Rewa Gases Pvt. Ltd. v. Assistant Collector Of C. Ex., Satna

1. This is a petition under Article 226 of the Constitution of India seeking the relief to quash the impugned order dated 27-12-1993/7-1-1994 (Annexure 1) and to issue a direction to the respondents to refund the amount of Rs. 8,45,323.10 to the petitioner.

2. The petitioner is a Private Limited Company. It is engaged in the manufacture of industrial gases at Waidhan in District Sidhi. It was eligible for concession in excise duty as per notification dated 1-3-1986. This was amended by notification dated 30-10-1987. The petitioner was required to pay an amount of Rs. 8,45,323.10 due to some mistaken interpretation of this amended notification. The petitioner submitted an application under Section 11B of the Central Excises and Salt Act, 1944 (hereinafter to be referred to as the Act) before the Assistant Collector of Central Excise, Satna for refund of this duty. The plea of the petitioner that he had not passed on the incidence of this duty to the customers was accepted by the Assistant Collector and he recorded his satisfaction in the detailed order dated 2-6-1992 that the said amount was refundable to the petitioner. He sent this order with the case file to the Collector, Customs and Central Excise, Raipur for "pre-audit" as required by standing order dated 7-8-1990 of the Excise Collector (Internal Audit). According to this standing order the following procedure was outlined :

The Divisional Assistant Collector should record his order, after scrutiny that the refund claim is prima facie admissible for amount indicated by him and then he should send the case file to the Audit cell of the Collectorate Headquarters for pre-audit of the refund claim. Audit Section of the Collaborate Headquarters should complete the pre-audit and return the refund claim file to the Divisional Assistant Collector within a period of 15 days from the date of receipt in order to enable the Assistant Collector to pass the final order. If there is a difference of opinion between the Divisional Assistant Collector and Deputy/Assistant Collector (Audit) of the Collectorate office then the case file should be submitted to the Collector for his order. Immediately on receipt of the case file from Collectorate office after pre-audit of the claim, the Divisional Assistant Collector should pass final refund order accordingly and issue cheque for the refund amount to the Assessee

.

From the records submitted by the respondents at the time of final hearing with the written synopsis it appears that circular dated 31-9-1990 of the Central Board of Excise and Customs, New Delhi is also to the same effect. The same procedure has been outlined therein.

3. The Assistant Collector (Audit), Raipur sent the letter dated 1-12-1992 after considering the case of the petitioner to the Assistant Collector, Satna. That letter was as under :-

"Please refer to your office letter C. No. V(18)2-RC/89/1588, dated 5-6-1992 submitting therewith the refund file F. No. V(2804)18-4/91 for the purpose of pre-audit.

While examining the legality and propriety of grant of refund claim and draft order dated 2-6-92 issued vide F. No. V(2804) l8-4/91, passed by the Assistant Collector, Central Excise, Satna, sanctioning the refund claim of Rs. 8,45,323.10 in favour of M/s. Rewa Gases (P) Ltd., Waidhan, Collector, Central Excise, Raipur has observed that "on the basis of facts and evidence on record, this case involves undue enrichment and may be dealt with accordingly as per provisions of law by the Assistant Collector, Satna.

The grounds of 'Unjust Enrichment' are detailed below.

From the verification of the contracts entered by the party with the purchaser it is clear that the prices are for worksite and inclusive of all taxes. From the invoices, it is evident that party has charged as per the contract rate which is. inclusive of excise duty, transportation charges, etc., and there is no breach of the same. From the gate passes, it is evident that the party has shown assessable value separately and collected excise duty separately as applicable (specific rate). From the gate pass, it is evident that incidence of excise duty has been collected by the party and passed on to the customer. From the plain reading of clause (d) of Sub-section (2) of Section 11B of Central Excises and Salt Act, 1944, it is clear that refund can be granted to the manufacturer if incidence of excise duty had not been passed on to the consumer. In this case it is clear that the sale price is nothing but cum-duty price and, in arriving at assessable value, the element of excise duty paid at specific rate was being deducted from cum-duty price. As per the provisions of amended Section 11B(2) the Central excise duly paid and collected by the parties from the consumer is not refundable to the party but transferable to 'consumers welfare fund' constituted under Section 12C of Central Excises and Salt Act, 1944.

