. The writ petition filed by the respondent came up for hearing before a learned Single Judge on November 30, 1956 and was allowed, as prayed for. In the special appeal filed by the department, it was contended that the said amount having been paid under a mistake of law was not recoverable. The department, however, raised no objection to the maintainability of the writ petition. Indeed, it expressly gave it up. The Division Bench applied Section 72 of the Contract Act and affirmed the judgment of the learned Single Judge. The matter was then brought to this court. In this court, it was sought to be contended that the only course open to the respondent was to follow the procedure prescribed by the Ut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at having regard to the fact that the payment of tax by the respondent was voluntary and also because the monies so received by the State have been spent away by it, the respondent was not entitled to recover the said amounts. (The appellant-Revenue sought to bring its case within the observations of the Privy Council, quoted hereinabove, which speak of the plaintiff being disentitle to relief on grounds of estoppel or otherwise .) Both the objections were rejected by this Court. With respect to the objection that the payments were voluntary and, therefore, not recoverable, this Court observed that if the State of U.P. was not entitled to receive the sales tax on these transactions, the provision in that behalf being ultra vires, that could not avail the State and the amounts were paid by the respondent even though they were not due by contract or otherwise. The respondent committed the mistake in thinking that the monies paid were due when in fact they were not due and that mistake, on being established, entitled it to recover the same back from the State under Section 72 of the Indian Contract Act - The Court then dealt with the argument that under Section 72, monies paid by way ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the State of Uttar Pradesh had not retained the monies paid by the respondent but had spent them away in the ordinary course of the State business would not make any difference to the position and that the respondent was entitled to recover back the monies paid by it under a mistake of law under the plain terms of Section 72. 25. It is well to remember that (a) this was a case where the relevant provisions of the Uttar Pradesh Sales Tax Act were held to be ultra vires the Uttar Pradesh Legislature, i.e., beyond the legislative competence of the State Legislature and (b) it was a case where the assessee filed a writ petition in the High Court seeking the quashing of relevant assessment orders and for a consequential order of refund, basing its claim upon the judgment of the High Court in another assessee's case. In other words, orders in the assessee's own case had become final. He sought to reopen them, by way of a writ petition, in view of the invalidation of the relevant provisions of the Act by High Court and this Court in the case of another assessee. Yet another circumstance to be noticed is that though the Uttar Pradesh Sales Tax Act contained a provision providi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... refund of Rs. 54,375-5-0. Only the State of Kerala appealed. The respondent - assessee's case was that when it paid the tax, it did not know that the said transactions were not exigible to tax. It claimed that it discovered its mistake only after the payment. The claim for refund was resisted by the State of Kerala contending inter alia that inasmuch as the tax was paid voluntarily, it was not recoverable in law. The High Court had rejected the State's plea relying upon the decision of this Court in Kanhaiyalal. The appeal was heard by a seven-Judge Bench of this Court which observed that in the light of the decision in Kanhaiyalal, money paid under a mistake of law is recoverable under Section 72 of the Contract Act and that there can be no question of estoppel when the mistake of law is common to both the parties. The Bench further observed, in such a case where tax is levied by mistake of law it is ordinarily the duty of State, subject to any provision in the law relating to sales tax (and no such provision has been brought to our notice), to refund the tax. If refund is not made, remedy through court is open subject to the same restrictions and also to the period of li ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irtue of Section 20 of the Bombay Act. The plea was upheld by the trial court and the suit dismissed. On appeal, the High Court affirmed. The matter was then brought to this Court. Three questions were raised for consideration before this Court, viz., (1) whether an assessment in violation of a statutory provision could claim the status of an assessment made under the Act within the meaning of Section 20; (2) whether the decision by the appropriate authority as to the nature of the transaction was a decision on a collateral fact, the finding on which alone conferred jurisdiction on the authority to levy the tax, or was it a decision on a question of fact which had to be determined by the authority before itself as one of the issues before it; and (3) whether Section 20 was valid if construed as being a complete bar to a suit such as filed by the appellant. 31. Section 20 of the Bombay Act read as follows : 20. Save as is provided in section 23, no assessment made and no order passed under this Act or the rules made thereunder by the Commissioner or any person appointed under section 3 to assist him shall be called into question in any Civil Court, and save as it provided in section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mes pertinent to enquire whether remedies normally associated with actions in civil courts are provided by the statute or not. In other words, if the court comes to the conclusion that the Act does not provide any remedy to make a claim for recovery of illegally collected tax and yet Section 20 prohibits such a claim being made before an ordinary civil court, the court might hesitate to construe Section 20 as creating an absolute bar. If for any reason, Section 20 is construed strictly as constituting an absolute bar, the questions may arise with respect to its constitutionality. Looked at from the above angle, it cannot be said that the Bombay Act does not provide an alternative remedy for the claim which the appellant put forward in the suit. Section 22B empowered the appellate/revisional authority under the Act to extend the period of limitation if they are satisfied that party applying for such extension had sufficient cause for not preferring the appeal and revision during the prescribed period. Section 23A further provided for rectification of mistakes. In this view of the matter, it cannot be said that the claim of the appellant could not have been agitated under and in acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cts. Both the trial court and the High Court dismissed the suit relying upon the decision of the Privy Council in Raleigh Investment Co. Ltd., and observing that the only remedy of the appellant was to pursue the machinery provided by the statute. This Court by a majority [Subba Rao, Wanchoo and Sikri, JJ. - Shah and Ramaswami, JJ. dissenting] did not agree with the proposition in Raleigh Investment Co. Ltd. that a contention relating to the validity of the Act can be raised before the authorities under the Act. The Court held that an authority created by a statute cannot question the vires of the statute or any of its provisions and that the authorities must act under the Act and not outside it. The Court further held that if the authorities act under a provision which is invalid being beyond the competence of the legislature enacting it, it cannot be said that the authorities are acting under the Act. The question relating to the validity of the Act, the Court held, cannot also be gone into by the High Court acting in its special advisory jurisdiction provided by Section 66 of the Madras Act. Accordingly, it was held that the suit for refund was maintainable and that the period o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not go into that question on a revision or reference from the decision of the Tribunals. (4) When a provision is already declared unconstitutional or the constitutionality of any provision is to be challenged, a suit is open. A writ of certiorari may include a direction for refund if the claim is clearly within the time prescribed by the Limitation Act but it is not a compulsory remedy to replace a suit. (5) Where the particular Act contains no machinery for refund of tax collected in excess of constitutional limits or illegally collected a suit lies. (6) Questions of the correctness of the assessment apart from its constitutionality are for the decision of the authorities and a civil suit does not lie if the orders of the authorities are declared to be final or there is an express prohibition in the particular Act. In either case the scheme of the particular Act must be examined because it is a relevant enquiry. (7) An exclusion of the jurisdiction of the Civil Court is not readily to be inferred unless the conditions above set down apply. 36. In the above summary, Proposition No. 5, however, requires a little elucidation. A reading of the judgment shows that the said proposition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the ground that the dealers have failed to pass on the said amounts to their customers, the authorities forfeited the said amounts under Section 21(4) of the Bombay Sales Tax Act, 1953. The dealers filed a writ petition in the Bombay High Court challenging the constitutional validity of Section 21(4). A learned Single Judge dismissed the writ petition holding that inasmuch as the petitioners-dealers have defrauded their customers, they were not entitled to any relief under Article 226. The appeal preferred by the dealers was dismissed by the Division Bench of the High Court holding that even if there was a violation of petitioners' fundamental right, the High Court was not bound to come to their help in view of their conduct. The dealers accordingly paid up the said amount in instalments between August, 1959 and August, 1960. More than seven years later, i.e., on September 29, 1967, this Court struck down Section 12(A)(iv) of the Bombay Sales Tax Act, 1946 corresponding to Section 21(4) of the 1953 Act in Kantilal Babulal v. H.C. Patel [21 S.T.C. 174]. On February 9, 1968, the petitioners filed a writ petition in this Court under Article 32 of the Constitution for refund of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e petitioner to invoke analogy of the Article in the Limitation Act. The grounds on which he moved the Court might well have impressed this court which might also have decided the question of the unconstitutionality of the Act as was done in the subsequent litigation by another party. The present petitioner should have taken the right ground in the High Court and taken it in appeal to this Court after the High Court decided against it. Not having done so and having abandoned his own litigation years ago, I do not think that this Court should apply the analogy of the Article in the Limitation Act and give him the relief now. [Emphasis added] 38. Bachawat, J. held that a writ under Article 32 will no doubt issue as a matter of course where infringement of fundamental right is established but that does not mean that in giving relief under the said article, this Court would ignore all laws and procedure. The learned Judge also emphasised the discretionary nature of the jurisdiction. 39. Reference may also be made to the decision of K.K. Mathew, J. (sitting with Alagiriswami, J.) in D. Cawasji Co. etc. v. State of Mysore Anr. [1978 (2) E.L.T. (J 154) SC) = 1975 (2) S.C.R. 511]. The appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that it is not open to the appellant to split up his claim for refund and file writ petitions in a piece-meal fashion. The decision is significant for pointing out the irrational and unjust consequence of the holding in Bhailal Bhai and Aluminium Industries which implicity followed Kanhaiyalal. The decision is also significant for pointing out the adverse impact on public interest inherent in holding (See Kanhaiyalal again) that the plea that the State has expended the taxes on public purposes is no defence to a claim for refund. 41. We may at this juncture refer to a very significant decison in R.S. Joshi v. Ajit Mills [1978 (1) S.C.R. 338] rendered by a seven-Judge Constitution Bench. Section 46 of the Bombay Sales Tax Act, 1959 provided that no person shall collect any sum by way of sales tax which is not exigible according to law. Section 37 provided for penalties in case of violation of the provisions of Section 46. Not only the person so collecting was liable to pay a penalty not exceeding Rupees two thousand but in addition thereto, any sum collected by the person by way of tax in contravention of Section 46 was also liable to be forfeited to the State Government. The const ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ck down by this Court in Kewal Krishan Puri v. State of Punjab Ors. [1979 (3) S.C.R. 1217]. The enhancement of market fee from two to three percent was held to be bad, whereupon the traders demanded refund of the excess market fee collected from them. This Court held that though refund of the fee so collected may be legally due to the traders, the traders may be repaid amounts only to the extent they have not passed on the burden to their customers. To the extent they have passed on, it held, they were not entitled. This principle was deduced from the concept of distributory justice underlying Articles 38 and 39 of the Constitution of India as also from the discretionary nature of the power under Article 226 of the Constitution. Following the principle enunciated by this Court in Newabgunj Sugar Mills v. Union of India Ors. [1976 (1) S.C.R. 803], the Court devised a scheme of refund by the market committees providing for refund of amounts to those from whom illegal collections had been made by the traders. 44. Amar Nath Om Prakash v. State of Punjab Ors. etc. [1985 (2) S.C.R. 72] was also a case arising with reference to market fee, i.e., an indirect tax. Section 23A of the Punjab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gar for different sugar factories. The supply price was a little higher than the ex-factory price. The notification required the difference between the supply price and the ex-factory price to be credited to the Madhya Bharat Government Sugar Fund. Pursuant to the demands made by the State, the sugar mills deposited certain amounts into the said Fund under protest and then instituted suits for refund of the amounts so deposited. The High Court upheld the plea of the sugar mills that the Director of Civil Supplies had no authority in law to fix the ex-factory prices. This meant that the sugar mills were entitled to the refund of the amounts paid by them into the Fund. The State appealed to this Court against the said decision. Following the principle of Shiv Shankar Dal Mills and Amar Nath Om Prakash, this Court held that even though there is no specific provision in Madhya Bharat Act providing that the sugar mills are not entitled to refund in case they have passed on the burden to the purchasers, the said principle can safely be applied to the facts of the case before them. The Court observed : The burden of paying the amount in question was transferred by the respondents to the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing in appeal before the Supreme Court. It was held that the amended provisions do apply to such a case as well, notwithstanding the fact that the refund amount was drawn out by the manufacturer, under the orders of the Court, whether subject to furnishing of adequate guarantees or otherwise. The Court held further that by virtue of the 1991 (Amendment) Act, the Court is bound to take notice of the change in law governing refunds and accordingly it called upon the manufacturer-assessee to furnish documentary or other evidence to establish that the amount of duty of excise in relation to which the refund is claimed had not been passed on by him to any other person. Since the manufacturer could not establish the said fact, the Court declined to grant refund in terms of the amended Section 11B. It must be noted that the plea of unjust enrichment was not specifically raised before the High Court and was raised only in the appeal before this Court. The objection of the manufacturer on this count was repelled saying that since the 1991 Amendment was not there, the non-raising of the said defence cannot preclude the Revenue from raising the said plea after the coming into force of the Ame ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eed that the law can place shorter time-limits for making such claims of restitution and referred in that connection to the position obtaining in German Law where formal objection has to be lodged within one month of the notification to enable a citizen to claim refund of amounts collected unlawfully. The German Law further provides that one citizen cannot benefit from the successful formal objection of another citizen; the rule is that the person should himself object and take proceedings within the prescribed time-limit. The minority (Lord Keith of Kinkel and Lord Jauncey of Tullichettle), however, stuck to the prevailing view that taxes paid under a mistake of law are not recoverable. 53. Strictly speaking, this decision is of little relevance to us. Firstly, it deals with a direct tax. In the case of a direct tax, there can be no question of passing on the burden of the tax to others as in the case of an indirect tax. All that the decision says, reversing the hitherto prevailing theory, that taxes paid under a mistake of law ought to be refunded. 54. CANADA : In Air Canada et al v. The Queen in Right of British Columbia et al [59 D.L.R. (4th) 161], the learned Judges (including ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dern Government would be driven to the inefficient course of re-imposing it either on the same or a new generation of tax-payers to finance the operations of the Government. This rule, however, was held inapplicable where the tax is extracted from a tax-payer through a misapplication of law. The following observations from his opinion are relevant : While it will take some time for the courts to work out the limits of the developing law of restitution, it is useful on this point to examine the American experience. Professor George C. Palmer, in his work, The Law of Restitution, makes the following comment (1986 Supplement, at P. 255) : There is no doubt that if the tax authority retains a payment to which it was not entitled it has been unjustly enriched. It has not been enriched at the tax-payer's expense, however, if he has shifted the economic burden of the tax to others. Unless restitution for their benefit can be worked out, it seems preferable to leave the enrichment with the tax authority instead of putting the judicial machinery in motion for the purpose of shifting the same enrichment to the tax-payer. In my view there is merit to this observation, and if it were neces ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... claimant could establish the burden of the tax. [Emphasis added] 56. Wilson, J., however, differed with the majority on the effect of passing on of the burden of tax by the plaintiff. The learned Judge opined that where taxes are recovered under an unlawful statute, they must be returned irrespective of the fact whether the tax-payer has passed on the burden to its customers or not. The learned Judge refused to accept the plea of fiscal chaos, as a sufficient ground for denying the refund. 57. It is brought to our notice by Sri F.S. Nariman that in another judgment delivered on the same day by the Canadian Supreme Court in Canadian Pacific Airlines Limited v. British Columbia [(1989) 59 D.L.R. (4th) 218], the Court held that the C.P. Air could recover the social service tax paid on purchases of equipment and parts but that the tax paid by it on alcoholic beverages is not recoverable for the reason that the latter tax was imposed on passengers who consume the liquor - and not on C.P. Air. Sri Nariman has also placed a copy of the judgment in this case before us. It is evident from a reading of the judgment that it was not a case of tax levied and collected under an invalid statute ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s a very complex undertaking. And finally, it has long been thought that, despite Lord Mansfield's statement in Moses v. Macferian, the basis of restitutionary relief is not compensation for loss or damage sustained but restoration to the plaintiff of what has been taken or received from the plaintiff without justification. [Emphasis supplied] 60. It is obvious that the learned Chief Justice looked at the matter from the point of view of the law of restitution alone which fact would also be evident from the following further observations [at P. 63] : As between the plaintiff and the defendant, the plaintiff having paid away its money by mistake in circumstances in which the defendant has no title to retain the moneys, the plaintiff has the superior claim. The plaintiff's inability to distribute the proceeds to those who recoup the plaintiff was, in my view, an immaterial consideration. 