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Union Of India v. Grasim Industries Ltd.
Factual and Procedural Background
The respondent company, M/s Grasim Industries Ltd. (White Cement Division), manufactures white cement. Initially, the cement was classified under sub-heading 2502.90, and duty was paid accordingly. From 22-4-1991, the assessee filed a classification list reclassifying white cement under sub-heading 2502.20. The Assistant Commissioner, Central Excise Division, Jodhpur, however, classified it under 2502.90, which was challenged by the assessee via a writ petition. The Court permitted clearance of goods under 2502.20 on payment of duty and furnishing a bank guarantee for the differential duty. The writ petition was dismissed on grounds of alternate remedy, with directions to keep the bank guarantee alive pending Commissioner (Appeals) decision. The Commissioner (Appeals) dismissed the appeal, and the department encashed the bank guarantee of Rs. 88,00,000/-. The assessee appealed successfully before the CEGAT, which held the bank guarantee was not payment of duty and refund provisions under Section 11B did not apply. The CEGAT relied on the Apex Court decision in Oswal Agro Mills Ltd. v. Asstt. Collector of Central Excise.
Legal Issues Presented
- Whether the duty of excise encashed from a bank guarantee can be refunded to the assessee in cash when the assessee had passed on the incidence of such duty to any other persons?
Arguments of the Parties
The opinion does not contain a detailed account of the parties' legal arguments.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Oswal Agro Mills Ltd. v. Asstt. Collector of Central Excise, 1994 (70) E.L.T. 48 (S.C.) - 1994 (2) SCC 546 | Furnishing a bank guarantee pursuant to court order is not equivalent to payment of excise duty; Section 11B applies only to actual payment of duty and refund claims. | The court relied on this precedent to hold that the encashed bank guarantee amount was not paid excise duty and thus refund provisions under Section 11B were not attracted. |
| Somaiya Organics (India) Ltd. and Anr. v. State of U.P. and Anr., 2001 (130) E.L.T. 3 (S.C.) = 2001 (5) SCC 519 | Approval of the principle that bank guarantee amounts are not payment of excise duty for refund purposes. | The court endorsed this decision to reinforce the position that refund under Section 11B is not applicable to amounts secured by bank guarantees. |
Court's Reasoning and Analysis
The court analyzed the nature of bank guarantees in the context of excise duty payment. It observed that furnishing a bank guarantee for disputed excise duty pursuant to a court order does not amount to actual payment of duty. Therefore, the legal provisions under Section 11B, which govern refund claims, are not applicable because a refund presupposes prior payment of duty to the excise authorities. The court relied on the Apex Court’s decision in Oswal Agro Mills Ltd., which clarified this principle. Consequently, the court concluded that the duty amount secured by the bank guarantee cannot be considered paid to the revenue, and refund provisions do not apply. However, the court noted that the petitioner department is obligated to repay the encashed amount of the bank guarantee to the assessee, consistent with the principles affirmed in Somaiya Organics (India) Ltd.
Holding and Implications
The court held that no referable question of law arises from the CEGAT order and accordingly rejected the reference application. The direct effect of this decision is that the department must repay the encashed bank guarantee amount to the assessee. The court’s ruling does not establish any new precedent but reaffirms existing Supreme Court authority on the non-equivalence of bank guarantees to payment of excise duty for refund purposes.
1. This is an application under Section 35H(1) of the Central Excise Act, 1944 at the instance of Union of India seeking reference as follows :
"Whether the duty of excise encashed from bank guarantee can be refunded to assessee in cash when the assessee had passed on the incidence of such duty to any other persons ?"
2. It appears that the respondent company M/s Grasim Industries Ltd. (White Cement Division) is engaged in manufacture of white cement. The plant was commissioned in 1988. The cement manufactured by the respondent-assessee (hereinafter referred to as "assessees") was classified under sub-heading 2502.90 as such the assessee paid the Central Excise Duty as per the said classification. The assessee with effect from 22-4-1991 filed a classification list classifying white cement under sub-heading 2502.20. However, the Assistant Commissioner, Central Excise Division, Jodhpur passed an order classifying the white cement under sub-heading 2502.90. This was challenged by the assessee by way of writ petition before this Court. By an interim order dated 9-10-1991 this Court permitted the assessee to clear the goods by paying duty under sub-heading 2502.20 and furnish bank guarantee for the differential duty between sub-heading 2502.20 and sub-heading 2502.90. The writ petition was dismissed on the ground of alternate remedy. While dismissing the writ petition, this Court directed the assessee to keep the bank guarantee alive till the matter is decided by the Commissioner (Appeals). The appeal was dismissed by the Commissioner of Central Excise (Appeals). The department encashed the bank guarantee of Rs. 88,00,000/- just after the dismissal of the appeal. The assessee successfully took up the matter in the second appeal before the CEGAT [2001 (127) E.L.T. 57 (Tri. - Del.)]. It was held that bank guarantee in the instant case cannot be held as payment of duty and, therefore, the refund does not attract the provisions of Section 11B of the Central Excise Act, 1944. The CEGAT. relied upon the decision of the Apex Court in Oswal Agro Mills Ltd. v. Asstt. Collector of Central Excise, Division Ludhiana and Ors. reported in 1994 (70) E.L.T. 48 (S.C.) - 1994 (2) SCC 546.
3. We have heard Mr. Ravi Bhansali, learned counsel for the department and Mr. Rajendra Mehta, learned counsel for the assessee. In our opinion, no referable question of law arises from the order of the C.E.G.A.T. as the same has been decided by the Apex Court. It is held by the Apex Court in Oswal Agro Mills case (supra) that furnishing of a bank guarantee for all or part of the disputed excise duty pursuant to an order of the court is not equivalent to payment of excise duty. It is also held that Section 11B applies when an assessee claims refund of excise duty. A claim for refund is a claim for repayment. It presupposes that the amount of the excise duty has been paid over to the excise authorities. The amount of disputed tax or duty that is secured by a bank guarantee cannot, therefore, be held to be paid to the revenue. Therefore, the question of refund under Section 11B is not attracted.
4. In these circumstances, the petitioner department is under obligation to make repayment of the encashed amount of the bank guarantee to the respondent assessee. The view of the Apex Court in Oswal Agro Mills case has been approved by this receipt decision of the Apex Court in Somaiya Organics (India) Ltd. and Anr. v. State of U.P. and Anr. reported in 2001 (130) E.L.T. 3 (S.C.) = 2001 (5) SCC 519.
5. Thus, no referable question of law arises from the order of the CEGAT. Accordingly the reference application is rejected.
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