File No. V(2804) 18-4/91 is returned herewith for disposing of the refund claim as per Hon'ble Collector's observation, enumerated supra."

4. By the time this letter was received at Satna the Assistant Collector who had made the order dated 2-6-1992 had retired. The succeeding Assistant Collector again issued a show cause notice to the petitioner on 22-12-

1992 giving him an opportunity of hearing on 7-1-1993. The petitioner raised an objection that a final order having been passed by the Assistant Collector on 2-6-1992 it cannot be reviewed or reconsidered. But the petitioner's claim has been rejected by the impugned order on the ground that it had passed on the incidence of excise duty to the customers.

5. The petitioner in the amended writ petition has assailed the standing order dated 7-8-1990 of the Collector (Internal Audit) and the fresh order passed by the Assistant Collector, Satna. According to the petitioner the proceedings for refund of the excise duty were quasi judicial in character. The matter was argued before him. He was satisfied on the basis of the documentary evidence especially the invoices issued prior to and after the imposition of excise duty, produced before him that the incidence of the excise duty was not passed on to the buyers as the prices were not increased. The entire exercise of pre-audit and a new order are against the principles of natural justice and is liable to be struck down. That is not sanctioned by law. The order dated 2-6-1992 was made by the Assistant Collector having the jurisdiction and it cannot be set at naught in the manner it has been done. It could be subject matter of appeal or revision according to law. It was a valid order even though it was not formally communicated to the petitioner. In the impugned order the gate-passes have been wrongly interpreted inasmuch as the excise duty shown therein is the amount "payable" and not "collected". The petitioner had continued to charge the same price as before even after 30-10-1987, although from that date the petitioner was directed to pay excise duty at a higher rate.

6. The case of the respondents is that the order dated 2-6-1992 was not a final order. It was only a draft order. It was sent for pre-audit according to the official procedure. It was not passed or communicated to the petitioner. The real and effective order is the one which has been impugned in this petition. That was pass after a fresh opportunity of hearing to the petitioner. It has the remedy of filing a statutory appeal against this order and therefore the writ petition against that order cannot be entertained. The petitioner has already collected the enhanced excise duty from its customers and its refund to it would amount to unjust enrichment.

7. The learned counsel for both the sides were heard. Shri Ravindra Srivastava, Advocate appearing on behalf of the petitioner has argued that the order dated 2-6-1992 "made" by the Assistant Collector after considering the material on record became final when he signed it. The procedure of pre-audit is de hors the law and should not be countenanced. He contends that there was no hearing before officers who conducted the pre-audit. The quasi-judicial order passed by the Assistant Collector, could not be tested or interfered with by them. Such a procedure has the effect of destroying the independence of a quasi judicial authority. That order could not be reviewed by the Assistant Collector by the impugned order. This order follows the instructions of the auditor and it is a nullity.

8. On the other hand Mrs. Indira Nair. Advocate representing the respondents in her oral arguments and also in the written synopsis has defended the audit procedure and according to her these instructions have been issued under Section 37B of the Act to safeguard interest of the revenue. She has submitted the copy of circular dated 31-9-1990 of the Board with the synopsis. Before that the standing order dated 7-8-1990 of the Collector (Internal Audit) had been produced. In para 4 of the written synopsis it is mentioned :

"the Collector after seeing the whole case including the statement and evidence had come to the conclusion that the adjudicating officer has not taken into consideration the relevant facts"

. The Assistant Collector in the impugned order considered all the facts after giving fresh opportunity of hearing to the petitioner and has rightly rejected the claim of the petitioner. The earlier order dated 2-6-1992 was not legally made or passed. The remedy of the petitioner was to challenge the impugned order-in-appeal under Section 35A of the Act.