61. Dawson, J. also took the same view. The following observations of the learned Judge, however, indicate the nature of the violation in this case, which is of quite some significance : No question such as that which arose in Air Canada v. British Columbia [(1989) 59 DLR (4th) 161] would ari ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Court of the United States of America in United States v. Jefferson Electric Manufacturing Co. [78 L. Ed. 859]. Section 424 of the Revenue Act, 1928 provided that no refund shall be made of any amount paid by or collected from any manufacturer, producer, or importer in respect of the tax imposed by subdivision (3) of Section 600 of the Revenue Act of 1924, or sub-division (3) of Section 900 of the Revenue Act of 1921, or of the Revenue Act of 1918, unless....(2) It is established to the satisfaction of the Commissioner that such amount was in excess of the amount properly payable upon the sale or lease of an article subject to tax, or that such amount was not collected, directly or indirectly, from the purchaser or lessee, or that such amount although collected from the purchaser or lessee, was returned to him . The said provision was attacked as violative of the due process clause in the Fifth Amendment to the United States Constitution. The attack was repelled holding that the provision being based upon equitable principles which underlie an action in assumpsit for money had and received is not an unreasonable provision. The Court further observed that an action in assumpsit fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... day to the present, has been constantly resorted to in all cases coming within its broad principles. It approaches nearer to a bill in equity than any other common law action. 65. We express our broad agreement with the approach adopted by the United States Supreme Court. 66. Sri Nariman, however, referred to the second alternate condition imposed by Section 424 which provided that if the manufacturer gives a bond undertaking to refund the same to purchaser within a particular period, he would be entitled to claim refund. Learned counsel submitted that such a condition could have been imposed in the Central Excises and Customs Act as well. He submitted that even if it is legitimate for the Parliament to prescribe that in case the money was passed on, it must be made over to the person from whom it was collected, all this should be done through the medium of the manufacturer/taxpayer and not through any other medium. We must say that we are not concerned with the question of desirability of a provision which could have been made but with the legality of the provision which has been made. It cannot be suggested that the Parliament should necessarily have made such a provision or that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said : Notwithstanding anything contained in any other law, the provisions of this section shall also apply to a claim for refund of any amount collected as duty of excise made on the ground that the goods in respect of which such amount was collected were not excisable or were entitled to exemption from duty and no court shall have any jurisdiction in respect of such claim. It started with a non-obstante clause; it took in every kind of refund and every claim for refund and it expressly barred the jurisdiction of courts in respect of such claim. Sub-section (3) of Section 11B, as it now stands, is to the same effect - indeed, more comprehensive and all-encompassing. It says, (3) Notwithstanding anything to the contrary contained in any judgment, decree, order or direction of the Appellate Tribunal or any court or in any other provision of this Act or the rules made thereunder or in any law for the time being in force, no refund shall be made except as provided in sub-section . The language could not have been more specific and emphatic. The exclusivity of the provision relating to refund is not only express and unambiguous but is in addition to the general bar arising from the fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for refunding the taxes which have been collected contrary to law, viz., Sections 11A and 11B and its allied provisions. Both provisions contain a uniform rule of limitation, viz., six months, with an exception in each case. Sections 11 and 11B are complimentary to each other. To such a situation, Proposition No. 3 enunciated in Kamala Mills becomes applicable, viz., where a statute creates a special right or a liability and also provides the procedure for the determination of the right or liability by the Tribunals constituted in that behalf and provides further that all questions about the said right and liability shall be determined by the Tribunals so constituted, the resort to civil court is not available - except to the limited extent pointed out therein. Central Excise Act specifically provides for refund. It expressly declares that no refund shall be made except in accordance therewith. The Jurisdiction of a civil court is expressly barred - vide sub-section (5) of Section 11B, prior to its amendment in 1991, and sub-section (3) of Section 11B, as amended in 1991. It is relevant to notice that the Act provides for more than one appeal against the orders made under Section 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sdiction consistent with the provisions of the enactment. 69. There is, however, one exception to the above proposition, i.e., where a provision of the Act whereunder the duty has been levied is found to be unconstitutional for violation of any of the constitutional limitations. This is a situation not contemplated by the Act. The Act does not contemplate any of its provisions being declared unconstitutional and therefore it does not provide for its consequences. Rule 11/Section 11B are premised upon the supposition that the provisions of the Act are good and valid. But where any provision under which duty is levied is found to be unconstitutional, Article 265 steps in. In other words, the person who paid the tax is entitled to claim refund and such a claim cannot be governed by the provisions in Rule 11/Section 11B. The very collection and/or retention of tax without the authority of law entitles the person, from whom it is collected, to claim its refund. A corresponding obligation upon the State to refund it can also be said to flow from it. This can be called the right to refund arising under and by virtue of the Constitutional provisions, viz., Article 265. But, it does not fol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appeal, the appeal goes against him and he keeps quiet. It may also be a case where he files a second appeal/revision, fails and then keeps quiet. The orders in any of the situations have become final against him. Then what happens is that after an year, five years, ten years, twenty years or even much later, a decision is rendered by a High Court or the Supreme Court in the case of another person holding that duty was not payable or was payable at a lesser rate in such a case. (We must reiterate and emphasise that while dealing with this situation we are keeping out the situation where the provision under which the duty is levied is declared unconstitutional by a court; that is a separate category and the discussion in this paragraph does not include that situation. In other words, we are dealing with a case where the duty was paid on account of mis-construction, mis-application or wrong interpretation of a provision of law, rule, notification or regulation, as the case may be.) Is it open to the manufacturer to say that the decision of a High Court or the Supreme Court, as the ease may be, in the case of another person has made him aware of the mistake of law and, therefore, he i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... happening all these years is that just because one or a few of the assessees succeed in having their interpretation or contention accepted by a High Court or the Supreme Court, all the manufacturers/Assessees all over the country are filing refund claims within three years of such decision, irrespective of the fact that they may have paid the duty, say thirty years back, under similar provisions - and their claims are being allowed by courts. All this is said to be flowing from Article 265 which basis, as we have explained hereinbefore, is totally unsustainable for the reason that the Central Excise Act and the Rules made thereunder including Section 11B/Rule 11 too constitute law within the meaning of Article 265 and that in the face of the said provisions - which are exclusive in their nature - no claim for refund is maintainable except under and in accordance therewith. The second basic concept of law which is violated by permitting the above situation is the sanctity of the provisions of the Central Excises and Salt Act itself. The Act provides for levy, assessment, recovery, refund, appeals and all incidental/ancillary matters. Rule 11 and Section 11B, in particular, provide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion in the Act for re-opening the concluded proceedings on the aforesaid basis. We must reiterate that the provisions of the Central Excise Act also constitute law within the meaning of Article 265 and any collection or retention of tax in accordance or pursuant to the said provisions is collection or retention under the authority of law within the meaning of the said article. In short, no claim for refund is permissible except under and in accordance with Rule 11 and Section 11B. An order or decree of a court does not become ineffective or unenforceable simply because at a later point of time, a different view of law is taken. If this theory is applied universally, it will lead to unimaginable chaos. It is, however, suggested that this result follows only in tax matters because of Article 265. The explanation offered is untenable as demonstrated hereinbefore. As a matter of fact, the situation today is chaotic because of the principles supposedly emerging from Kanhaiyalal and other decisions following it. Every decision of this Court and of the High Courts on a question of law in favour of the assessee is giving rise to a wave of refund claims all over the country in respect of m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le of limitation in the case of writ petitions seeking refund in such cases. But whether the right to refund or restitution, as it is called, is treated as a constitutional right flowing from Article 265 or a statutory right arising from Section 72 of the Contract Act, it is neither automatic nor unconditional. The position arising under Article 265 is dealt with later in Paras 75 to 77. Here we shall deal with the position under Section 72. Section 72 is a rule of equity. This is not disputed by Sri F.S. Nariman or any of the other counsel appearing for the appellants-petitioners. Once it is a rule of equity, it is un-understandable how can it be said that equitable considerations have no place where a claim is made under the said provision. What those equitable considerations should be is not a matter of law. That depends upon the facts of each case. But to say that equitable considerations have no place where a claim is founded upon Section 72 is, in our respectful opinion, a contradiction in terms. Indeed, in Kanhaiyalal, the Court accepts that the right to recover the taxes - or the obligation of the State to refund such taxes - under Section 72 of the Contract Act is subject ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e indirect taxes, meant to be passed on, is statutorily recognised by Section 64A of the Sale of Goods Act, 1930 [which was introduced by Indian Sale of Goods (Amendment) Act, 1940 and substituted later by Act 33 of 1963]. As originally introduced, Section 64A read : 64A. In the event of any duty of customs or excise on any goods being imposed, increased, decreased or remitted after the making of any contract for the sale of such goods without stipulation as to the payment of duty where duty was not chargeable at the time of the making of the contract, or for the sale of such goods duty-paid where duty was chargeable at that time - (a) if such imposition or increase so takes effect that the duty or increased duty, as the case may be, or any part thereof, is paid, the seller may add so much to the contract price as will be equivalent to the amount paid in respect of such duty or increase of duty, and he shall be entitled to be paid and to sue for and recover such addition; and (b) if such decrease or remission so takes effect that the decreased duty only or no duty, as the case may be, is paid, the buyer may deduct so much from the contract price as will be equivalent to the decreas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and it is for him to allege and establish that as a fact he has not passed on the duty and, therefore, equity demands that his claim for refund be allowed. This is the position de hors 1991 (Amendment) Act - and as we shall point out later, the said Amendment Act has done no more than to give statutory recognition to the above concepts. This is the position whether the refund is claimed by way of a suit or by way of a writ petition. It needs to be stated and stated in clear terms that the claim for refund by a person who has passed on the burden of tax to another has nothing to commend itself; not law, not equity and certainly not a shred of justice or morality. In the case of a writ petition under Article 226, it may be noted, there is an additional factor : the power under Article 226 is a discretionary one and will be exercised only in furtherance of interests of justice. This factor too obliges the High Court to enquire and find out whether the petitioner has in fact suffered any loss or prejudice or whether he has passed on the burden. In the latter event, the court will be perfectly justified in refusing to grant relief. The power cannot be exercised to unjustly enrich a pers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eone else's expense who is not the petitioner-plaintiff. As rightly explained by Saikia, J. in Mahabir Kishore Ors. v. State of Madhya Pradesh [1989 (43) E.L.T. 205 (SC) = 1989 (3) S.C.R. 596], the principle of unjust enrichment requires - first that the defendant has been `enriched' by the receipt of a `benefit'; secondly, that this enrichment is `at the expense of the plaintiff'; and thirdly, that the retention of the enrichment be just. This justifies restitution. We agree with the holding in Air Canada (quoting Professor George C. Palmer) that in such a case, it seems preferable to leave the enrichment with the tax authority instead of putting the judicial machinery in motion for the propose of shifting the same enrichment to the tax-payer . The Canadian Supreme Court has further emphasised - and, in our opinion, rightly - the fiscal chaos that would result if the general rule favoured recovery, particularly where the long standing taxation measure is involved . In this connection, the majority decision refers to what happened in United States. In United States v. Butler [(1936) 80 L. Ed. 477] the Agricultural Adjustment Act was held unconstitutional, the result ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ticles do demand that where a duty cannot be refunded to the real persons who have bore the burden, for one or the other reason, it is but appropriate that the said amounts are retained by the State for being used for public good (See Amar Nath Om Prakash). Indeed, even in an economically neutral Constitution, like that of United States of America, such a course has been adapted by the State and upheld by the Courts. It would be rather curious - nay, ridiculous - if such a course were held to be bad under our Constitution which speaks of economic and distributive justice, opposes concentration of wealth in a few hands and when the Forty-Second (Amendment) Act describes our Republic as a Socialist Republic. 76. It is true that some of the concepts now affirmed by us, e.g., effect of passing on and the relevance of our Constitutional values in the matter of judging the legitimacy of a claim for refund were not presented to the Bench which decided Kanhaiyalal but that can be no ground for not entertaining or accepting those concepts. As observed by Thomas Jefferson, as far back as 1816, laws and institutions must go hand-in-hand with the progress of the human mind.... as new discoveri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... PROVISIONS INTRODUCED BY THE 1991 (AMENDMENT) ACT : 78. While examining the validity and reasonableness of the provisions introduced by the 1991 (Amendment) Act, it is necessary to bear in mind certain principles relevant in that behalf. In R.K. Garg v. Union of India [1981 (4) S.C.C. 675], this Court held that : laws relating to economic activities should be viewed with greater latitude than laws touching civil rights such as freedom of speech, religion etc. It has been said by no less a person than Holmes, J., that the legislature should be allowed some play in the joints, because it has to deal with complex problems which do not admit of solution through any [doctrinaire] or straight jacket formula and this is particularly true in case of legislation dealing with economic matters, where, having regard to the nature of the problems required to be dealt with, greater play in the joints has to be allowed to the legislature. The Court should feel more inclined to give judicial deference to legislative judgment in the field of economic regulation than in other areas where fundamental human rights are involved.....The Court must always remember that legislation is directed to practic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther mortal contrivances has to take some chances. Opportunity must be allowed for vindicating reasonable belief by experience . To the same effect are the observations in Tamil Nadu Education Department Ministerial and General Subordinate Service Association v. State of Tamil Nadu Anr. [1980 (1) S.C.R. 1026 at 1031] (Krishna Iyer, J.). It is equally well-settled that mere possibility of abuse of a provision by those in-charge of administering it cannot be a ground for holding the provision procedurally or substantively unreasonable. In Collector of Customs. Madras v. Nathella Sampathu Chetty Anr. [1962 (3) S.C.R. 786 = 1983 ECR 2198 (SC)], this Court observed : The possibility of abuse of a statute otherwise valid does not impart to it any element of invalidity . It was said in State of Rajasthan v. Union of India [1978 (1) S.C.R. 1 at 77], it must be remembered that merely because power may sometimes be abused, it is no ground for denying the existence of power. The wisdom of man has not yet been able to conceive of a Government with power sufficient to answer all its legitimate needs and at the same time incapable of mischief . [Also see Commissioner, Hindu Religious Endowment, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d) while Section 12D provides for rules being made to specify the manner in which the monies in the Fund shall be utilised. Rules have indeed been made under Section 12D, which provide for grants being made to Consumer's Welfare Organisations for being spent on welfare of consumers. 