AUGUST 28, 2015

By Minchu Mariam Punnoose, VMJ Associates

ARTICLE 265 of our Constitution enjoins that "no tax shall be levied or collected except by authority of law". Hence norms as toWhere,When and How tax is to be levied and not to be levied are prescribed.Though our country has a well drafted legal system, there arises never ending conflicts giving rise to litigations in the Courts of Law. Taxation is a field which mandates a perfect procedureto be complied with and which is,almost always, very difficult to follow.

If no tax can be collected except by authority of law, the same logic would apply for retention of amounts collected without the authority of law.Therefore,in order to protect the interest of the assesses, if any excess payment is made by mistake, the right to claim the same is laid down inSection 11B of the Central Excise Act 1944 and section 27 of the Customs Act which debars the tax authorities from making unjust gain under the camouflage of law. Under Section 11B of the Central Excise Act, 1944, any person claiming refund of any duty/rebate may make an application in the prescribed form for refund of such duty before expiry of one year from the relevant date as defined in the explanation under Section 11B (5) of Central Excise Act, 1994 along with such documentary or other evidence as is prescribed under the Act to establish that the amount of duty of excise in relation to which such refund claimed was collected from, or paid by him and the incidence of such duty had not been passed on to any other person/customer. Refund includes rebate of duty of excise on excisable goods exported out of India or on excisable materials used in the manufacture of goods which are exported out of India. Under Section 11BB of Central Excise Act, 1944, interest is payable to the applicant if any duty ordered to be refunded is not refunded within three months from the date of receipt of application from the concerned.

Section 11B mandates the refund of any duty or rebate as defined under the Act and the same is beyond any doubt. Rule 2(e) of the Central Excise Rules, 1944, defines the term 'duty' to mean “duty payable under Section 3 of the Central Excise Act 1944”.Hence any amount paid or payable under the charging provision as enunciated in the Central Excise Act 1944 can be called as duty as per the language of the Act. In such a scenario, Section 11B is applicable to such amount paid or payable under Section 3 of the Central Excise Act wherein levy is under the express authority of law. In such a case, limitation of one year will also be applicable to such amount which has been levied as duty.

But the conflictarises whena claim is filed beyond the period of limitation for an amount paid under mistake of fact/law. When an amount paid is not actually duty, as per Section 3 of the Central Excise Act,and the levy becomes impermissible, whether the limitation of one year under Section 11B will be applicable and whether the sameamounts to deposit with the central government.

Different views with regard to the same are expressed by various fora. When an amount is collected without the authority of law or under mistake the said levy is not permissible in view of the fact that if the assessee is denied the refund, the Government cannotnot retain the amount legally collected, and it would amount to violation of the constitutional mandate enshrined in Article 265 of the Constitution. A procedural principle will not hold good against a constitutional mandate. Hence the same should be refunded if the authorities are satisfied that there was unjust enrichment.

The very collection or retention of tax without the authority of law entitlesthe assesses to file the claim of refund under the right that flows from Article 265 of the Constitution of India. In the course of run, theory of unjust enrichment has also been brought to make sure that the assesee is not handed down with double advantage. The concept of the unjust enrichment postulates that refund can be claimed only by a person who did not pass on the incidence of duty. This concept was upheld in M/s. Mafatlal Ind. Ltd. Vs Union of India by a nine Judge Bench of the Supreme Court - 2002-TIOL-54-SC-CX-CB.

Our Laws make sure that once an assessee has made the payment by mistake [an amount which is out of the purview of duty under section 3 of the Central Excise Act 1944 ] and has not benefited twice, the authorities cannot take advantage of the situation by invoking limitation prescribed under the section from the date of payment of duty. If an amount is levied and collected in accordance with the procedure, then Section 11B of the Central Excise Act would apply and once the amount paid by the assessee is outside the purview of Section 11B of the Act, time limit prescribed under Section 11B of the Act would not apply.To summarise, the time limit of one year from the date of payment of duty should not be taken for the purpose of limitation when a levy itself is not made as per law.

In most cases the aseessesare under the mistaken notion that they have paid an amount which ought to have been paid. When they become conscious of the fact of wrong payment, the time may have also lapsed which puts them in a disadvantageous situation and drags the assessees to a long pending legal battle, again wasting time, money and energyfor the refund of an amount which they are legally entitled to. Hence, mere nomenclature should not be an embargo on the right of the assessee to demand refund of a payment made under mistaken notion. Therefore, once the amount is not payable there is no power with the taxing authorities to retain such amountand hence byno stretch of imagination, the amount so paid can be considered as duty of excise to attract the provisions of Section 11B.The above view is also upheld by the High Court of Delhi in the case of Hind Agro Industries Ltd. v. Commissioner of Customs - 2007-TIOL-811-HC-DEL-CUS.The same view was also held in the case of M/s Geojit BNP Paribas Financial Services Ltd vs. CCE, Kochi – reported in 2015-TIOL-1602-HC-KERALA-ST by the High Court of Kerala where in it was held that when payment was effected by mistake and it has no colour of legality, section 11B is not attracted by placing reliance on the decision rendered by High Court of Judicature at Madras in Natraj & Venkat Associates - 2010-TIOL-67-HC-MAD-ST stayed by Division Bench - 2010-TIOL-161-HC-MAD-ST and High Court of Karnataka in KVR Constructions - 2010-TIOL-68-HC-KAR-ST stayed by Division Bench - 2010-TIOL-89-HC-KAR-ST. Further in the case Union  of  India  v.  ITC Ltd 1993  Supp.  (4)  SCC  3261,  the  Apex Court upheld  the  view taken  by  the  Division  Bench  of  the  Delhi  High  Court  with  regard  to  the  question  of  limitation wherein it was observed that "the  duty  of  excise  is  that  which  is  levied  in  accordance  with  law"  and  that  "any  money  which is  realized  in  excess  of  what  is  permissible  in  law  would  be  a  realization  made  outside  the provisions of the Act".

On a conjoint reading of the said view along with provisions of Section 11B expresses beyond doubt that amount paid by mistake  cannot  be  regarded as  duty  of  excise and hence the  bar of  limitation  under  section  11B(1)  cannot  be  applied.  Therefore, bar of limitation  prescribed  under  Section  11B(1)  applies  only  when  "any  person  claiming  refund of  any  duty  of  excise  and  interest". Further, when an amount is retained by the authority without the mandate of law, that itself makes it unconstitutional and outside the provisions of Section 11B of the Act.

But in sharp contrast to the above decision, the High Court Punjab and Haryana in the case of Sarita Handa Exports (P) Ltd vs. Union of India - 2010-TIOL-928-HC-P&H-CX by placing reliance on the decision in the case of Mafatlal Industries referred supra has held that even if the duty paid on exported excisable goods which was not payable, refund application beyond period specified under Section 11B of Central Excise Act, 1944 could not be entertained unless refund was as a consequence of declaration of a provision as unconstitutional. This view was maintained by the Apex Court by dismissing the SLP filed by the petitioner.

In my humble viewwhen there is no authority in law to retain the amount erroneously paid by the assessee under the mistaken notion of law, the retention of the amount so paid by invoking limitation is putting the assessee in a more disadvantageous situation. Also, this is clearly against the constitutional mandate. In my opinion there should not be any time bar in returning the amount erroneously paid by the assessees and the legislature should consciously and suitably amend 11B so as to include scenarios of payment of amount by mistake. Our efforts to revive our economy to compete with the world economy using innovative ideas like ‘Make in India campaign' can be fruitful only when our tax administration is structured to be more transparent just like water spots on lily leaves backed by conscious and sincere effort to return the taxpayer's legally entitled money.