9. Thus the points for determination are (a) whether the order dated 2-6-1992 could be legally subjected to pre-audit (b) whether this order prepared and signed by the Assistant Collector amounted to "making" of the order within the meaning of Section 11B of the Act (c) whether the impugned order is legally valid and (d) whether the alternative statutory remedy bars the maintainability of this petition.

10. Point (a) :

It is not in dispute that the proceedings before the Assistant Collector for adjudicating the claim for refund of excise duty are of quasi judicial nature. He must act independently and impartially. His discretion cannot be controlled by the directions of the superiors in that very case. The procedure of pre-audit of such a judicial discretion is unheard of. It amounts to pulling the strings from the backdoor and renders the adjudicating officer as a puppet in the hands of others. The tax-collector is already considered as leaning in favour of the administration and if his quasi judicial discretion is controlled by laying down the procedure of pre-audit justice to the assessee would be a casualty. The officer is bound by the statutory provisions and he must appreciate the evidence and material on record by using his own judgment. His attention can be invited to general principles and norms relevant for adjudication of the claim but there cannot be a direct or indirect interference in the case which he is handling. The Central Board or the Collector (Internal Audit) has no jurisdiction or authority to direct an officer to exercise his discretion in a particular way. The discretion is vested in the adjudicating officer. While the adjudicating officer performs the statutory or particularly the quasi judicial duty, the superior authorities cannot direct that the discretion should be exercised one way or the other. The adjudicating officer must consider the case independently, uninfluenced by the departmental instructions, on the basis of evidence brought before him and also on the basis of all the facts placed before him. The officer is not bound by any administrative instructions. The questions of fact and law, which may be raised before him are required to be determined by him after full application of mind in an objective manner without feeling in any way controlled by any administrative instructions.

11. There is a direct authority of the Supreme Court on this point in Orient Paper Mills Ltd. v. Union Of India. [1978 (2) E.L.T. (J345) (S.C.) = AIR 1969 SC 48. That was also a case where a circular issued by the Central Board of Revenue was in question. The decision impugned was that of the Collector under the Central Excises and Salt Act, 1944. The Supreme Court held as follows :-

"If the power exercised by the Collector was a quasi judicial power - as we hold it to be that power cannot be controlled by the directions issued by the Board. No authority however high placed can control the decision of a judicial or a quasi judicial authority. That is the essence of our judicial system. There is no provision in the Act empowering the Board to issue directions to the assessing authorities or the appellate authorities in the matter of deciding disputes between the persons who are called upon to pay duty and the department. It is true that the assessing authorities as well as the appellate authorities are judges in their own cause; yet when they are called upon to decide disputes arising under the Act they must act independently and impartially. They cannot be said to act independently if their judgment is controlled by the directions given by others. Then it is a misnomer to call their orders as their judgments, they would essentially be the judgments of the authority that gave the directions and which authority had given those judgments without hearing the aggrieved party."

12. The Supreme Court relied upon its two earlier decisions in Mahadayal v. Commercial Tax Officer (AIR 1958 SC 667) and Rajagopal Naidu v. State Transport Appellate Tribunal (AIR 1964 SC 1573).

13. Sir William Wade in his book on Administrative Law, 7th Edition in the Chapter on "Retention of Discretion" at pages 347 to 358 has dealt with this aspect, and stated "discretionary power should be wielded only by those to whom it is given and they should retain it unhampered by improper constraints or restrictions". "An element which is essential to the lawful exercise of power is that it should be exercised by the authority upon whom it is conferred, and by no one else". "Closely akin to delegation and scarcely distinguishable from it in some cases, is any arrangement by which power conferred upon one authority is in substance exercised by another. The proper authority may share its power with someone else, or may allow some one else to dictate to it by declining to act without their consent or by submitting to their wishes or instructions. The effect then is that the discretion conferred by Parliament is exercised, atleast in part, by the wrong authority, and the resulting decision is ultra vires and void".