81. The challenge to the validity of the provisions introduced by the 1991 (Amendment) Act has been presented under various heads which we now proceed to deal with separately. MEANING AND SCOPE OF SUB-SECTION (3) OF SECTION 11B : 82. A good amount of debate took place before us on the question whether sub-section (3) makes Section 11B exhaustive of all kinds of refund claims including those which are refundable as a consequence of appellate/revisional order and/or as a consequence of orders made by the High Court/Supreme Court. Sri Nariman pointed out that in Rule 11 (as it was in force during the period August 6, 1977 to November 17, 1980), sub-rule (3) expressly provided that where as a result of any order passed in appeal or revision under the Act, refund of any duty becomes due to any person, the proper officer may refund the amount to such person without his having to make any claim in that beh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt. The idea underlying the said provisions is that no refund shall be ordered unless the claimant establishes that he has not passed on the burden to others. Sub-section (3) of the amended Section 11B is emphatic. It leaves no room for making any exception in the case of refund claims arising as a result of the decision in appeal/reference/writ petition. There is no reason why an exception should be made in favour of such claims which would nullify the provision to a substantial degree. So far as lack of incentive argument is concerned, it has no doubt given us a pause; it is certainly a substantial plea, but there are adequate answers to it. Firstly, the rule means that only the person who has actually suffered loss or prejudice would fight the levy and apply for refund in case of success. Secondly, in a competitive market economy, as the one we have embarked upon since 1991-92, the manufacturer's self interest lies in producing more and selling it at competitive prices - the urge to grow. A favourable decision does not merely mean refund; it has a beneficial effect for the subsequent period as well. It is incorrect to suggest that the disputes regarding classification, valua ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the learned Counsel for the petitioners-appellants that if the above interpretation is placed upon amended Section 11B, a curious consequence will follow. It is submitted that a claim for refund has to be filed within six months from the relevant date according to Section 11B and the expression relevant date has been defined n Clause (B) of the Explanation appended to sub-section (1) of Section 11B to mean the date of payment of duty in cases other than those falling under Clauses (a), (b), (c), (d) and (e) of the said Explanation. It is submitted that Clauses (a) to (e) deal with certain specific situations whereas the one applicable in most cases is the date of payment. It is submitted that the appellate/revision proceedings, or for that matter proceedings in High Court/Supreme Court, take a number of years and by the time the claimant succeeds and asks for refund, his claim will be barred; it will be thrown out on the ground that it has not been filed within six months from the date of payment of duty. We think that the entire edifice of this argument is erected upon an incomplete reading of Section 11B. The second proviso to Section 11B (as amended in 1991) expressly provide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment of duty under protest. It is meant to obviate any dispute whether the payment is made under protest or not. Any person paying the duty under protest has to follow the procedure prescribed by the Rule and once he does so, it shall be taken that he has paid the duty under protest. The period of limitation of six months will then have no application to him. 86. We may clarify at this stage that when the duty is paid under the orders of Court (whether by way of an order granting stay, suspension, injunction or otherwise) pending an appeal/reference/writ petition, it will certainly be a payment under protest; in such a case, it is obvious, it would not be necessary to lodge the protest as provided by Rule 233B. WHETHER SECTION 11B IS RETROSPECTIVE ? 87. It is submitted by the learned Counsel for the petitioners-appellants that the amended Section 11B is prospective in operation and cannot apply to pending proceedings. In support of this contention, it is submitted that according to sub-section (1), the application for refund has to be accompanied by documentary or other evidence including the documents referred to in Section 12A to prove that the incidence of duty has not been pass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of the 1991 (Amendment) Act [September 19, 1991], they cannot be re-opened and/or be governed by Section 11B(3) [as amended by the 1991 (Amendment) Act]. This, however, does not mean that the power of the appellate authorities to condone delay in appropriate cases is affected in any manner by this clarification made by us. So far as the difficulty or impossibility of filing the documents referred to in Section 12A is concerned, it is obvious that the said requirement cannot be insisted upon in cases where the application is filed prior to the commencement of the Act or for the period anterior to the commencement of the said Amendment Act, though the burden of proving that the burden of duty has not been passed on by him is still upon the applicant. Sub-section (1) of Section 11B is of general application. It not merely governs the pending applications but also provides for future applications. Reasonably construed and read together, the said provisions mean that in respect of pending applications, the requirement is only to produce such documentary and other evidence as is sufficient to establish that the incidence of duty, refund of which is claimed, has not been passed on by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... really borne the burden of tax and is in a position to establish that fact, is yet not entitled to apply for refund of the duty since the Rules do not provide for such a situation. The Rules contemplate only grants being made to Consumer Welfare Societies. Even in the matter of making grants, it is submitted, the Rules are so framed as to make it highly difficult for any consumer organisation to get the grant. There is no provision in the Act, Sri Nariman submitted, to locate the person really entitled to refund and to make over the money to him. We expect a sensitive Government not to bluff but to hand back the amounts to those entitled thereto , intoned Sri Nariman. It is a colourable device - declaimed Sri Sorabjee - a dirty trick and a shabby thing . The reply of Sri Parasaran to this criticism runes thus : it ill-becomes the manufacturers/assessees to espouse the cause of consumers, when all the while they had been making a killing at their expense. No consumers' organisation had come forward to voice any grievance against the said provisions. Clause (e) of the proviso to sub-section (2) of Section 11B does provide for the buyer of the goods, to whom the burden of duty has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be spread all over India and it is not convenient or practicable for all of them to go to the place of removal of goods and apply for refund. True it is that there is this practical inconvenience but it must also be remembered that such claim will be filed only by purchasers of high priced goods where the duty component is large and not by all and sundry/small purchasers. This practical inconvenience or hardship, as it is called, cannot be a ground for holding that the provisions introduced by the 1991 (Amendment) Act are a device or a ruse to retain the taxes collected illegally and to invalidate them on that ground - assuming that such an argument is permissible in the case of a taxing enactment made by Parliament. (See R.K. Garg and other decisions cited in Paras 78 and 79). DO SECTIONS 11B AND 12B HAVE THE EFFECT OF CHANGING THE VERY NATURE OF EXCISE DUTY ? 91. It is next contended that in a competitive atmosphere or for other commercial reasons, it may happen that the manufacturer is obliged to sell his goods at less than its proper price. The suggestion is that the manufacturer may have to forego not only his profit but also part of excise duty and that in such a case levy a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with the general pattern of commercial life. It indeed gives effect to the very essence of an indirect tax like the excise duty/customs duty. In this connection, it is repeatedly pointed out by the learned Counsel for the petitioners-appellants that the levy of duty is upon the manufacturer/assessee and that he cannot disclaim his liability on the ground that he has not passed on the duty. This is undoubtedly true but this again does not affect the validity of Section 12A or 12B. A manufacturer who has not passed on the duty can always prove that fact and if it is found that duty was not leviable on the transaction, he will get back the duty paid. Ordinarily speaking, no manufacturer would take the risk of not passing on the burden of duty. It would not be an exaggeration to say that whenever a manufacturer entertains a doubt, he would pass on the duty rather than not passing it on. It must be remembered that manufacturer as a class are knowledgeable persons and more often than not have the benefit of legal advice. And until about 1992, at any rate, Indian market was by and large a sellers' market. 92. For a proper appreciation of the learned counsel's contention, it would ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty payable. These documents clearly and cogently disclose the excise duty that has been paid. Since April 1, 1994, however, there is said to have occurred a change in the procedure. Under the new Rules, a proforma has been provided under which a declaration is to be filed indicating inter alia the tariff-chapter heading applicable and the effective rate of duty assessable on the goods. This Form has to be filled in and filed by the manufacturer with a declaration that the particulars stated therein are true. In the place of gate pass, provision is now made for a special form of invoice which gives full particulars of the price, assessable value, rate of duty and duty actually paid. Form the invoice and the proforma now prescribed, it is equally easy to ascertain the duty component, i.e., the effective duty paid and passed on to the purchaser. 93. We may also mention that, in case of S.R.P., the Rules require that every assessee shall keep a current account with the Collector/Commissioner. He has to make periodical credits in the current account by cash payment into the treasury so as to keep the balance sufficient to cover the duty due on the goods intended to be removed at any tim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e governed by Section 11B. It is also made clear that if an independent refund claim is filed after the final decision under Rule 9B(5) re-agitating the issues already decided under Rule 9B - assuming that such a refund claim lies - and is allowed, it would obviously be governed by Section 11B. It follows logically that position would be the same in the converse situation. NATURE AND CHARACTER OF REFUND CLAIMS UNDER THE CENTRAL EXCISES AND SALT ACT AND THE CUSTOMS ACT : 96. It would be evident from the above discussion that the claims for refund under the said two enactments constitute an independent regimen. Every decision favourable to an assessee/manufacturer, whether on the question of classification, valuation or any other issue, does not automatically entail refund. Section 11B of the Central Excises and Salt Act and Section 27 of the Contract Act, whether before or after 1991 amendment - as interpreted by us herein - make every refund claim subject to proof of not passing-on the burden of duty to others. Even if a suit is filed, the very same condition operates. Similarly, the High Court while examining its jurisdiction under Article 226 - and this Court while acting under A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt yields the following propositions. We may forewarn that these propositions are set out merely for the sake of convenient reference and are not supposed to be exhaustive. In case of any doubt or ambiguity in these propositions, reference must be had to the discussion and propositions in the body of the judgment. (i) Where a refund of tax/duty is claimed on the ground(i) that it has been collected from the petitioner/plaintiff - whether before the commencement of the Central Excises and Customs Laws (Amendment) Act, 1991 or thereafter - by mis-interpreting or mis-applying the provisions of the Central Excises and Salt Act, 1944 read with Central Excise Tariff Act, 1985 or Customs Act, 1962 read with Customs Tariff Act or by mis-interpreting or mis-applying any of the rules, regulations or notifications issued under the said enactments, such a claim has necessarily to be preferred under and in accordance with the provisions of the respective enactment before the authorities specified thereunder and within the period of limitation prescribed therein. No suit is maintainable in that behalf. While the jurisdiction of the High Courts under Article 226 - and of this Court under Article ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ined by another person on another ground; this is for the reason that so far as he is concerned, the decision has become final and cannot be re-opened on the basis of a decision on another person's case; this is the ratio of the opinion of Hidayatullah, CJ. in Tilokchand Motichand and we respectfully agree with it. Such a claim is maintainable both by virtue of the declaration contained in Article 265 of the Constitution of India and also by virtue of Section 72 of the Contract Act. In such cases, period of limitation would naturally be calculated taking into account the principle underlying Clause (c) of sub-section (1) of Section 17 of the Limitation Act, 1963. A refund claim in such a situation cannot be governed by the provisions of the Central Excises and Salt Act or the Customs Act, as the case may be, since the enactments do not contemplate any of their provisions being struck down and a refund claim arising on that account. In other words, a claim of this nature is not contemplated by the said enactments and is outside their purview. (iii) A claim for refund, whether made under the provisions(iii) of the Act as contemplated in Proposition (i) above or in a suit or writ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f levy has become final in his case, he cannot seek to reopen it nor can he claim refund without re-opening such assessment/order on the ground of a decision in another person's case. Any proposition to the contrary not only results in substantial prejudice to public interest but is offensive to several well established principles of law. It also leads to grave public mischief. Section 72 of the Contract Act, or for that matter Section 17(1)(c) of the Limitation Act, 1963, has no application to such a claim for refund. (v) Article 265 of the Constitution has to be construed in(v) the light of the goal and the ideals set out in the Preamble to the Constitution and in Articles 38 and 39 thereof. The concept of economic justice demands that in the case of indirect taxes Central Excises duties and Customs duties, the tax collected without the authority of law shall not be refunded to the petitioner-plaintiff unless he alleges and establishes that he has not passed on the burden of duty to a third party and that he has himself borne the burden of the said duty. (vi) Section 72 of the Contract Act is based upon and(vi) incorporates a rule of equity. In such a situation, equitable con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the High Courts under Article 226 of the Constitution or of this Court under Article 32 - is concerned, it remains unaffected by the provisions of the Act. Even so, the Court would, while exercising the jurisdiction under the said articles, have due regard to the legislative intent manifested by the provisions of the Act. The writ petition would naturally be considered and disposed of in the light of and in accordance with the provisions of Section 11B. This is for the reason that the power under Article 226 has to be exercised to effectuate the regime of law and not for abrogating it. Even while acting in exercise of the said constitutional power, the High Court cannot ignore the law nor can it over-ride it. The power under Article 226 is conceived to serve the ends of law and not to transgress them. (xi) Section 11B applies to all pending proceedings(xi) notwithstanding the fact that the duty may have been refunded to the petitioner/plaintiff pending the proceedings or under the orders of the Court/Tribunal/Authority or otherwise. It must be held that Union of India v. Jain Spinners [1992 (61) E.L.T. 321 (SC) = 1992 (4) S.C.C. 389] and Union of India v. I.T.C. [1993 (67) E.L. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... may now be listed before a Division Bench for being disposed of in the light of this judgment. There shall be no order as to costs. A.M. Ahmadi, C.J. 102. I have had the benefit of studying the judgments of my learned brothers Reddy, Sen and Paripoornan, JJ. Pursuant to the discussions that I have had with them and with all my other learned brothers on this Bench, I find myself to be broadly in agreement with the conclusions recorded by Reddy, J., subject to the two aspects on which I have recorded my views hereunder : The first of these is the issue regarding the extent to which the jurisdiction of ordinary courts is ousted in respect of claims for refund of taxes illegally levied and collected. In my view, it would be incorrect to hold, as Reddy, J. has done, that every claim for refund of illegal or unauthorised levy of tax is necessarily required to be made in accordance with the provisions of the Central Excise Act, 1944 (hereinafter called the Excise Act ). The leading authority governing this issue is the decision of this Court in Dhulabhai and Others v. State of Madhya Pradesh and Another, (1968) 3 S.C.R. 662. In this case, after analysing the leading decisions in the field ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case the scheme of the particular Act must be examined because it is a relevant enquiry. (7) An exclusion of the jurisdiction of the Civil Court is not(7) readily to be inferred unless the conditions above set down apply. 103. In view of these propositions, which have been reiterated by this Court on several occasions and thus constitute sound law, it is clear that actions by way of suits or petitions under Article 226 of the Constitution cannot be completely eliminated. The claims for refund can arise under three broad classes and the issue of ouster of jurisdiction of civil courts can be understood by focussing on the parameters of these classes which are as follows : Class I : Unconstitutional levy where claims for refund are founded on the ground that the provision of the Excise Act under which the tax was levied is unconstitutional. Cases falling within this class are clearly outside the ambit of the Excise Act. In such cases assessees can either file a suit under Section 72 of the Contract Act, 1872 (hereinafter called Contract Act ) or invoke the writ jurisdiction of the High Court under Article 226 of the Constitution. Class II : Illegal levy where claims for refund are fou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent jurisdiction (as explained in Class II), it is open for the assessees to take advantage of the declaration of the law so made and claim refunds on the ground that they paid the tax under a mistake of law. This is because such claims are outside the ambit of the Excise Act. In such cases, the limitation period applicable will be that specified in Section 17(1)(c) of the Limitation Act. 106. Reddy, J. has moulded an exception to the above stated principle. He has held that where a person approaches the High Court or the Supreme Court challenging the constitutional validity of a provision but fails, he cannot take advantage of the declaration of unconstitutionality obtained by another person on another ground; this is for the reason that so far as he is concerned, the decision has become final and cannot be ignored or put aside as if it did not exist on the basis of the decision in another person's case. However, in my opinion, since the levy of tax has been held to be unconstitutional (which would lead to the conclusion that it should never have been levied in the first place) such an interpretation would be unfair to an assessee who had the foresight to discern the unconstit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plications under Section 11B(2), thereby complying with the scheme of the amended Excise Act. 109. Subject to the above, I agree with the rest of the conclusions reached by Reddy, J. K.S. Paripoornan, J. 110. Common questions of law arise for consideration in this batch of cases. Initially the matter came up before a two-Member Bench. The said Bench felt that the decision of the Constitution Bench comprising of 5 Judges in Sales Tax Officer, Benaras Others v. Kanhaiya Lal Mukundlal Saraf [AIR 1959 SC 135 = 1959 SCR 1350] requires reconsideration and referred the matter to a larger Bench of 7 Judges. When the matter came up before a Bench of 7 Judges, it was noticed that Kanhaiya Lal's case (supra) was expressly approved by a Bench of 7 Judges in the decision reported in State of Kerala v. Aluminium Industries Ltd. [(1965) 16 STC 689], and so, by order dated 28-7-1993, the said Bench directed that the matter may be placed before the learned Chief Justice for constituting a still Larger Bench. That is how this batch of cases came up before a Bench of 9 Judges. We heard, Shri F.S. Nariman, Shri Soli Sorabjee and Shri Harish Salve, Senior Advocates, who appeared for the different a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecrees passed by the trial court, the High Court of Gujarat allowed the appeals and set aside the decrees passed by the trial courts, by judgment dated 6-4-1984. It was held that in order to successfully sustain the claim of restitution based on Section 72 of the Contract Act, the person claiming restitution should prove loss or injury to him, and in the cases before them, the excise duty paid on blended yarn was ultimately passed on to the buyer of the Fabric, and so the claim for restitution will not lie. In other words, in cases where an assessee has passed on the duty paid by or realised from him, he has suffered no loss or injury, and the action for restitution is unsustainable. The aforesaid statement of the law is seriously disputed by the appellants in Civil Appeal No. 3255/84 and others. 