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Srf Ltd. v. Asstt. Collector Of Central Excise, Trichy .
Factual and Procedural Background
The appellant manufactures industrial fabrics that require dipping in a resorcinol-formaldehyde latex solution (RFL) to ensure adhesion with rubber. In the course of producing RFL, the appellant manufactures and captively consumes resorcinol-formaldehyde (RF) solution. Excise duty on the RF solution was paid under protest after the Assistant Collector rejected the appellant’s plea that RF solution was not “goods” under Section 3 of the Central Excise and Salt Act, 1944 (“the Act”).
On 25 September 1990, the Customs, Excise & Gold (Control) Appellate Tribunal (“the Tribunal”) ruled that no duty was leviable on RF solution. Relying on that decision, the appellant filed a refund claim dated 14 March 1991 seeking Rs 5,41,498.67—the duty paid under protest for the period 1 April 1983 to 20 October 1986.
Meanwhile, with effect from 20 September 1991, Parliament substantially amended Section 11-B and inserted Sections 12-B and 12-C into the Act. Section 12-B introduced a statutory presumption that the incidence of duty had been passed to buyers; Section 12-C created a Consumer Welfare Fund.
On 6 January 1992, the respondent issued a show-cause notice proposing to credit the claimed refund to the Consumer Welfare Fund. By order dated 25 March 1994, the respondent directed such credit. The appellant’s writ petition challenging that order was dismissed by the High Court, leading to the present appeal.
Legal Issues Presented
- Whether the refund claim, following the Tribunal’s finding that RF solution is not excisable, falls outside the statutory regime of the Act as an “unconstitutional levy,” thereby exempting the appellant from the requirements of Section 11-B (as amended).
- Whether, under the amended provisions of Sections 11-B and 12-B, the appellant must establish that the incidence of duty was not passed on to any other person in order to secure the refund.
Arguments of the Parties
Appellant's Arguments
- Since the Tribunal definitively held that RF solution is not “goods” under the Act, the duty was collected without authority of law; hence, the refund claim lies outside the Act.
- Reliance on paragraph 108(ii) of Mafatlal Industries Ltd. v. Union of India, (1997) 5 SCC 536, which recognises that refunds arising from an “unconstitutional levy” may be pursued by writ petition or suit and are not constrained by Section 11-B.
Respondent's Arguments
The opinion does not contain a detailed account of the respondent’s legal arguments.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Mafatlal Industries Ltd. v. Union of India, (1997) 5 SCC 536 | Distinction between statutory refunds under the Act and restitutionary claims arising from an “unconstitutional levy”; requirement that claimant prove duty incidence was not passed on. | The Court held that the present claim does not qualify as an “unconstitutional levy” under Mafatlal. Even assuming it did, the appellant would still have to prove that the duty burden was not passed on, which it failed to do. |
Court's Reasoning and Analysis
1. The Court rejected the appellant’s characterisation of the duty as an “unconstitutional levy.” An unconstitutional levy, as defined in Mafatlal, arises when the statutory provision authorising the levy is itself struck down for violating constitutional limitations. Here, no provision of the Act was invalidated; only the taxability of a particular product (RF solution) was negated. Therefore, the refund claim remains within the four corners of the Act and is governed by Section 11-B.
2. Even if the levy were treated as unconstitutional, Mafatlal requires proof that the burden of duty was not passed on to another person before restitution can be ordered. The appellant neither pleaded nor proved that the incidence of duty had been borne by itself. Under Section 12-B, the statutory presumption is that the duty was passed on; the absence of rebuttal is fatal to the claim.
3. Given these findings, the authority’s decision to credit the refund amount to the Consumer Welfare Fund under Section 12-C was consistent with the statutory scheme.
Holding and Implications
Appeal Dismissed.
The appellant is not entitled to the refund, and the sum of Rs 5,41,498.67 remains credited to the Consumer Welfare Fund. Each party bears its own costs. The judgment does not create new precedent; it applies the principles articulated in the nine-Judge Bench decision in Mafatlal Industries to the specific facts of this case.