14. In light of the principles given above the standing order dated 7-8-1990 of the Collector (Internal Audit), Indore, a copy of which has been produced by the respondents, cannot bear scrutiny. The procedure outlined therein cannot hold the ground when it is examined in light of the position of law discussed above. It imposes fetters on the statutory power of the Assistant Collector by instructing him that he should send the case file after recording his order to the Audit-Cell for pre-audit of the refund claim. Where there is a difference of opinion the file should be submitted to the Collector for his order. After pre-audit of the claim, the Divisional Assistant Collector should pass final order accordingly. This procedure robs the Assistant Collector of his statutory power and discretion and vests it in the Collector. This standing order is not and cannot be in exercise of any statutory power and has to be struck down.

15. A similar circular has been issued by the Central Board of Excise and Customs on 31-9-1990. The learned counsel for the respondents says that it is in exercise of the power under Section 37B of the Act. On the face of this circular it does not appear to have been issued under this provision. It has been produced at the time of final hearing with the synopsis. This circular is in violation of the proviso (a) to Section 37B of the Act. There can be no instructions to dispose of a particular case in a particular manner. Under Section 37B of the Act no direction can be issued to any quasi judicial authority and the Board also cannot do so. This section has taken particular care to see that the authorities, who will be acting as quasi judicial authorities, are protected from any instruction or directions issued under this section. They are bound by such instructions while acting in the administrative capacity.

16. Now comes the letter dated 1-12-1992 of the Assistant Collector (Audit) to the Assistant Collector, Satna. In this letter it is mentioned that the Collector, Central Excise, Raipur has observed that "on the basis of facts and evidence on record, this case involves 'undue enrichment' and may be dealt, with accordingly as per provisions of law by the Assistant Collector, Satna". While dealing with the grounds of "unjust enrichment" the evidentiary material has been discussed and a finding contrary to the conclusion of the Assistant Collector, Satna has been arrived at. As per last para the file has been returned for disposing of the refund claim as per observation of the Collector.

17. However, laudable the objective may be can the procedure adopted in this case in the name of "pre-audit" be permitted to prevail? The answer must be in the negative. Section 11B of the Act has conferred the power on the Assistant Collector. He has to be "satisfied" that the duty of excise paid by the applicant is refundable. He has to decide whether the manufacturer has passed on the incidence of the duty to any other person. There are in built safeguards in the Act for appeal or revision against the order of the Assistant Collector if it is felt that he has made an erroneous order. But the discretion vested in him by law cannot be taken away by providing for "pre-audit" and thereby invest it in another authority before whom the assessee has no right of audience. The order dated 2-6-1992 of the Assistant Collector, Satna could not be legally subjected to pre-audit in the manner in which it has been done.

18. Point (b) :

Section 11B(2) of the Act provides that 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 is refundable, he may make an order accordingly. There is no requirement of formal pronouncement or delivery of the order as is in the case of judicial orders. In Kaliyappam v. State of Kerala (AIR 1989 SC 239) the Supreme Court was considering the meaning of the word 'make' in Section 11A of the Land Acquisition Act, 1894 and held that 'to make an award' means 'sign the award'. That is the ordinary meaning to be ascribed to the words 'to make an award'. In Cosmic Radio v. Union of India [1983 (12) E.L.T. 84 (Bom.)] the Bombay High Court held that if an order has been validly passed and duly signed after hearing the party in pursuance of the show cause notice then it cannot be said that still that order would have no force of law and would not come into operation, as long as the same was not communicated to the party concerned, because the communication of the order is merely an administrative act and the failure to inform passing of such order would not take away the effect of such order. The order passed by the Assistant Collector of central Excise comes into operation as soon as the same is signed and is not made dependent upon the communication of the same. In such a case no fresh show cause notice can be issued to the party concerned calling upon them to reagitate the matter merely because, the officer who signed the order has since retired and his successor thinks that the order of his predecessor was incorrect.