112. In the ultimate analysis the main question that falls for consideration in this batch of cases is, whether in an action claiming refund of excise duty (tax) paid under mistake of law, is it essential for the person claiming such refund, to establish loss or injury to him ? In other words, in cases where the person from whom the excise duty (tax) is collected, has passed on the liabili ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee came to know of the judgment (within the period of limitation), he initiated action for refund of the tax paid by him, due to mistake of law. For the periods during which the refund were claimed, there were different statutory provisions which governed the subject. They are - (a) Period up to 7-8-1977 - Rule 11 of the Central Excise Rules,(a) before amendment; (b) Period from 7-8-1977 to 16-11-1980 - Rule 11 of the Central(b) Excise Rules, as amended; (c) Period from 16-11-1980 to 19-9-1991 - Section 11A and Section(c) 11B of the then Central Excises and Salt Act; (d) Period after 19-9-1991 - Section 11A read along with Section(d) 11B of the Act, as amended by Act 40 of 1991. The circumstances and grounds on the basis of which the refund can be claimed, the period within which it should be so done, the forum before which the claim should be preferred and whether the decision thereon is subject to the jurisdiction of ordinary Courts, vary from period to period. We shall advert to such provisions and their impact on various aspects regarding the claim for refund a little later. Rule 11 of the Central Excise Rules which dealt with claims for refund of duty as it was in force pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... manufacture or production of goods, it may be levied even at a point later than manufacture or production of the goods.) The duty levied will form part of the total cost of the manufacturer or producer. The levy being a component of the price for which the goods are sold, is ordinarily passed on to the customer. It is a matter of common knowledge that every prudent businessman will adjust his affairs in his best interests and pass on the duty levied or leviable on the commodity to the consumer. That is the presumption in law. 117. The claim for refund in these cases is based upon the plea that excise duty was paid when it was not exigible. It was so done under mistake of law. Refund is claimed basing the action under Section 72 of the Contract Act, which is to the following effect : Liability for person to whom 72. A person to whom money has money is paid or thing been paid, or anything delivered, delivered, by mistake or under by mistake or under coercion, coercion, must repay or return it. Illustrations (a) A and B jointly owe 100 rupees to C. A alone pays the amount(a) to C, and B, not knowing this fact, pays 100 rupees over again to C. C is bound to repay the amount to B. (b) A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is that the defendant's (Emphasisgain has been acquired by committing a wrong against the plaintiff. supplied) The person claiming restitution should have suffered a loss or injury . In my opinion, in cases where the assessee or the person claiming refund has passed on the incidence of tax to a third person, how can it be said that he has suffered a loss or injury ? How is it possible to say that he has got ownership or title to the amount claimed, which he has already recouped from a third party? So, the very basic requirement for a claim of restitution under Section 72 of the Contract Act is that the person claiming restitution should plead and prove a loss or injury to him; in other words, he has not passed on the liability. If it is not so done, the action for restitution or refund, should fail. 120. In this connection, the decision of a three-Member Bench of this Court in Mulamchand v. State of Madhya Pradesh (AIR 1968 S.C. 1218), affords some guidance. The appellant in that case, purchased a right to pluck, collect and remove the forest produce from the proprietors. The right was acquired before the propriety rights vested in the State of Madhya Pradesh by Act No. 1 of 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tegory of cases where the court orders restitution if the justice of the case so requires. (Emphasis supplied) This Court further stated the law thus : ........ It is well established that a person who seeks restitution has a duty to account to the defendant for what he has received in the transaction from which his right to restitution arises. In other words, an accounting by the plaintiff is condition of restitution from the defendant [See `Restatement of the Law of Restitution'. American Law Institution, 1937 Edn., p. 634]. [Emphasis supplied] The observations extracted above indisputably point out that a person who seeks restitution, has a duty to disclose or account for what he has received in the transaction. An accounting is a condition precedent in an action for restitution. By way of analogy, it can be stated that in cases where restitution is claimed under Section 72 of the Contract Act, on the ground of payment due to mistake of law, the person claiming restitution, should plead and prove that he has not passed on the liability to another. That is the nature of accounting in cases falling under Section 72 of the Contract Act. In my opinion, the High Court was justifi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ew, that passing on of the liability, is an irrelevant factor for consideration in an action for restitution, and at any rate, it cannot form the basis of a valid defence in an action for restitution . Mr. Parasaran, Senior Counsel for the Union of India contended that the question of passing on of the liability never arose for consideration in Kanhaiya Lal's case nor was it decided. The said decision cannot be an authority for the proposition that a person claiming refund of tax on the ground of mistake of law is not obliged to allege and prove that it has not been passed on; on the other hand, it is mandatory for a claimant in such cases to allege and prove that he suffered a loss or detriment. Then and then alone, the Court can grant the equitable relief of restitution. Counsel also contended that the principle in Kanhaiya Lal's case (supra) has not been uniformly followed by this Court subsequently. Counsel also distinguished the various foreign decisions that were brought to our notice and highlighted the fact that those decisions were rendered on their own facts. Counsel further contended that in cases of indirect levy of tax (cess or fee) which was passed on, this Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ? (ii) Whether the tax paid under mistake of law can be recovered(ii) under Section 72 of the Indian Contract Act? This Court held that the word mistake occurring in Section 72 of the Contract Act has been used without any qualification or limitation and, so, it takes within its fold mistake of law as well as mistake of fact . On the second question, this Court held that once it is established that the payment, even though it be a tax, has been made by the party under a mistake of law, the party is entitled to recover the same and a party who received the tax is bound to repay or return it. This Court held that there can be no distinction in a tax liability and any other liability on a plain reading of Section 72 and the plea that tax paid by mistake of law cannot be recovered under Section 72, will not be a proper interpretation of the relevant provisions, but to make a law, adding such words as otherwise than by way of taxes after the word paid . The scope of Section 72 was considered only within a limited sphere. It should be noticed that no question was raised before this Court that in order to claim refund (restitution) of sales tax paid, - (an indirect levy) - under Section 7 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y is (p. 1365)not more to blame than the other. The other circumstances would be such as would entitle a court of equity to refuse the relief claimed by the plaintiff because on the facts and circumstances of the case it would be inequitable for the court to award the relief to the plaintiff. These are, however, equitable considerations and could scarcely be imported when there is a clear and unambiguous provision (p.of law which entitles the plaintiff to the relief claimed by him. 1366) Merely because the State of U.P. had not retained the monies paid by the respondent but had spent them away in the ordinary course of the business of the State would not make any difference to the position and under the plain terms of S. 72 of the Indian Contract Act, the respondent would be entitled to recover back the monies paid by it to the State of U.P. under [Emphasis supplied] mistake of law (p. 1367) 123. It is apparent that in Kanhaiya Lal's case there was no plea by the Revenue that since the assessee has passed on the tax, the claim for refund is unsustainable. Such a question was not posed before this Court for consideration. One of the main aspects to be proved in a claim for resti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Contract Act, is equitable in nature and if so, how can it be said that equitable considerations should not be applied in adjudicating the claim for restitution (refund)? If an assessee has passed on the tax to the consumer or a third party and sustained no loss or injury, grant of refund to him will result in a windfall to him. Such a person will be unjustly enriched. This will result in the assessee or the claimant obtaining a benefit, which is neither legally nor equitably due to him. In other words, such a person is enabled to obtain an unjust benefit at the cost of innumerable persons to whom the liability (tax) has been passed on and to whom really the refund or restitution is due. The above factors certainly disentitle such a person from claiming restitution. If the decision in Kanhaiya Lal's case (supra) and the cases following the said decision, enables such a person to claim refund (restitution), with great respect to the learned Judges, who rendered the above decisions, I express my dissent thereto. 124. Shri Nariman and Shri Sorabjee also contended that if the relief of refund is withheld or denied on the ground that the assessee has passed on the tax (liability) t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 36 at 451] and The Province of Madras v. M/s. Boddu Paidanna and Sons [1942 F.C.R. 90], were referred to. Reference also was made to Section 64A of Sale of Goods Act, 1930 which was substituted later by Act 33 of 1963 to show that the levy could be passed on and so recognised by statute, and in the above background, there is a presumption that excise duty has been passed on. The scope of Article 39(b) of the Constitution, as laid down by this Court in State of Karnataka and Anr. etc. v. Shri Ranganatha Reddy Anr. etc. [1978 (1) SCR 641 (689)], Sanjeev Coke Mfg. Co. v. Bharat Coking Coal Ltd. Anr. [1983 (1) SCR 1000 (1023-24 1026)], State of Tamil Nadu etc. etc. v. L. Abu Kavur Bai Ors. [AIR 1984 SC 326 (343) = 1984 (1) SCR 725 (759, 761)] was highlighted. Reliance was placed on M/s. Amar Nath Om Parkash and Ors. etc. v. State of Punjab and Ors. etc. [1985 (2) SCR 72, at pp. 96, 97, 99, 100)] Shiv Shanker Dal Mills etc. etc. v. State of Haryana Ors. etc. [1980 (1) SCR 1170 (1173)], and Walaiti Ram Mahabir Prasad v. State of Punjab Ors. [AIR 1984 (P H) 120, at p. 124], to stress the point that the persons claiming refund who were only middlemen, should not be unjustly enriched and al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve passed on the burden of the levy - middlemen - should not be allowed to profiteer by illgotten gains and unjustly enriched. An analysis of the above decisions in detail will point out that if Article 265 of the Constitution is literally interpreted and in isolation, and refund ordered, in cases where excise duty has been passed on, it will result in a mockery, totally ignoring the other salient features of the Constitution and the ground realities. As the Preamble states, the Constitution was enacted by the people, to secure to all the citizens, justice, political, social and economic. It is fairly settled by the decisions of this Court, that the directive principles contained in Part IV of the Constitution are fundamental in the governance of this country and all organs of the State including the judiciary are bound to enforce those directives. In interpreting the various provisions of the Constitution, the courts have to be realistic and should be alive to the needs of the times. The courts have a responsibility to ensure proper and meaningful interpretation of the directive principles and to adjust or harmonise the objectives enshrined in the Preamble - justice - political, s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upra); - Shiv Shanker Dal Mills v. State of Haryana [1980 (1) SCR 1170 (1173)], State of Madhya Pradesh v. Vyankatlal Anr. [1985 (3) SCR 561 (566, 568)], M/s. Amar Nath Om Parkash and Ors. v. State of Punjab and Ors. [1985 (2) SCR 72 (96-100)], Indian Aluminium Company Ltd. v. Thane Municipal Corporation [1991 (55) E.L.T. 454 (SC) = 1992 Supp. (1) SCC 480 (488-489)] and State of Rajasthan Ors. v. Novelty Stores etc. [AIR 1995 SC 1132]. 127. It now remains to consider the foreign decisions brought to our notice. The various decisions of foreign courts and their scope have been very exhaustively considered by Jeevan Reddy, J. in his judgment under the heading Decisions of foreign courts on the subject . I am in broad agreement with my learned brother Jeevan Reddy, J., in the analysis of the various decisions aforesaid. It is unnecessary to cover that ground over again. 128. In this context, it will not be out of place to note that academicians have bestowed great thought and in various articles dealt with the matter in sufficient detail, particularly with reference to the foreign decisions brought to our notice. To mention a few, they are - (1) When Money is paid in Pursuance of a vo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Revenue. However, typically in cases of passing on there are many people who effectively bear the burden of the tax and to encourage actions by them would be impractical and unrealisitic. Thus, in such cases the best approach is to allow the Revenue a defence of passing on and enable it to retain the tax and use it for the public benefit. However, it remains uncertain to what extent a defence of passing on exists in English law. Such a defence is recognised by European Community law. In Amministrazione delle Finanze dello Stato v. SpA San Giorgio it was held that Community law does not prevent Member States from disallowing repayment of charges which have been unduly levied where to do so would entail unjust enrichment of the recipients, for example where the unduly levied charges have been incorporated in the price of goods and passed on to purchasers. Although this decision is confined to charges levied contrary to the rules of Community law, the very fact that Community law accepts the validity of a defence of passing on and accepts that the rationale of it is to avoid the unjust enrichment of the initial taxpayer, is a good reason for the defence to be adopted generally in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, inter alia, price increases should mean that less will be sold, and also because of difficulties of proof. These difficulties were noted by Lord Goff, and arguments for a similar limit were not accepted by the High Court of Australia in Mason v. New South Wales. However, the underlying rationale of a passing on defence might be achieved by providing, as in the statutes on recovery of Value Added Tax and car tax, that recovery should not be allowed if the payee can show that the payer would be unjustly enriched if he recovered the payment. This would be consistent with the basic equitable features that have influenced the development of the action for money had and received. It is also possible that such a limit would achieve the same policy ends as the reasonable and just limit in provisions such as Section 33 of the Taxes Management Act, 1970 and, if so, it might provide a useful method of achieving a measure of rationalisation. (pp. 427-428) 129. Mention may also be made about the Law Commission's Report in England, Law Consultation Paper No. 120 Restitution of Payments made under a mistake of law - wherein, after discussing the entire case law of England and other jurisdi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ded to afford relief to the assessees. Elaborate alternate remedies provided by the act, taken along with the specific bar of the jurisdiction of Courts provided in Rule 11 (as amended) and Section 11B of the Act, and in particular specifying the conditions and procedure for entertaining claims for refund, period of limitation within which the claim should be preferred, etc. will oust/bar the jurisdiction of ordinary Courts in that regard. (Attention was also drawn to Sections 11C, 11D and also to Sections 12A to D of the Act, to stress the scheme of the Act.) On the other hand, Counsel for the assessees-claimants urged that the provisions in the Act dealing with refund of tax unconstitutionally or illegally or unauthorisedly collected are not exhaustive. Even so, in cases where the levy is unconstitutional or illegal or without jurisdiction, the jurisdiction of the Civil Courts is not barred to annul the levy and/or order refund. 132. As stated by me earlier in Paragraph 5 of this judgment, the claims for refund can be classified broadly into 3 groups. They are - (I) the levy is unconstitutional - outside the provisions of the(I) Act or not contemplated by the Act. (II) the levy i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isionally under these rules on the basis of the value or the rate of duty, the period of six months shall be computed from the date on which the duty is adjusted after final determination of the value or the rate or duty, as the case may be. (2) If on receipt of any such application the Assistant Collector of Central Excise is satisfied that the whole or any part of the duty paid by the applicant should be refunded to him, he may make an order accordingly. (3) Where as a result of any order passed in appeal or revision under the Act, refund of any duty becomes due to any person, the proper officer may refund the amount to such person without his having to make any claim in that behalf. (4) Save as otherwise provided by or under these rules no claim for refund of any duty shall be entertained. Explanation. - For the purposes of this rule, `refund' includes rebate referred to in Rules 12 and 12A. SECTION 11A 11A. Recovery of duties not levied or not paid or short-levied or short-paid or erroneously refunded. When any duty of excise has not been levied or paid or has- (1) been short-levied or short paid or erroneously refunded, a Central Excise Officer may, within six months from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duty and no court shall have any jurisdiction in respect of such claim. Explanation. - For the purpose of this section ........... `relevant date' means -(B) in any other case, the date of payment of duty. (f) SECTIONS 11B, 11D AND 12A TO D, AS AMENDED BY ACT 40/1991 11B.Claim for refund of duty. Any person- (1) claiming refund of any duty of excise may make an application for refund of such duty to the Assistant Commissioner of Central Excise before the expiry of six months from the relevent date in such form and manner as may be prescribed and the application shall be accompanied by such documentary or other evidence including the documents referred to in Section 12A as the applicant may furnish to establish that the amount of duty of excise in relation to which such refund is claimed was collected from, or paid by, him and the incidence of such duty had not been passed on by him to any other person : Provided that where an application for refund has been made before the commencement of the Central Excises and Customs Laws (Amendment) Act, 1991, such application shall be deemed to have been made under this sub-section as amended by the said Act and the same shall be dealt wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ary for our discussion. Section 11D and Sections 12A to D highlight the new scheme of the Act, relating to refund and they are as follows :- 11D. Duties of excise collected from the buyer to be deposited with the Central Government (1) Notwithstanding anything to the contrary contained in any order or direction of the Appellate Tribunal or any court or in any other provision of this Act or the rules made thereunder, every person who has collected any amount from the buyer of any goods in any manner as representing duty of excise, shall forthwith pay the amount so collected to the credit of the Central Government. (2) The amount paid to the credit of the Central Government(2) under sub-section (1) shall be adjusted against duty of excise payable by the person on the finalisation of assessment and where any surplus is left after such adjustment, the amount of such surplus shall either be credited to the Fund or, as the case may be, refunded to the person who has borne the incidence of such amount, in accordance with the provisions of Section 11B and