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Oswal Agro Mills Ltd... v. Asstt. Collector Of ...
Factual and Procedural Background
A dispute arose between the appellants and the Excise Department regarding the correct tariff classification of certain goods under the Central Excises and Salt Act, 1944 (as amended): whether excise duty was payable under Tariff Item 15(1) or Tariff Item 15(2). The Tribunal had taken a view adverse to the appellants, prompting an appeal to the Supreme Court. At the time of filing, the Supreme Court passed an interim order requiring 50% of the dues to be paid in cash and the remaining 50% to be secured by bank guarantees, to be kept alive until the appeal was decided. The appeal was decided on April 27, 1993, in the appellants' favour.
After succeeding, the appellants sought refund of excess amounts deposited pursuant to the interim order. When the authorities did not entertain the refund plea, the appellants approached the Punjab and Haryana High Court seeking a mandamus for a decision on the refund application. The High Court directed the authorities to consider the refund application on merits and also directed the appellants to extend the bank guarantees until final disposal of the refund claim. The appellants appealed to the Supreme Court against this direction concerning extension of bank guarantees.
Legal Issues Presented
- Whether, after the Supreme Court had finally decided the tariff classification dispute, the appellants could be required to keep the bank guarantees alive/extended pending disposal of the refund claim.
- Whether the Revenue authorities could encash the bank guarantees after the appeal on merits had already been decided by the Supreme Court.
Arguments of the Parties
The opinion does not contain a detailed account of the parties' legal arguments.
Table of Precedents Cited
No precedents were cited in the provided opinion.
Court's Reasoning and Analysis
The Court noted that the disputed assessment had attained finality because the Supreme Court had already upheld the appellants' submission that duty was payable under Tariff Item 15(1) and rejected the Revenue's contention that it was payable under Tariff Item 15(2). Consequently, the Court observed that the appellants had apparently deposited at least 50% over and above the Revenue’s claim pursuant to the interim arrangement, with the remaining portion secured through bank guarantees.
The Court reasoned that maintaining or extending bank guarantees was not part of, and should not be treated as, the subject-matter of the refund application pending before the authorities. It emphasized the legal character and function of a bank guarantee: it is furnished to secure the interests of parties pending adjudication and cannot be encashed until the court has decided the matter. Since the Supreme Court had already decided the appeal on merits, the bank guarantees should, on their own, expire and lapse.
On the information provided by appellants' counsel that the Revenue had encashed the guarantees treating them as amounts deposited in its favour (in view of the High Court’s orders), the Court held the Excise Department’s conduct to be “highly improper.” It further held that the Revenue had no power to use executive authority to procure encashment of such bank guarantees through the bank after the merits had been decided.
Holding and Implications
ALLOWED: The appeal was allowed with no costs.
If the bank guarantees had been encashed, the Court directed the Collector of Central Excise/Assistant Collector Excise, Ludhiana Division, to refund forthwith the money collected from the bank to the bank concerned. The direct effect is that the security obtained through the bank guarantees could not be retained or realized by the Revenue after the Supreme Court’s final decision on merits, and any amount already realized by encashment had to be returned to the bank. The opinion does not indicate that any new precedent was set beyond these directions.
Order
1. Special leave granted.
2. Heard learned counsel for the parties.
3. There was a dispute between the appellants before us and the Excise Department as to whether the goods under dispute were liable under Tariff Item 15(1) or 15(2) of the Central Excises and Salt Act, 1944, as amended.
4. The Supreme Court upheld the submission of the appellant that the appellant is liable to pay excise duty under Item 15(1) and repelled the contention of the Revenue that it was payable under Item 15(2).
5. It appears that the aforesaid appeal was filed by the appellants against the decision of the Tribunal which had taken the contrary view. When the appeal was filed an interim order was passed that 50% of the dues be paid in cash and for remaining 50% bank guarantees may be furnished and they were to be kept alive till the decision of the appeal. The appeal itself was decided on April 27, 1993.
6. The appellants having succeeded before this Court moved the authorities for refund of the excess amount deposited in pursuance of interim order of this Court. It appears that the authorities had not entertained the appellants' plea for refund and the appellants moved the High Court of Punjab and Haryana for writ of mandamus directing the Revenue authorities to decide the application for refund. The High Court directed the authorities to consider the application of the appellants on merits for refund. At the same time, the High Court directed “the petitioners are directed to get the bank guarantees extended till the final disposal of the claim for refund”. It is against the aforesaid directions of the High Court that the appellants have come to this Court.
7. It may be noticed that so far as the disputed assessment is concerned, it has become final by an order of this Court holding that the excise duty was payable under Tariff Item 15(1) and not under Item 15(2). Therefore, apparently, the appellants have deposited at least 50% over and above the claim of the Revenue by way of interim order of this Court and the balance was secured by way of bank guarantees. Keeping the bank guarantees alive or extended, the direction for furnishing bank guarantees is not subject-matter of the application for refund pending before the authorities. We are informed by the learned counsel for the appellants that treating the bank guarantees as if it is deposited in favour of the Revenue, the Revenue already in view of the orders of the High Court encashed the bank guarantees. We find behaviour of the Excise Department highly improper. Bank guarantees are furnished to secure interest of the parties till determination of matters pending before the court. No bank guarantees can be encashed till the decision of the court. This Court having once decided the appeal on merits the bank guarantees of their own should expire and lapse. The Revenue authorities had no powers to use their executive power to get such bank guarantees encashed through bank. If bank guarantee has been encashed, we direct to the Collector of Central Excise/Assistant Collector Excise, Ludhiana Division to refund the money so collected from the bank to the bank concerned forthwith. The appeal is allowed with no costs.
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