19. In Collector of Central Excise v. M.M. Rubber Company (1991 (55) E.L.T. 289 (S.C.)] the Supreme Court held that the order or decision of the authority comes into force or becomes operative or becomes an effective order or decision on and from the date when it is signed by him.

20. Reliance has been placed by the learned counsel for the respondents on Bachitter Singh v. State of Punjab (AIR 1963 SC 395). In that case the Minister had made a noting on the file but no formal order in the name of the Governor was issued or communicated to the person concerned. In that context it was held that mere noting on the file by the Minister did not amount to making of the order. That could be reconsidered by the Council of Ministers. That case is distinguishable.

21. In the present case the order dated 2-6-1992 was prepared. It was typed. It was signed by the Assistant Collector. It became final so far as the officer signing it was concerned. That amounted to 'making of the order'. It is a reasoned order. The Assistant Collector considered the question whether the incidence of the excise duty was passed on to the buyers. He found that the contention of the petitioner that the invoice price remained the same before and after the enhancement of the duty was correct. He also considered the gate passes. He reached the conclusion on the basis of the material on record and the verification made by the Superintendent. According to him the petitioner would not have 'undue enrichment' if the excise duty wrongly realised from him is refunded to him. The presumption under Section 12B of the Act that the incidence of excise duty has been passed on to the buyer is rebuttable. The order of the Assistant Collector was treated as 'draft order' by the authorities conducting the pre-audit. As already discussed, the exercise of pre-audit was not according to law. Therefore the order signed by the Assistant Collector was legal and effective. It did not suffer from any infirmity.

22. Point (c) :

In the presence of a valid and subsisting order the succeeding Assistant Collector could not call upon the petitioner by a second show cause notice to reagitate the same question, and pass a fresh order. That could be set aside or varied in appeal or revision under the Act. The second show cause notice giving a fresh opportunity of hearing to the petitioner would not make any improvement. There was already a concluded order. The impugned order is legally not valid.

23. Point (d) :

The impugned order was non est factum in the eye of law when the earlier order was subsisting. It has been discussed above that the procedure of pre-audit as per the standing order of the Collector (Internal Audit) or the Board has no legal sanction and was in breach of the principles of natural justice. The letter dated 1-12-1992 containing the direction to dispose of the case as per observation of the Collector was a flagrant violation of the principles of natural justice and wholly without jurisdiction. The Assistant Collec-

tor who passed the impugned order must have been influenced by this order of the Collector. Tn such a case the alternative remedy of appeal is not a bar to the maintainability of the writ. Every officer was feeling bound by the instruction of the audit-wing and the Board. Recently in Whirlpool Corporation v. Registrar of Trade Marks [(1998) 8 SCC 1] the Supreme Court has hold that the power to issue prerogative writs under Article 226 of the Constitution is plenary in nature and is not limited by any other provision of the Constitution. The High Court, having regard to the facts of the case, has a discretion to entertain or not to entertain a writ petition. But the High Court has imposed upon itself certain restrictions one of which is that if an effective and efficacious remedy is available, the High Court would not normally exercise its jurisdiction. But the alternative remedy has been consistently held by the Supreme Court not to operate as a bar in at least three contingencies, namely, where the writ petition has been filed for the enforcement of any of the Fundamental Rights or where there has been a violation of the principles of natural justice or where the order or proceedings are wholly without jurisdiction or the vires of an Act is challenged.

24. In the result this petition is allowed. The impugned order dated 27-12-1993/7-1-1994 (Annexure 1) is quashed. It is directed that the respondents shall refund the amount of Rs. 8,45,323.10 to the petitioner as per order dated 2-6-1992 of the Assistant Collector, Satna. Costs as incurred.