the relevant date for making an application under that section in such cases shall be the date of the public notice to be issued by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ental provisions are specified in Sections 11D and 12A to D Section 11D provides that every person, who collects excise duty from the buyer, should deposit the same with the Central Government. It will be adjusted against the duty of excise payable by the person concerned on finalisation of the assessment. Section 11D requires clarification. Excise duty is, ordinarily paid or payable at the time of clearance of the goods. The sale of the goods may be later. So, if excise duty due is already paid by the manufacturer, and later collected by him when the goods are sold, such collection, need not be paid to the Government. Only if the duty has not been paid already or if any excess is collected over and above the duty already paid, then only an occasion arises for payment of the duty collected or excess collected and this is the purport of Section 11D. The said section (Section 11D) should be understood in the above practical and business sense. Section 12A provides that the price of the goods sold should indicate the amount of duty, which will form part of the price. Section 12B states that the person, who has paid the duty of excise on any goods under the Act, shall be deemed to have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y provided in the Act, be instituted in any court to set aside or modify any assessment made under the Act. The Act also contained provisions by way of appeals, revisions and further revision to the High Court. The levy under the Act was only on purchase of `ground-nuts', but the Sales Tax authorities brought to tax the sales turnover and collected tax. The assessee contended that levy of tax on the sales turnover as distinguished from the purchase turnover is illegal, and filed a suit for recovery of the amount so collected. It should be noticed that the assessee himself voluntarily made a return and paid the tax. In such circumstances, the question arose, whether the suit so filed is maintainable in view of the adequate alternate remedies provided by the Act and the ouster of jurisdiction of the courts expressly contained in Section 18A of the Act ? On the facts of the case, it was held that the suit was barred. In considering the question of exclusion of jurisdiction of the civil courts to entertain civil actions by virtue of specific provisions contained in the special statute, reference was made to the decision of the Judicial Committee in Secretary of State v. Mask Co. (s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cisions of the Privy Council and of this Court, were surveyed in detail by a Constitution Bench of this Court in Dulabhai etc. v. State of Madhya Pradesh Anr. (AIR 1969 SC 78). In that case, the assessees filed a suit for refund of the tax on the ground that it was illegally collected from them being against the constitutional prohibition contained in Article 301 of the Constitution of India and not saved in Article 304(a) of the Constitution. Section 17 of the relevant Act was pleaded in defence as a bar to the maintainability of the suit. Section 17 provided that no assessment made and no order passed under the Act or the Rules by any of the statutory authorities, shall be called in question in any case. The court held that notwithstanding, the alternate remedies by way of appeal, revision, rectification and reference to the High Court, the tax therein was levied without a complete charging section and this affected the jurisdiction of the tax authorities, and so, the suit was maintainable, and decreed the suit. After referring to the relevant decisions and in particular, Secretary of State v. Mask Co. (AIR 1940 P.C. 105), Firm of Illuri Subbayya Chetty and Sons v. State of Andhr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rder passed by the State Government or the District Magistrate, shall not be called in question in any court. In other words, the jurisdiction of civil courts was excluded in relation to the matters covered by orders included within the provisions of Sections 3(4) and 16 of the said Act. The Constitution Bench approached the matter thus :- One of the points which is often treated as relevant in dealing with the question about the exclusion of civil Courts' jurisdiction, is whether the special statute which, it is urged, excludes such jurisdiction, has used clear and unambiguous words indicating that intention. Another test which is applied is : does the said statute provide for an adequate and satisfactory alternative remedy to a party that may be aggrieved by the relevant order under its material provisions? Applying these two tests, it does appear that the words used in Section 3(4) and Section 16 are clear. Section 16 in terms provides that the order made under this Act to which the said section applies shall not be called in question in any Court. This is an express provision excluding the civil Courts' jurisdiction. Section 3(4) does not expressly exclude the jurisdict ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding is attached as one passed without jurisdiction. Again, the principle laid down in Mask Co.'s case was only reiterated and observations were made that the decision in Kamala Mills' case was in accord with the decision in Mask Co.'s case. It is important to notice that Gajendragadkar, C.J., spoke for the Bench in all the three decisions : Illuri Subbayya Chetty (AIR 1964 SC 322), Kamala Mills (AIR 1965 SC 942) and Ram Swarup (AIR 1966 SC 893). In considering Mask Co. (AIR 1940 PC 105), and Kamala Mills (AIR 1965 SC 1942) the Constitution Bench in Ram Swarup's case (AIR 1966 SC 893) held that if the proceeding assailed is totally invalid and a nullity or without jurisdiction, the jurisdiction of the civil courts is not barred. Again, the principle laid down in Mask Co. (supra) was only affirmed. On an analysis of the various decisions, this Court laid down the law in Paragraph 32 at page 89, thus (Dulabhai's case): Neither of the two cases of Firm of Illuri Subbayya, 1964-1 SCR 752 = (AIR 1964 SC 322) or Kamla Mills, 1966 1 SCR 64 = (AIR 1965 SC 1942) can be said to run counter to the series of cases earlier noticed. The result of this inquiry into the diverse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the particular Act must be examined because it is a relevant enquiry. (7) An exclusion of the jurisdiction of the civil court is not readily to be inferred unless the conditions above set down apply. (Emphasis supplied) Dulabhai's case (supra) has been consistently followed by this Court later see : Sree Raja Kandregula Srinivasa Jagannadharao Panthulu Bahadur Guru v. The State of Andhra Pradhesh and Others (AIR 1971 SC 71) and other cases. 138. Applying the law laid down the decisions aforesaid, it is not possible to conclude that any and every claim for refund of illegal/unauthorised levy of tax, can be made only in accordance with the provisions of the Act (Rule 11, Section 11B etc. as the case may be), and an action by way of suit or writ petition under Article 226 will not be maintainable under any circumstances. An action by way of suit or a petition under Article 226 of the Constitution is maintainable to assail the levy or order which is illegal, void or unauthorised or without jurisdiction and/or claim refund, in cases covered by propositions No. (1), (3) (4) and (5) in Dulabhai's case, as explained hereinabove, as one passed outside the Act and ultra vires. Such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntire proceedings before the appropriate authority illegal and without jurisdiction. Similarly, if an appropriate authority has acted in violation of the fundamental principles of judicial procedure, that may also tend to make the proceedings illegal and void and this infirmity may affect the validity of the order passed by the authority in question. It is cases of this character where the defect or the infirmity in the order goes to the root of the order and makes it in law invalid and void ... [Dulabhai's case (supra) Para 32 - Clause (1)]. [Emphasis supplied] Here also, the appropriate action should be laid within the period of limitation provided by the appropriate law and also can invoke Section 72 of the Contract Act, as the case may be. Category (III) Mistake of law The levy or imposition was unconstitutional or illegal or not exigible in law (i.e. without jurisdiction) and, so found in a proceeding initiated not by the particular assessee, but in a proceeding initiated by some other assessee, either by the High Court or the Supreme Court, and as soon as the assessee came to know of the judgment, (within the period of limitation) he initiated action for refund of the tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ay differ as to when it can be said that in the public law domain, the entire proceeding before the appropriate authority is illegal and without jurisdiction or the defect or infirmity in the order goes to the root of the matter and makes it in law invalid or void (Referred to in Illuri Subbayya Chetty's case and approved in Dulabhai's case). The matter may have to be considered in the light of the provisions of the particular statute in question and the fact situation obtaining, in each case. It is difficult to visualise all situations hypothetically and provide an answer. Be that as it may, the question that frequently arises for consideration, is, in what situation/cases the non-compliance or error or mistake, committed by the statutory authority or Tribunal, makes the decision rendered ultra vires or a nullity or one without jurisdiction? If the decision is without jurisdiction, notwithstanding the provisions for obtaining reliefs contained in the Act and the ouster clauses , the jurisdiction of the ordinary court is not excluded. So, the matter assumes significance. Since the landmark decision in Anisminic Ltd. v. Foreign Compensation Commission [1969 (2) AC 147 = 1969 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r upon the enquiry in question . If there was an entitlement to enter upon the inquiry into the question, then any subsequent error could only be regarded as an error within the jurisdiction. The best known formulation of this theory is that made by Lord Denman in R. V. Bolton (1841) 1 QB 66. He said that the question of jurisdiction is determinable at the commencement, not at the conclusion of the enquiry. In Anisminic Ltd., (1969) 2 AC 147 Lord Reid said : But there are many cases where, although the Tribunal had jurisdiction to enter on the enquiry, it has done or failed to do something in the course of the enquiry which is of such a nature that its decision is a nullity. It may have given its decision in bad faith. It may have made a decision which it had no power to make. It may have failed in the course of the enquiry to comply with the requirements of natural justice. It may in perfect good faith have misconstrued the provisions giving it power to act so that it failed to deal with the question remitted to it and decided some question which was not remitted to it. It may have refused to take into account something which it was required to take into account. Or it may have ba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... judgment, stated thus : ........ Though the dividing line between lack of jurisdiction or power and erroneous exercise of it has become thin with the decision of the House of Lords in the Anisminic Case, (1967) 3 W.L.R. 382, we do not think that the distinction between the two has been completely wiped out. We are aware of the difficulty in formulating an exhaustive rule to tell when there is lack of power and when there is an erroneous exercise of it. The difficulty has arisen because the word jurisdiction is an expression which is used in a variety of senses and takes its colour from its context, (see Per Diplock, J. at P. 394 in the Anisminic Case). Whereas the `pure' theory of jurisdiction would reduce jurisdictional control to a vanishing point, the adoption of a narrower meaning might result in a more useful legal concept even though the formal structure of law may lose something of its logical symmetry. At bottom the problem of defining the concept of jurisdiction for purpose of judicial review has been one of public policy rather than one of logic . (S.A. De Smith, Judicial Review of Administrative Action . 2nd Edn., p. 98) (1968 edition) [emphasis supplied] The observ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ost Anisminic period, the scope of the finality clauses (exclusion of jurisdiction of courts) in the statutes, and have laid down a few propositions at pages 250-256 which could be advanced on the subject. The authors have concluded the discussion thus at page 256 : After Anisminic virtually every error of law is a jurisdictional error, and the only place left for non-jurisdictional error is where the components of the decision made by the inferior body included matters of fact and policy as well as law, or where the error was evidential (concerning for example the burden of proof or admission of evidence). Perhaps the most precise indication of jurisdictional error is that advanced by Lord Diplock in Racal Communications, when he suggested that a tribunal is entitled to make an error when the matter involves, as many do inter-related questions of law, fact and degree . Thus is was for the county court judge in Pearlman to decide whether the installation of central heating in a dwelling amounted to a structural alteration extension or addition . This was a typical question of mixed law, fact and degree which only a scholiast would think it appropriate to dissect into two separate q ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or collateral to the merits of, the issue, or as jurisdictional. (p.114) There is a presumption in construing statutes - which confer jurisdiction or discretionary powers on a body, that if that body makes an error of law while purporting to act within that jurisdiction or in exercising those powers, its decision or action will exceed the jurisdiction conferred and will be quashed. The error must be one on which the decision or action depends. An error of law going to jurisdiction may be committed by a body which fails to follow the proper procedure required by law, which takes legally irrelevant considerations into account, or which fails to take relevant considerations into account, or which asks itself and answers the wrong question . (pp. 119-120) The presumption that error of law goes to jurisdiction may be rebutted on the construction of a particular statute, so that the relevant body will not exceed its jurisdiction by going wrong in law. Previously, the courts were more likely to find that errors of law were within jurisdiction; but with the modern approach errors of law will be held to fall within a body's jurisdiction only in exceptional cases. The courts will genera ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , because all errors of law are now jurisdictional. [Emphasis supplied] 144. The scope of the exclusionary clauses contained in the statutes has been considered in great detail with reference to the decisions of the superior courts in England and also the decisions of the Supreme Court of India by Justice G.P. Singh (former Chief Justice, M.P. High Court) in Principles of Statutory Interpretation , 6th edition, (1996) at page 475. The law is stated thus :- A review of the relevant authorities on the point leads to the following conclusions : (1) An Exclusionary Clause using the formula `an order of the (1) Tribunal under this Act shall not be called in question in any Court' is ineffective to prevent the calling in question of an order of the Tribunal if the order is really not an order under the Act but a nullity. (2) Cases of nullity may arise when there is lack of jurisdiction at the stage of commencement of enquiry e.g., when (a) authority is assumed under an ultra vires statute; (b) the Tribunal is not properly constituted, or is disqualified to act; (c) the subject-matter or the parties are such over which the Tribunal has no authority to inquire; and (d) there is want of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fund, holding that the assessee had passed on the incidence of duty to others. It was upheld by this court notwithstanding the interim orders and other proceedings of the High Court. Basically, the application for refund was filed before the concerned statutory authority, who negatived the claim by giving effect to the provisions of the amendment Act. There was no attack in the above case, that the levy or collection as one unauthorised or unconstitutional or without jurisdiction or illegal. In Union of India v. ITC Ltd., the Jain Spinners case (supra) was followed. The main aspect that arose for consideration in the latter case was, whether the assessee had passed on the incidence of duty to the consumers or other persons. In spite of the repeated orders of the Court, the assessee failed to establish that the burden of excess excise duty was borne by it and was not passed on to any other person. The assessee had filed five applications for refund. Three of them were allowed by the statutory authorities in the appeals. Only two refund applications were rejected which were assailed in the High Court. The High Court allowed the said applications, directing the Revenue to refund the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll be credited to the Consumer Welfare Fund and the said Fund will be utilised as per Section 12D of the Act. 147. 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 :- 1. Refund made or due as per orders passed by Courts, in a suit. or in a petition under Article 226 of the Constitution of India, which have become final. 2. Refunds ordered by the statutory authority concerned. which have become final. It is obvious that in such cases no application can or will be deemed to be pending on the date of the commencement of the Amendment Act. No application praying for refund is to be filed in such cases, either. No ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the ordinary law. Section 12B of the Act only provides a statutory rebuttable presumption in that regard. If it turns out that the levy is not exigible, it is refundable to the person who had borne the liability. Ordinarily, in the case of indirect taxes, such persons will be innumerable and cannot be easily identified or located. If the duty, which is not exigible, is refunded to the person who had not borne the liability, it will result in an unjust benefit to him. So the Act has provided in Section 11B(2), that in such cases where the duty is refundable, it will be credited to the Consumer Welfare Fund (Section 12C). However, the proviso to Section 11B(2) provides that the duty of excise will be refunded in few specified cases, subject to certain conditions one of them is the manufacturer in cases, where he has not passed on the incidence to any other person [Clause (d)]. Those provisions will apply only for refunds to be made under the Act. In the totality of the factual situation, it cannot be said that the provisions ushered in by Amendment Act, 1991 and the scheme formulated in Sections 11B and 12A to D are, a device or invalid or arbitrary or unreasonable (except to the ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Salt Act as amended by Act 40/1991). (B) The decision in Kanhaiya Lal's case, and the cases following the same, cannot be understood as laying down the law that even in cases the liability has been passed on , the assessee can maintain an action for restitution. If the decision in Kanhaiya Lal's case (supra) and the cases following the said decision, enables such a person to claim refund (restitution), with great respect to the learned Judges, who rendered the above decisions, I express my dissent thereto. In this context, the observations in Para 29 - Clause III shall also be borne in mind. (C) Article 265 should be read along with the Preamble andArticle 39(b) and (c) of the Constitution, and so construed in cases where the assessee has passed on the liability to the consumer or third party, he is not entitled to restitution or refund. The fact that the levy is invalid need not automatically result in a direction for refund of all collections made in pursuance thereto. (D) The presumption is that the taxpayer has passed on the liability to the consumer (or third party). It is open to him to rebut the presumption. The matter is exclusively within the knowledge of the tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of the Amendment Act or the filing of an application which is contemplated under law, to obtain a refund, after the Amendment Act comes into force. If the said provisions are held applicable, even to matters concluded by the judgments or final orders of courts, it amounts to stating that the decision of the court shall not be binding and will result in reversing or nullifying the decision made in exercise of the judicial power. The legislature does not possess such power. Alternatively, it may be stated that duty paid in cases, which finally ended in orders or decrees or judgments of courts, must be deemed to have been paid under protest and the procedure and limitation etc. stated in Section 11B(2) read with Section 11B(3) will not apply to such cases. (I) It need hardly be stated, that Section 11B(1), the proviso 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. (Cases dealt w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... before entering into that controversy, it is important to bear in mind the provisions of Article 265 of the Constitution and its amplitude. It has also to be seen what is the scope, meaning and purport and also the import of what is described as `unjust enrichment'. A challenge has also been made to the validity of the amendments made to the Central Excise Act. That will also have to be examined. ARTICLE 265 155. Article 265 of the Constitution lays down that no tax shall be levied or collected except by authority of law. The mandate of the Constitution is lucid and clear and must be taken to mean what is says. `No tax' takes in every type of tax. It has been contended on behalf of the Union of India that Article 265 merely lays down that no direct tax shall be levied or collected except by authority of law. The first question is that if that was the intention of the Constitution makers, then why did they not say so in so many words? `Taxation' has been defined in Article 366 (28) to include the imposition of any tax or impost, whether general or local or special, and `tax' shall be construed accordingly. Therefore, the word `tax' will include any tax general, l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... umber of other Articles in Chapter I of Part XII of the Constitution. 