Y.K Sabharwal, J.— The appellant is a manufacturer of industrial fabrics. It is claimed that the said fabrics have to be dipped in a solution of resorcinol formaldehyde latex solution (RFL solution) in order to achieve a good adhesion of rubber to such fabrics. The appellant manufactures resorcinol formaldehyde solution (RF solution) by mixing resorcinol and formaldehyde in the presence of sodium hydroxide and water and consumes the same in the manufacture of RFL solution, otherwise known as “dipped solution”. The appellant paid excise duty on RF solution which is stated to have been captively consumed in the manufacture of dipped solution used for the manufacture of dipped fabrics.
2. The claim of the appellant that RF solutions are not “goods” under Section 3 of the Central Excise and Salt Act, 1944 (for short “the Act”) and, therefore, not subject to any central excise duty was initially rejected by the Assistant Collector of Central Excise concerned. The result was that pending the appeal proceedings the appellant paid the excise duty under protest. This controversy was, however, finally decided by the Tribunal by order dated 25-9-1990 whereby the Tribunal held that no duty was leviable on RF solutions.
3. As a result of the order of the Tribunal, the appellant filed a refund claim dated 14-3-1991 under Section 11-B of the Act seeking refund of Rs 5,41,498.67, being the amount of duty paid under protest during the period from 1-4-1983 to 20-10-1986. While the application claiming refund was pending, Section 11-B was substantially amended with effect from 20-9-1991. By the same amendment, certain other provisions were also inserted in the Act including Sections 12-B and 12-C. Section 12-B provided for presumption that the incidence of duty has been passed on to the buyer. Section 12-C provided for the establishment of consumer welfare fund. It is not in dispute that these provisions were applicable to the pending applications of refund. Under Section 11-B as amended, refund could not be granted if the duty had been passed on to the customer. Under this provision, it was for the appellant 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 by him to any other person.
4. The respondent issued to the appellant a show-cause notice dated 6-1-1992 calling upon it to show cause why the amount of refund claimed by the appellant should not be credited to the consumer welfare fund in terms of Section 11-B read with Section 12-C. The appellant filed a reply to the show-cause notice. The respondent, however, by order dated 25-3-1994 directed that the sum of Rs 5,41,499 be credited to the consumer welfare fund under Section 12-C of the Act. This order was challenged by the appellant by filing a writ petition in the High Court which was dismissed by the judgment and order under appeal.
5. The questions involved in the appeal are no more res integra after the decision of the nine-Judge Bench in Mafatlal Industries Ltd. v. Union of India (1997) 5 SCC 536. Learned counsel for the appellant has, however, contended that the present case was outside the provisions of the Act as the RF solution was not “goods” within the meaning of the Act, that having been finally decided in the appellant's favour in terms of the order of the Tribunal dated 25-9-1990, and, therefore, the receipt and retention of the amount of the excise duty was totally without the authority of law and without jurisdiction. Such a claim of refund, it was contended, can be entertained as held in Mafatlal Industries case (1997) 5 SCC 536 in para 108(ii) in the following words:
“108. (ii) Where, however, a refund is claimed on the ground that the provision of the Act under which it was levied is or has been held to be unconstitutional, such a claim, being a claim outside the purview of the enactment, can be made either by way of a suit or by way of a writ petition.”
6. For more than one reason we find it difficult to accept the contention. Firstly, the present is not a case of an unconstitutional levy as contemplated by the nine-Judge Bench decision. That is where a provision of the Act under which tax is levied is struck down as unconstitutional for transgressing constitutional limitations. It is this class of cases where the claim for refund was held to be outside the purview of the Act which for the sake of convenience was called as “unconstitutional levy” in Mafatlal Industries case (1997) 5 SCC 536.
7. Secondly, assuming it to be a case of unconstitutional levy, still the appellant would not be entitled to refund in terms of law settled by the Mafatlal Industries case (1997) 5 SCC 536. Even in that eventuality it has to be established that incidence of duty has not been passed on to others. It has been held that whether the claim for restitution is treated as a constitutional imperative or as a statutory requirement, it is neither an absolute right nor an unconditional obligation but is subject to the requirement that the burden of duty has not been passed on to others. It was not submitted before us that this requirement had been fulfilled by the appellant. Thus, looking from any angle, the appellant is not entitled to refund.
8. For the aforesaid reasons, the appeal is dismissed. The parties are left to bear their own costs.
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