157. Moreover, this argument, if accepted, will have dangerous implications. It will mean that the Constitution has impliedly empowered the Government to levy and collect indirect taxes without any authority of law. Bearing in mind that the bulk of the taxes imposed by the Union and practically the entire amount of taxes collected by the States is by indirect levies, the constitutional protection against unlawful taxes will become meaningless and devoid of any substance. 158. Mr. Parasaran, appearing on behalf of Union of India has argued that Article 265 has to be read along with the Directive Principles. The State has been enjoined to direct its policy towards securing that the ownership and control of the material resources of the community are so distributed as best to subserve the common good. I do not see how this provision or any other provision of Article 39 can in any way whittle down the scope of Article 265 of the Constitution. If the provisions of Article 39 are to be construed as a licence given to the State to retain whatever has been collected however unlawfully, then why should any distinction be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contention that guarantee contained in Article 265 of the Constitution must be restricted to direct taxes only. In my judgment, Article 265 must be implemented in letter and spirit as it stands and all the tax laws and all Government actions to realise and retain tax must be tested on the anvil of this guarantee. The courts should jealously guard against any attempt to whittle down or do away with any of the guarantees given under the Constitution to the citizens. In my judgment, Article 265 will have to be given full effect in cases of direct as well as indirect taxation. If any tax has been levied and collected without authority of law, then the State has committed a wrong and that wrong must be undone by the State by returning the tax unlawfully collected to the person from whom it was collected. 162. The Court has a duty to uphold the Constitution in letter and spirit. If the Court comes to the conclusion that a levy of tax is unlawful, the Court will direct the Government to return the tax. It is not for the Court to enquire how the tax-payer has managed his affairs after payment of the unlawful levy. It is but natural that the tax-payer will try to raise funds by raising pric ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not retain it on any equitable ground nor can it give it to any other person out of any supposed equitable consideration. The constitutional mandate cannot be ignored on the pretext of any rule of equity or on the ground of what is perceived as substantive justice. Every word of the Constitution has to be treated as sacrosanct and respected and obeyed by the State and the Legislature and enforced by the Court. 164. The Court cannot, by torturing the language of Article 265 or by any other means, construe it so as to give it a meaning which it does not naturally bear. It was observed in the case of Commissioner of Inland Revenue v. Rossminster Ltd., (1980) AC 952 at 1018 that in construing a statutory provision, the rule of construction must be however much a court may deprecate an Act, it must apply it. It cannot by torturing its language or any other means construe it so as to give a meaning which the Parliament did not clearly intend it to bear . The same rule of construction will apply for construing a constitutional provision. The Court may dislike Article 265 and its natural consequence. But because of that the Court cannot torture its language to bring out a meaning which the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... validity of the Barring Act was challenged. It was pointed out by the Judicial Committee that if the Act was valid, it would be a complete answer to the claim of the tax-payers. But the validity of the relevant provisions of the Barring Act could be no greater or no less if they had been contained in the Principal Act itself. It was held that neither prospectively nor retrospectively can a State law make lawful that which the Constitution says is unlawful. If the statute laid down that the charges in respect of inter-State trade should be imposed and that, if they were illegally imposed and collected, they should nevertheless, be retained, such an enactment would be illegal. The statutory immunity accorded to illegal acts is as offensive to the Constitution as the illegal acts themselves. 166.The Judicial Committee posed the following question ....Then the question is whether the statutory immunity accorded to illegal acts is not as offensive to the Constitution as the illegal acts themselves, and, applied to the present circumstances, that question is whether, if the imposition of charges in respect of inter-State trade is invalid as an offence against Section 92. It is not equall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty has been found to be illegal. It has been levied and collected in violation of the Central Excise Act and also the guarantee contained in the Constitution. The levy is void. It has denied the tax-payer the protection given by the Constitution. If illegally collected tax is not immediately restored to the tax-payer, the guarantee given by the Constitution will be a mockery. The constitutional guarantee is not hedged by any clause. A trader may trade with his goods as he likes. The terms and conditions under which he sells his goods is a matter between him and the purchaser. He may raise his price high enough to include costs and taxes. If he does so with the agreement of the buyer, he does not lose his right to get back what had been collected from him illegally or the protection of Article 265 of the Constitution. That will be putting a rider on the Constitution. The Court is not permitted to write the Constitution but is duty bound to enforce it. 172. The view of the Judicial Committee was that but for Section 92 of the Australian Constitution, the Barring Act might have been held to be valid. In the instant case also, the amended provisions of Section 11B of the Central Excise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... May 29, 1928. If the tax was erroneous and illegal, as is alleged, it must be conceded that, under the system then in force, there accrued to the tax-payer when he paid the tax a right to have it refunded without any showing as to whether he bore the burden of the tax or shifted it to the purchasers. And it must be conceded also that Section 424 applies to right accrued theretofore and still subsisting, but not sued on prior to April 30, 1928, and subjects them to the restriction that the tax-payer (a) must show that he alone has borne the burden of the tax, or (b) if he has shifted the burden to the purchasers, must give a bond promptly to use the refunded sum in reimbursing them. But it cannot be conceded that in imposing this restriction the section strikes down prior rights, or does more than to require that it be shown or made certain that the money when refunded will go to the one who has borne the burden of the illegal tax, and therefore is entitled in justice and good conscience to such relief. This plainly is but another way of providing that the money shall go to the one who has been the actual sufferer and therefore is the real party in interest. We do not perceive in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purpose of(2) raising revenue for Provincial purposes a tax of 15c a gallon on all gasoline purchased by him after August 1, 1974 and before February 28, 1975, but (a) where gasoline was purchased for use in an aircraft the tax shall be 8c a gallon, and (b) share gasoline in the form of liquefied petroleum gas or natural gas was purchased to propel a motor vehicle the tax shall be 10c a gallon. (3) Every purchaser shall pay to Her Majesty for the purpose of raising revenue for Provincial purposes a tax of 17c a gallon on all gasoline purchased by him after February 27, 1975 and before July 8, 1976, but (a) where gasoline was purchased for use in an aircraft the tax shall be 5c a gallon, and (b) where gasoline in the form of liquefied petroleum gas or natural gas was purchased to propel a motor vehicle the tax shall be 12c a gallon. (4) x x x Where after August 1, 1974 and before July 8, 1976, money(5) was collected or purported to have been collected as taxes, penalties or interest under this Act, the money shall by this section be conclusively deemed to have been confiscated by the government without compensation. 179. These amendments were statutorily given retroactive character ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 25(1) to (4). On the reasoning regarding the 1976 Act, these provisions seem to be a proper exercise of its power to impose direct taxation in the province, the sole difference being that the 1981 provisions are given retroactive effect, a result that is not constitutionally barred. The real question, then, is whether when Section 25(1) to (4) are conjoined to Section 25(5), they become so coloured by the latter provision as to make all of Section 25 ultra vires . 182. That question was answered by La Forest, J. in the following words : That, of course, raises the issue whether Section 25(5) is itself ultra vires. There are in my view, some serious difficulties in establishing its invalidity. It may be, if the provision stood alone, that it could be successfully maintained that it violates the principle in the Amax decision. I need not consider that situation because it does not stand alone. It is the fifth of five sub-sections, the first four of which impose a valid direct tax, and it must obviously be read in that context. It must also be read in light of the well-known principle that it must be assumed that the legislature intended to stay within the confines of its constitu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ffords no reason to brand as unconstitutional a tax that it can validly impose and collect. 184. This is the ratio of the decision of La Forest, J. An unconstitutional levy brought about by an indirect tax was cured retroactively by a direct levy. What was collected wrongfully under an indirect levy was retained by adjusting the unlawful collection against what turned out to be a valid collection under the new law. Section 25(5) was clumsily worded in that it had used the word confiscated . Properly understood, according to La Forest, J., it did not really confiscate the amount already paid but adjusted that amount against the subsequent lawful demands made under the retroactively amended provisions. 185. Thereafter, La Forest, J. went on to discuss the points raised on mistake of law . La Forest, J. came to the conclusion after review of the case law that in my view, the distinction between mistake of fact and mistake of law should play no part in the law of restitution. But he was of the view that recovery of taxes imposed by a legislation subsequently declared ultra vires could not be allowed even if the airlines could show that they bore the burden of the tax,....... 186. The v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is other than valid should be viewed as having paid pursuant to the statutory obligation to do so. 187. Adverting to the argument that any refund to the tax-payer who has passed on the burden of tax to the ultimate consumer will result in an unmarited windfall to him, Wilson, J. observed : My colleague advances another reason why the appellants should be denied recovery in this case. He says, in effect, that the appellants would be receiving a windfall if they received their money back because in all likelihood they have already recouped the payments made on account of the ultra vires tax from their customers. In terms of my colleague's analysis the appellants are unable to show that the unjust enrichment of the province was at their expense. In my view there is no requirement that they be able to do so. Where the Payments were made pursuant to an unconstitutional statute there is no legitimate basis on which they can be retained. As Dickson, J. stated in Amax, supra, at p. 10 : To allow moneys collected under compulsion, pursuant to an ultra vires statute, to be retained would be tantamount to allowing the provincial Legislature to do indirectly what it could not do directly, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... preme Court held that C.P.A. could recover the Social Service Tax paid on purchases of equipment and parts, but the tax paid on alcoholic beverages sold to passengers was imposed on the passengers who consumed the liquor and therefore, the C.P.A. was not entitled to recover the same. Oliver, J. observed that it can be agreed that both taxes were passed on to customers by Air Canada in the price of airline tickets. La Forest, J. in the C.P. A. case held that Social Service Tax paid by the airlines was not properly payable on either aircraft parts or on alcoholic beverages. Having found that the tax was inapplicable, La Forest, J. concluded there seems no reason to refuse Air Canada the recovery it seeks. There is nothing to indicate it ever abandoned this claim. The claim for recovery of the tax paid on alcoholic beverages was rejected on the ground that the tax was imposed on the passengers, not Air Canada. Air Canada was simply an agent to collect it under the Act, and, in fact, obtained a fee for doing so. I am unable to see how it could identify the passengers who consumed the liquor, so its repayment to Air Canada would simply amount to a windfall to the airline. 191. The conte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oning of Wilson, J. most attractive. Moreover, I agree with her that, if there is to be a right to recovery in respect of taxes exacted unlawfully by the Revenue, it is irrelevant to consider whether the old rule barring recovery of money paid under mistake of law should be abolished, for that rule can have no application where the remedy arises not from error on the part of the tax-payer, but from the unlawful nature of the demand by the Revenue. Furthermore, like Wilson, J., I very respectfully doubt the advisability of imposing special limits on recovery in the case of `unconstitutional or ultra vires levies'. 194. In the concluding part of the judgment, Lord Goff recognised the difficulties involved in the doctrine of `passing on'. Lord Goff pointed out that the question need not be finally decided in that case. It was observed : It will be a matter for consideration whether the fact that the plaintiff has passed on the tax or levy so that the burden has fallen on another should provide a defence to his claim. Although this is contemplated by the Court of Justice of the European Communities in the San Giorgio case, it is evident from Air Canada v. British Columbia that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sions demonstrate that any acceptance of the defence of passing on is fraught with both practical and theoretical difficulties. Indeed, the difficulties are so great that, in my view, the defence should not succeed unless it is established that the defendant's enrichment is not at the expense of the plantiff but at the expense of some other person or persons. 198. Brennan, J. who agreed with Mason, C.J. that the appeal should be dismissed, held that : The fact that Royal had passed on to its policy holders the burden of the payments made to the Commissioner does not mean that Royal did not pay its own money to the Commissioner. The passing on of the burden of the payments made does not affect the situation that, as between the Commissioner and Royal, the former was enriched at the expense of the latter. 199. In the concurrent judgment of Dawson J., there are certain observations to which I shall refer later on in this judgment. 200. All these cases go to show the complexity of the problem of doctrine of passing on . The U.S. view appears to be that but for the law passed in 1924, illegally collected tax had to be refunded even if it was passed on to the consumers. The majority ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were not dealt with by the Municipal Council as a whole but by a sub-committee. The Court held that this was erroneous. The phrase `levy and collection' indicates that all the steps in making a man liable to pay a tax and exaction of tax from him must be in accordance with law. There must be a valid statute which will be properly followed. All steps must be taken according to statutory provisions. Recovery of tax must also be according to law. No one can be subjected to levy or tax or deprived of his money by the State without authority of law. 203. Article 39 of the Constitution has directed the State to formulate its policy towards securing that the ownership and control of the material resources of the community are so distributed as best to subserve the common good and that the operation of the economic system does not result in the concentration of wealth and means of production to the common detriment. These provisions do not in any way curtail the scope and effect of Article 265. Section 39 does not enjoin that unlawfully collected properties should be used by the State for the common good. Nor does it say that the operation of the economic system should be so moulded as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w unto himself; it invites anarchy. 207. In the case of Mapp v. Ohio, 367 US 643 (1961), Mr. Justice Clark delivering the opinion of the Court in a case where the State tried to use in evidence the materials gathered as a result of unlawful search, on the ground that it was very desirable to do so in the facts of that case observed : Our decision, founded on reason and truth, gives to the individual no more than that which the Constitution guarantees him, to the police officer no less than that to which honest law enforcement is entitled, and, to the courts, that judicial integrity so necessary in true administration of justice. 208. In my view, the scope and effect of Article 265 cannot be whittled down in any manner in order to enable the Government to retain unlawfully gathered tax on the pretext that a refund will unduly enrich the tax-payers. Whatever the consequence may be, the provisions of the Constitution must be upheld as they stand. 209. In my judgment, Article 265 does not permit the State to levy or collect any tax without the authority of law. This is a protection afforded to the citizens by the Constitution from State oppression in financial matters. This protection ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t with each blending and adaptation. 211. Section 39 of the Act, when it was passed in 1944, stood as under :- 39. The enactments specified in the Third Schedule are hereby repealed to the extent mentioned in the fourth column thereof. But all rules made, notifications published, licences, passes or permits granted, powers conferred and other things done under any such enactment and now in force shall, so far as they are not inconsistent with this Act, be deemed to have been respectively made, published, granted, conferred or done under this Act. The Third Schedule contained as many as 17 Acts which were entirely re- pealed. The Acts were, inter alia, The Motor Spirit (Duties) Act, 1970, The Silver (Excise Duty) Act, 1930, The Sugar (Excise Duty) Act, 1934, The Matches (Excise Duty) Act, 1934, The Iron and Steel Duties Act, 1934, The Tyres (Excise Duty) Act, 1941, The Tobacco (Excise Duty) Act, 1943 and the Vegetable Prod- uct (Excise Duty) Act, 1943 and Mechanical Lighters (Excise Duty) Order, 1934. 212. In all these Acts the Central Government were empowered to make rules for assessment and collection of duty, issue of notice requiring payment, the manner in which the duties shal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessment. The Collector was empowered to make a summary assessment (Rule 9). Provisions for refunds and remissions were contained in Chapter IV. Chapter V dealt with miscellaneous provisons including provision for preferring an appeal, firstly, to the Local Government or to such higher authority as the Local Government might direct. Appeal could also be made to the Central Board of Revenue and any order could be revised by the Governor General in Council (Rule 22). Rule 23 imposed a time limit of three months for preferring an appeal. Rule 26 dealt with short levy through inadvertence, error or misconstruction on the part of the Collector, or through mis-statement as to the quantity on the part of the owner of the manufactory. Recovery could also be made when erroneous refunds had been made. Such claims of refund had to be made within three months from the date of such payment. Some provisions were made in the other orders or statutes by directly providing for payment of tax, appeals and refunds or by incorporating provisions of other Acts like Sea Customs Act. What is important to remember is that it was never in doubt that it was the manufacturer who was liable to pay tax and al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsation for loss or damage sustained by a tax-payer but on the principle of restoration to the tax-payer of what had been collected from him without justification of law. This was highlighted by Mason, C.J. in the Australian Case (supra). It is not without significance that in all the tax laws, the word `refund' has been preferred to `restitution' or `compensation'. The dictionary meaning of `refund' is to give or pay back money etc. , Webster Comprehensive Dictionary, International Edition 1984. When a taxing statute provides for refunds, it is not to be understood as a section providing for compensation for loss or damage. Refund of tax means returning to the assessee what had been taken or received from him unlawfully. (3) Under the Central Excise Act, there is only one tax which is levied by Section 3 and the tax-payer is the person who pays the charge levied by Section 3. The taxable event under the charging section is manufacture. This is the duty which a manufacturer has to pay before he can remove the manufactured goods from his factory. What the buyer of the goods pays to the manufacturer is the price of the goods. No duty is levied by the Central Excise Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of the powers conferred by section 14 of the Industries (Development and Regulation) Act, 1951 (65 of 1951), and the rules made under that Act. (1A) The provisions of sub-section (1) shall apply in respect of all excisable goods other than salt which are produced or manufactured in India by, or on behalf of, Government, as they apply in respect of goods which are not produced or manufactured by Government. (2) The Central Government may, by notification in the Official(2) Gazette, fix, for the purpose of levying the said duties, tariff values of any articles enumerated, either specifically or under general headings, in the Schedule to the Central Excise Tariff Act, 1985 (5 of 1986) as chargeable with duty ad valorem and may alter any tariff values for the time being in force. (3) Different tariff values may be fixed- (a) for different classes or descriptions of the same excisable goods; or (b) for excisable goods of the same class or description - (i) produced or manufactured by different classes of producers or manufacturers; or (ii) sold to different classes of buyers : PROVIDED that in fixing different tariff values in respect of excisable goods falling under sub-clause (i) or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to cases of losses of goods shall - (i) (ii) (iii) where the loss occurs in storage, whether in a factory or(iii) in a warehouse, be the rate and valuation, if any, in force on the date on which such loss is discovered by the proper officer or made known to him. 221. These provisions have undergone minor alterations from time to time, but there is not the slightest doubt that the levy of excise duty is on manufacture of goods. The taxable event is the manufacture. The duty will have to be paid regardless of the destination of the goods. Even if the goods are lost before clearance, duty will have to be paid. Whether the manufacture after removal of the goods, is able to sell the goods or not is a matter of no consequence. Once the taxable event has happened the duty has to be paid. There is no escape from it. This is a strict liability foisted on manufacture by Section 3. But nothing in excess of this strict liability can be collected by the Excise Officers. If something is levied or collected which is beyond the charging section, then that has to be paid back to the tax-payer. Whatever tax has been levied or collected in violation of law has to be restored to the person from whom s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... axes and profits. But there is only one tax and one tax-payer who pays the tax. If there is short levy or underlevy of excise duty due to any reason, the excise authority has no right to chase the consumers for the arrears of tax. In no sense of the term the consumer can be treated as the tax-payer under the Central Excise Act. Moreover, if the consumer is a businessman, the cum-duty price will be deductible from his income under the Income Tax Act. 224. The charge of duty under the Central Excise Act is imposed by Section 3. It has to be computed in the manner laid down in the rules and paid also in the way rule provides. The charge of tax is to be recovered from every person who produces, cures or manufactures any excisable goods (Rule 7). It may also be recovered from person who stores such goods in a warehouse. It further provides that the duty shall be payable at such time and place and to such person as may be designated . Rule 7 really supplements the charging section and specifies the person who has to pay excise duty and to whom, where and within which time the duty is to be paid. Rule 9, which has been set out earlier in the judgment, places a bar on removal of goods from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... within such extended period as the Asst. Collector of Central Excise may, in any particular case, allow. 10B. Claim for refund of duty. - Any person claiming refund of any duty paid by him may, make an application, for refund of such duty to the Assistant Collector of Central Excise before the expiry of six months from the date of payment of duty : Provided that the limitation of six months shall not apply where any duty has been paid under protest. Explanation. - Where any duty is paid provisionally under these rules on the basis of the value or the rate of duty, the period of six months shall be computed from the date on which the duty is adjusted after final determination of the value or the rate of duty, as the case may be. (2) If on receipt of any such application the Assistant Collector of Central Excise is satisfied that the whole or any part of the duty paid by applicant should be refunded to him, he may make an order accordingly. (3) Where, as a result of any order, passed in appeal or revision; under the Act, refund of any duty becomes due to any person, the proper officer may refund the amount to such person without his having to make any claim in that behalf. (4) Save ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... there is only one duty payable under the Central Excise Act. It has to be paid by the manufacturer or producer of the excisable goods. In fact stringent provisions have been made to ensure that there is no evasion of duty by the manufacturer. Under Rule 43 the manufacturer is required to give notice before commencement of production. He has also to give a notice before stopping or resuming production of such goods. He has also to give particulars of the raw-materials used for production and if there is any change in the nature of the raw-material that has also to be conveyed to the Collector of Excise. Under Rule 49 duty has to be paid by a manufacturer only when the goods are removed from the factory premises or an approved place of storage. But a manufacturer has to pay on demand the duty leviable on any goods which cannot be accounted for or which are not shown to have been lost or destroyed by natural causes or by an unavoidable accident during handling or storage of such goods. 229. The procedure of clearance is contained in Rule 52. The manufacturer has to make an application in triplicate to proper officer in proper form at least twelve hours before the removal of the goods. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s to be read in, nothing is to be implied. One can only look fairly at the language used. 231. In the case of R.C. Parsi v. Union of India, AIR 1962 SC 1281 after quoting with approval the observations of Lord Simonds in The Judicial Committee, in Governor General in Council v. Province of Madras, AIR 1945 PC 98 at p. 101, Subba Rao, J. observed as under : ...the said tax can be levied at a convenient stage so long as the character of the impost, that is it is a duty on the manufacture or production, is not lost. The method of collection does not affect the essence of the duty, but only relates to the machinery of collection for administrative convenience. Whether in a particular case the tax ceases to be in essence an excise duty, and the rational connection between the duty and the person on whom it is imposed ceased to exist, is to be decided on fair construction of the provisions of a particular Act. 232. In Bharat Kala Bhandar (Private) Ltd. v. Municipal Committee, Dhamangaon, 59 ITR 73, the subject matter of dispute was a municipal levy. The appellant claimed repayment of an excess amount of tax recovered by the Municipality. Although the facts and the subject matter of the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... seem to us to extend to collection . Article 265 of the Constitution does not seem to us to extend to collection . Article 265 of the Constitution makes a distinction between levy and collection . We also find that in N.B. Sanjana, Assistant Collector of Central Excise, Bombay and Others v. The Elphinstone Spinning and Weaving Mills Co. Ltd., this Court made a distinction between levy and collection as used in the Act and the rules before us. It said there with reference to Rule 10 : We are not inclined to accept the contention of Dr. Syed Mohammad that the expression `levy' in Rule 10 means actual collection of some amount. The charging provision Section 3(1) specifically says : There shall be levied and collected in such a manner as may be prescribed the duty of excise.....It is to be noted that sub-section (i) uses both the expressions `levied and collected' and that clearly shows that the expression `levy' has not been used in the Act or the Rules as meaning actual collection.' 235. I fail to see how a person who has been subjected to levy of excise duty and from whom the duty has been collected cannot get the refund of the duty but only a person who has neither ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct a monthly return, showing particulars of the duty paid on the excisable goods removed during the month to which the said return relates, is to be filed by a manufacturer or producer or a licensee of a warehouse, as the case may be, the date on which such return is so filed; (B) where no monthly return as aforesaid is filed, the last date on which such return is to be filed under the said rules; (C) in any other case, the date on which the duty is to be paid under this Act or the rules made thereunder; (b) in a case where duty of excise is provisionally assessed under this Act or the rules made thereunder, the date of adjustment of duty after the final assessment thereof; (c) in the case of excisable goods on which duty of excise has been erroneously refunded, the date of such refund. 11B.Claim for refund of duty. Any person- (1) claiming refund of any duty of excise may make an application for refund of such duty to the Assistant Collector of Central Excise before the expiry of six months from the relevant date : Provided that the limitation of six months shall not apply where any duty has been paid under protest. (2) If on receipt of any such application, the Assistant Collecto ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ette in full discharge of his liability of the duty leviable on his production of certain goods, if after the manufacturer has made the payment on the basis of such rate for any period but before the expiry of that period such rate is reduced, the date of such reduction; (e) in a case where duty of excise is paid provisionally under this Act or the rules made thereunder, the date of adjustment of duty after the final assessment thereof; (f) in any other case, the date of payment of duty.' 237. Section 11B before its amendment in 1991 provided by sub-section (1) Any person claiming refund of any of duty of excise may make an application for refund of such duty to the Assistant Collector of Central Excise before the expiry of six months from the relevant date . By sub-section (2), the Assistant Collector was required to examine the application and if he was satisfied that the whole or any part of the duty of excise paid by the applicant should be refunded to him, he may make an order accordingly . Sub-section (3) dealt with the consequence of an order passed in appeal or revision under the Act. It provided that if as a result of any appellate or revisional order, any duty of exci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llected, it must be returned to the tax-payer. There is nothing in the Act which enables the Excise Officer to embark upon an inquiry to find out whether after payment of the duty, the manufacturer has sold his goods and if so, has included this amount in his price. It is not a ground on which the Excise Officer can refuse to refund the excess amount of duty paid by the manufacturer in the mode and manner laid down by the Act. A taxation statute has to be construed strictly. The Excise Officer cannot insert a proviso to the Section and say that even if the levy is illegal and the manufacturer is otherwise entitled to refund of duty under Section 11B, he will not be given this refund if he has included the duty element in the price of the goods manufactured by him. 241. The Excise Officer has no discretionary power to refuse to pay refund even when he was satisfied that excess payment of duty contrary to law has been collected or paid. Though sub-section (2) of Section 11B or earlier Rule 11A used the language that the Central Excise Officer may make an order of refund . The word `may', in this context, has to be construed as `must'. The section does not give the Central Exc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lure to do so does not indicate an intention to give to the Comptroller a discretion to retain payments of stamp duty which were not made pursuant to any legal obligation. . . . The absence of any qualification of this kind in Section 111(1) suggests to my mind an obligation to refund the overpaid duty rather than a discretion to withhold repayment in situations which the legislature might have specified but did not. It must be borne in mind that the occasion for the exercise of the authority conferred by Section 111(1) is the finding of an overpayment of stamp duty; that is to say, a finding that the Comptroller received moneys to which she had no entitlement. The sub-section must be read either as requiring her to refund the overpayment or as conferring a discretion upon her to keep the moneys notwithstanding that she had no entitlement to receive them. The principle that a statute will not be read as authorising expropriation without compensation unless an intention to do so is clearly expressed has been described as a `firmly established rule of law'. 244. Dawson, J. also expressed the view that the Comptroller did not have a discretion which had to be exercised in accordan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m the factory. A company may take a very long time to dispose of its goods after clearance. But a claim for refund has to be made within the short time permitted by the Act. These provisions are indicative of the fact that refund claim has to be made regardless of the sale of the goods. 249. That passing on of the incidence of tax was not relevant consideration is also borne out by sub-section (3) of Section 11B as well as sub-rule (3) of Rule 10B, e.g., if there is dispute as to classification of the goods and the assessee takes resort to filing of an appeal which ends in favour of the assessee, refund will have to be made of the excess amount of tax realised to the assessee without his having to make any claim in that regard. In such a situation, the Assistant Collector of Central Excise is not empowered, before refunding the money, to make an enquiry as to whether the duty has been passed on to the consumers. 250. The concept of passing on of the duty cannot be fitted in the provisions of the Excise Duty Act before its amendment in 1991. As has been repeatedly asserted in a number of cases that in a taxing statute, there is nothing to be added and there is nothing to be taken ou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for refund by the Excise Officer. Article 265 of the Constitution enjoins that no duty shall be levied and collected except in accordance with law. If it is found that a manufacturer has been asked to pay more than what he is liable to pay under the Central Excise Act, he is immediately entitled to get the refund of the wrongfully collected duty. This constitutional guarantee cannot be side-tracked in any manner. PRICE 253. Every manufacturer tries to maximise his profits. When he sells goods, he fixes a price at which he can make the maximum profits. Higher prices do not necessarily fetch higher profits. The manufacturer has to sell his products and if the prices are too high, the products will not sell. He has to fix a price keeping in view the costs incurred by him (this will include costs of production as well as setting costs and also the overheads) and also the taxes he has to pay. He will also have to take into consideration the market forces, the effective demand for his products and also the nature and price of the competing products in the market. He will only fix such a price which the traffic can bear . It is wrong to presume that if taxes are raised, the manufacturer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the difficulty of selling goods produced by a manufacturer. Can it be said in such cases when a substantial portion of the goods are being sold at an undervalue and thus causing large erosion of profits, that the incidence of duty has been merrily passed on to the consumers? The goods could not be sold except by reducing the price drastically. It is difficult to say that in such a case incidence of tax is being borne by the consumers and the loss by the producer. BSC Footwear's Case illustrates the predicament of an average manufacturer. A substantial quantity of taxpaid products cannot be disposed of as a matter of course and the manufacturer has to get rid of the unsold products by organising first sale at a discount thereafter at even lower prices. 256. This is a problem with every manufacturer and to assume that the excise duty can be passed on to the consumer without any corresponding loss to the manufacturer is to ignore reality. 257. In the case of British Paints India Limited v. Commissioner of Income Tax, West Bengal, (1978) 111 ITR 53, the problem was once again of valuation of unsold stock of a paint manufacturer. It was recognised that paints had a very short she ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Finance (No. 2) Act, 1940 which appears to be similar to Section 64A of our Sale of Goods Act, 1930. Section 64A provides :- 64A.In contracts of sale, amount of increased or decreased taxes to be added or deducted. - Unless different intention appears from the terms of the contract in the event of any tax of the nature described in sub-section (2) being imposed, increased, decreased or remitted in respect of any goods after the making of any contract for the sale or purchase of such goods without stipulation as to the payment of tax where tax was not chargeable at the time of the making of the contract, or for the sale or purchase of such goods tax paid where tax was chargeable at that time, - (a) if such imposition or increase so takes effect that the decreased tax or increased tax, as the case may be, or any part of such tax is paid or is payable, the seller may add so much to the contract price as will be equivalent to the amount paid or payable in respect of such tax or increase of tax, and he shall be entitled to be paid and to sue for and recover such addition; and (b) if, such decrease or remission so takes effect that the decreased tax only, or no tax, as the case may be, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... jecting the contention that the tax liabilities such can be transferred to the buyers, this Court referred to the observations of Lawrence, J. in Paprika Ltd. and Another v. Board of Trade (supra) and Goddard, L.J., in Love v. Norman Wright (Builders) Ltd. (supra). 266. In the former case, Lawrence, J. observed : Whenever a sale attracts purchase tax, that tax presumably affects the price which the seller who is liable to pay the tax demands it does not cease to be the price which the buyer has to pay even if the price is expressed as X plus purchase tax. 267. In Love's Case, Goddard, L.J., observed : Where an article is taxed, whether by purchase tax, customs duty or excise duty, the tax becomes part of the price which ordinarily the buyer will have to pay. The price of an ounce of tobacco is what it is because of the rate of tax, but on a sale there is only one consideration, though made up of cost plus profit plus tax. So, if a seller offers goods for sale, it is for him to quote a price which includes the tax if he desires to pass it on to the buyer. If the buyer agrees to the price, it is not for him to consider how it is made up or whether the seller has included tax or n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... buyer or seller. Whatever collection that may be made by the dealer from his customers the same can only be considered as valuable consideration for the goods sold. 271. I have been at great pains to emphasise that if the seller passes on his tax liability to the buyer, the amount equivalent to the tax received by the seller is part of the entire sale consideration. It is not collection of tax, because levy and collection of tax is regulated by law and not by contract. Whatever may have been collected by a seller from his customer on account of tax, the same can only be considered as valuable consideration for the `price' of the goods sold. 272. What the buyer pays is the price of the goods and not the components of the price. Production costs, selling costs, overheads, taxes, everything goes into fixation of the price. Moreover, the market conditions will have to be taken into account. If the price is too high for the market to bear, the goods will not sell. In order to absorb the excise duty, the manufacturer may have to cut various types of costs. It may have to reduce its profit, pay lesser dividends to shareholders, he may not readily agree to any increment in pay or paym ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no in-depth study was at all done by the legislature. The basic premise of this line of reasoning is fallacious. The Finance Minister in his Budget speech for the year 1994-95 (206 ITR Page 19) stated : Over the years, our indirect tax structure has grown into a complex maze of high and multiple rates, with numerous exemptions, and different rates being applicable for the same product for different uses and users. This has resulted in unnecessary complexity leading to administrative abuse, mounting litigation and uncertain economic impact. All this has effectively eroded the tax base and buoyancy of the system and created serious economic distortions. .... 277. To illustrate the enormity of excise burden which has to be borne by the manufacturers, it may be mentioned that in the Central Excise Tariff Act, 1985, duty on oils used for skin-care was 105 per cent and duty on residual oil which was not specifically mentioned under the Heading 3305.90 was 105 per cent. The duty on paints and varnishes under the Heading 32.09 was as high as 60 per cent. Under the Heading 33.07 pre-shave, shaving or after-shave preparations had to bear duty of 105 per cent. The examples of high excise dut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the purpose of this case because it goes to show the legislative intent. The Legislature never intended before 1991 that refunds of excise duty will not be given to the manufacturers but to the buyers of the goods. The Central Excise Act is totally silent on this aspect of the matter and we shall not add a rider to the Central Excise Act to deny any refund due to the manufacturer. 281. It has also to be borne in mind that the rates of duty in India is much higher than in U.S.A., Australia or Canada. Its economic impact is much greater. In fact, in the case of United States v. Jefferson Electric Manufacturing Company (supra), the dispute related to levy of excise duty at the rate of 5 per cent. In Air Canada's Case, the disputed duty was 5 cents per gallon. It is needless to speculate how the Courts would have reacted if they had to face the high tax regime that exists in India. 282. Mason, C.J. in the case of Commissioner of State Revenue v. Royal Insurance Australia Ltd. (supra), noted how the theory that the burden imposed by higher excise duty can be passed on to the consumers without any economic loss to the manufacturer has been rejected in various Courts in the Unite ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of the plaintiff but at the expense of some other person or persons. 285. In view of all these, I see no basis to deny the refund to a manufacturer on the facile assumption that burden of duty has been passed on to the consumers without any loss or detriment to the manufacturer. The absurdity of this doctrine of passing on can well be demonstrated by the following examples. 286. Supposing, a manufacturer of pulp sells his product to a rayon manufacturer which uses the pulp to manufacture rayon it can be said that the burden of duty has been passed on to the rayon manufacturer. The rayon manufacturer, in his turn, includes the cum-duty price in his costs and includes it in his price when he sells his yarn to a [cloth] manufacturer. The cloth manufacturer in his turn will include the duty-paid price of rayon in his costs and will sell his products to a garment manufacturer at duty-paid price. The garment maker will sell the garments to the actual users. Can the last consumer establish that he has borne the incidence of an illegal excise duty imposed on pulp and claim refund of the unlawful duty on pulp. Can he at all be made aware of such an unlawful levy on pulp? Or will it be tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cisable commodities starts with Animal Products, which may include products of the kind unfit or unsuitable for human consumption; Guts, bladders or stomachs of animals or animal blood; or animal fat, other than pig fat (Chapter 2). Obviously these have industrial uses, but a common man will not buy them. Likewise, Lac, Gums, Resins (Chapter 13), Bituminous and Asphalt, chemical compound (Chapter 27), Chemical Compounds - Organic and Inorganic (Chapter 28), Explosives, Pyrotechnic Products; Pyrophoric Alloys and other Combustible Preparations (Chapter 36) will only be used by large industries. A large number of chemical products are taxed under the heading Miscellaneous Chemical Products, like Graphite, Activated Carbon, Rubber Accelerators, compound plasticisers, organic composite solvents (Chapter 38), charged fire extinguishing grenade are not used by the common man. 290. In fact, the Schedule to the Central Excise Tariff Act has as many as 96 chapters and appears to contain more entries relating to goods which are used by trade and industry than common man in everyday life like Base Metals, Iron and Steel, Aluminium Metal (Chapter 72), Nuclear Reactors, Boilers, machineries, me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... op, will not retain the cash memo for years and years and even if he does so, he will not know that there is a dispute about the levy of excise duty pending. Furthermore, a man who purchases tooth brush in Madras will not be able to claim refund of duty from the proper Excise Officer who has jurisdiction over the company at Bombay. We shall bear all these considerations in mind before trying to interpret the law in a way which will benefit the weaker sections of the people and give them a sense of participation in the development of the country. 293. Moreover, only the manufacturer has to separately show the duty element in his invoice. The wholesaler, the distributor or the retailer has no such obligation. Ordinary customers buy their goods at the retail outlet, where even if a cash-memo is given, the duty element will not be shown separately. How will the common man know that he has paid any duty and if so of what amount? 294. In my view, the entire argument based on unjust enrichment is founded on a false premise. It will be wrong to assume that the duty element can be included in the price and that no prejudice will be caused to the manufacturer by the levy or enhancement of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accompanied by such documentary or other evidence (including the documents referred to in section 12A) as the applicant may furnish to establish that the amount of duty of excise in relation to which such refund is claimed was collected from, or paid by, him and the incidence of such duty has not been passed on by him to any other person : PROVIDED that where an application for refund has been made before the commencement of the Central Excises and Customs Laws (Amendment) Act, 1991, such application shall be deemed to have been made under this sub-section as amended by the said Act and the same shall be dealt with in accordance with the provisions of sub-section (2) substituted by that Act : PROVIDED FURTHER that the limitation of six months shall not apply where any duty has been paid under protest. (2) If, on receipt of any such application, the Assistant Commissioner of Central Excise is satisfied that the whole or any part of the duty of excise paid by the applicant is refundable, he may make an order accordingly and the amount so determined shall be credited to the Fund : PROVIDED that the amount of duty of excise as determined by the Assistant Commissioner of Central Excise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reby declared that any notification issued under clause (f) of the first proviso to sub-section (2), including any such notification approved or notified under sub-section (4), may be rescinded by the Central Government at any time by notification in the Official Gazette. Explanation :For the purposes of this section, - (A) refund includes rebate of duty of excise or excisable goods exported out of India or on excisable materials used in the manufacture of goods which are exported out of India; (b) relevant date means, - (a) in the case of goods exported out of India where a refund of excise duty paid is available in respect of the goods themselves or, as the case may be, the excisable materials used in the manufacture of such goods, - (i) if the goods are exported by sea or air, the date on which the ship or the aircraft in which such goods are loaded, leaves India, or (ii) if the goods are exported by land, the date on which such goods pass the frontier, or (iii)if the goods are exported by post, the date of despatch of goods by the Post Office concerned to a place outside India; (b) in the case of goods returned for being remade, refined, reconditioned, or subjected to any other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eing in force, every person who is liable to pay duty of excise on any goods shall, at the time of clearance of the goods, prominently indicate in all the documents relating to assessment, sale invoice and other like documents, the amount of such duty which will form part of the price at which such goods are to be sold. 12B. Presumption that incidence of duty has been passed on to the buyer. Every person who has paid the duty of excise on any goods under this Act shall, unless the contrary is proved by him, be deemed to have passed on the full incidence of such duty to the buyer of such goods. 12C. Consumer welfare fund. (1) There shall be- established by the Central Government a fund, to be called the Consumer Welfare Fund. (2) There shall be credited to the Fund, in such manner as may be prescribed, - (a) the amount of duty of excise referred to in sub-section (2) of section 11B or sub-section (2) of section 11C or sub-section (2) of section 11D; (b) the amount of duty of customs referred to in sub-section (2) of section 27 or sub-section (2) of section 28A, or sub-section (2) of section 28B of the Customs Act, 1962 (52 of 1962); (c) any income from investment of the amount credi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d collection of excise duty. The question of passing on can only arise after the duty has been fully paid. The duty of excise is never borne by the buyer as stated in Clause (e) of the proviso. The buyer may pay a sum equivalent to the duty of excise pursuant to a contract with the manufacturer, but that is a matter of contract. 298. The duty imposed on and collected from manufacturer, if it is found to be in excess of the charge imposed by Section 3, has to be returned to manufacturer and nobody else, otherwise charging provision, rules for computation of charge and imposition and collection of duty will become meaningless. If any amount has been realised by the Excise Officer in excess of the charge imposed by the charging section, then such collection is beyond the competence of the Act and also violates Article 265 of the Constitution. It was pointed out in the case of Assistant Collector of Central Excise, Calcutta Division v. National Tobacco Co. of India Ltd. - 1978 (2) E.L.T. (J 416) (SC) = (1972) 2 SCC 560, 572, that Article 265 of the Constitution makes a distinction between levy and collection. Levy may include both imposition of a tax as well as assessment. `Collection& ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... levy is in excess of the statute, then its retention by the State is unauthorised by law. What is being retained is not in enforcement of the charging section but something else. Such illegally collected tax is not the property of the State and is not within the disposing power of the State. If the money has to be utilised by the State, the State has to find out some legitimacy for having possession of the money. In the Canadian case of Air Canada v. British Columbia (supra) retroactive amendment of the Gasoline Tax Act was passed with a new definition of `purchaser' to make a levy valid and retain the illegally collected amount by setting off against the claim raised by the amended Act. That is the only way in which La Forest, J. could justify, what was otherwise a confiscatory provision. In this case, there has been no attempt to give legitimacy to the holding of the amount or utilisation of the amount by the Government. The entire amount was collected unlawfully. The original sin has not been cured in Canada by a retroactive charge. 301. I shall now examine the other provisions of the newly added sections. Sub-section (1) of Section 11B requires an application for refund to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. 303. Now I shall deal with Section 11D. Excise duty is levied by the charging Section 3. It has to be paid according to the Excise Tariff Act, 1985 and the rules. Before clearance of the goods, the assessee is required by Rule 173B to file what is known as price/classification List in which full particulars of the goods manufactured and intended to be removed from his factory has to be given. The Chapter heading and sub-heading number under which the goods are to be assessed under the Tariff Act has also to be indicated. The assessee has also to state the rate of duty leviable on each such goods. On the basis of the declaration made by the assessee, the Excise Officer has to make his calculation of duty. For the purpose of proper valuation of the goods assessable ad valorem, proforma price list for commodities has to be filed. The value of the goods have to be calculated by making deductions from the wholesale price in accordance with Section 4(4) of the Excise Act. There may be dispute as to the valuation or rate of duty for which an adjudication proceedings may have to be taken. But without the approval, of the Excise Officer, no goods can be removed from the factory. The asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me attempt to fix a percentage which needs to be handed over. Otherwise, it will be unreasonable restriction on trade. The sale price is a part of the circulating capital. Goods are converted into money and money is again utilised to manufacture goods. If a substantial portion of this money is taken away without having regard to the actual or probable necessity for the collection, it will be unreasonable restraint on the right of a person to carry on business. Moreover, the amount may be kept till finalisation of assessment. The assessment may not be finalised till the dispute has been decided finally by CEGAT or even by this Court. Will the money be blocked up till then? Supposing the assessee succeeds, why will he not get back the money with interest? 307. This provision has to be contrasted with the advance tax collected under the Income Tax Act. Such collection is authorised by the charging Section of the Act Section 4(2) because otherwise, the collection would have gone beyond the scope of the charge. The rate on which the tax is to be collected and the basis is clearly stated. High rates of interest is payable both by the assessee and the Government in appropriate cases, But ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es, to dispute the estimation of advance tax made by the Income Tax Officer and file his own estimate (of course at his own peril). Here he has no option but to pay without any hearing. 312. I repeat that a manufacturer cannot be called upon to pay anything except the duty imposed by the charging provisions. Even if the final assessment has not been made, goods may be allowed to be cleared by paying the admitted amount of duty and furnishing the security for the disputed amount. The security may be keeping sufficient money in the Account Current with the Excise Department or even by furnishing a bond or bank guarantee. This is provided by the Rules. 313. There is not legal or rational basis for a blanket provision to deposit whatever is included on account of excise duty in the price of the goods sold. 314. The position gets curiouser after the deposit. After adjustment of the tax against the deposit, the surplus amount is not returned to the manufacturer. It has to be credited to the Fund or paid to the person who has borne the incidence of tax, i.e., the ultimate consumer. In other words, the manufacturer will be robbed of a portion of his sale price for no rhyme or reason. This ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted earlier in the judgment, in a number of cases by this Court. 317. Apart from what has been stated hereinabove, I find that the entire group of these sections is de hors the charging section of the Central Excise Act. The Central Excise Act imposes a duty on manufacture of goods. Various provisions have been made for computation and collection of that duty. Anything collected in excess of that charge is unlawful. If any provision is made for retention of duties collected without any authority of law, then such provision will be beyond the scope of the charge. It will amount to collecting and retaining something which is not at all duty payable under Section 3. 318. The Legislature has now authorised the Excise Department to retain the illegal levy. In my judgment, these provisions are ultra vires the charge levied by Section 3 and cannot be sustained in any way. In the language of Lord Mac Millan in Ayrshire Employers Mutual Insurance Association Ltd. v. Commissioners of Inland Revenue, 27 Tax Cases 331, 337, the legislature has missed fire. 319. The scope of charge in a taxing Act is of the highest importance. Nothing can be realised under a taxing Act beyond that. The new prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Central Excise Rules and various notifications issued from time to time. Anything collected beyond this is unlawful and cannot be retained by the Government under any pretext. The illegal levy and collection of duty violate not only the Central Excise Act and the Rules but also offends Article 265 of the Constitution of India. 325. I am of the view that the provision of Section 11B is a device for deying the claim for refund of duty to a tax-payer and must be struck down as violative of Article 265 of the Constitution. It in effect tries to perpetuate an illegal levy without altering the basis of the law under which the levy was made in any way. It is also a colourable piece of legislation and must be struck down. 326. Section 11D imposes unreasonable restriction on the right to carry trade and violates Article 19(1) (g). Excise authority cannot deny the manufacturer the freedom to commerce and trade and take away a portion of the contract price even without raising any demand or giving any hearing. The Excise Officer cannot under any circumstance give the balance to the ultimate consumer or credit the amount to the Fund. Section 11D is arbitrary and is a colourable piece of le ..... X X X X Extracts X X X X X X X X Extracts X X X X
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