Supreme Court clarifies refund claims under Central Excise Act: Western Coalfields Ltd. vs. Commissioner of Central Excise (20 February 2019)

Introduction

Date of the Judgment: 20 February 2019

Citation: Not Available

Judges: A.M. Khanwilkar, J. and Ajay Rastogi, J.

Can a buyer claim a refund of excise duty when the manufacturer paid it under protest, and is the buyer bound by the six-month limitation period? The Supreme Court of India addressed this question in a batch of appeals concerning refund claims under the Central Excise Act, 1944. The core issue revolves around whether the limitation period applies when a buyer seeks a refund of excise duty initially paid under protest by the manufacturer. The judgment was authored by Justice Ajay Rastogi, with Justice A.M. Khanwilkar concurring.

Case Background

Western Coalfields Ltd., a public sector undertaking involved in coal mining, purchased conveyor beltings from M/s. Fenner (India) Ltd. The price of coal is fixed by the Coal Ministry, and no central excise duty is payable on coal. M/s. Fenner (India) Ltd., the manufacturer, classified their PVC impregnated conveyor beltings under sub-heading 3920.12 of the Central Excise Tariff Act, 1985, as suggested by the department, and paid the duty under protest.

The classification dispute regarding these conveyor beltings reached the Supreme Court, which, in a judgment dated 28th March, 1995, in *M/s. Fenner (India) Ltd. Vs. Collector of Central Excise, Madurai* [1995 (Suppl.) 2 SCC 567], held that the beltings should be classified under sub-heading 3922.90 for the period from December 1986 to February 1987, and under sub-heading 3926.90 for the period from 10th February 1987 to June 1987 and later periods. M/s. Fenner (India) Ltd. had deposited the central excise duty under protest but never applied for a refund after the classification dispute was settled.

Western Coalfields Ltd., as the buyer, filed a refund application on 20th December 1996, for the period from 20th July 1988 to 15th January 1994. They argued that since the duty was paid under protest by M/s. Fenner (India) Ltd., the six-month limitation period should not apply to their refund claim.

Timeline:

Course of Proceedings

The Department issued a show cause notice on 17th February 1997, stating that Western Coalfields Ltd. was not eligible for a refund since they had not paid any duty. The refund application was rejected by the Authority on 4th August 1997, citing limitation and unjust enrichment. The Appellate Authority, Chennai, rejected the appeal on 18th January 1999, citing limitation. The Appellate Tribunal upheld this decision on 8th August 2005, relying on the Supreme Court’s judgment in *Commissioner of Central Excise, Mumbai-II Vs. Allied Photographics India Ltd.* [2004(4) SCC 34].

Legal Framework

The case primarily revolves around Section 11B of the Central Excise Act, 1944, which deals with claims for refund of excise duty. The relevant portion of Section 11B(1) states:

“Any person claiming refund of any duty of excise may make an application for refund of such duty to the [Assistant Commissioner of Central Excise or Deputy Commissioner of Central Excise] before the expiry of [six months] [from the relevant date]… and the application shall be accompanied by such documentary or other evidence…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 on by him to any other person…”

The second proviso to Section 11B(1) states:

“[Provided further that] the limitation of [six months] shall not apply where any duty has been paid under protest.”

Section 11B(2)(e) allows a refund to be paid to the buyer if:

“…the duty of excise borne by the buyer, if he had not passed on the incidence of such duty to any other person”

Section 11B, Explanation (B)(e), defines the “relevant date” for a person other than the manufacturer as:

“…the date of purchase of the goods by such person”

In essence, Section 11B allows for refund claims within six months from the relevant date, which is the date of purchase for the buyer. However, this limitation does not apply if the duty was paid under protest. The Act also distinguishes between the right of a manufacturer and a buyer to claim a refund.

Arguments

Appellant’s Arguments (Western Coalfields Ltd.):

• The appellant argued that since the manufacturer (M/s. Fenner India Ltd.) paid the excise duty under protest, the six-month limitation period under the second proviso to Section 11B(1) should not apply to the buyer’s refund claim.
• The appellant contended that the key factor for determining the applicability of the limitation period is whether the excise duty was paid under protest, regardless of who is claiming the refund.
• The appellant submitted that the protest made by the manufacturer should be considered when determining whether the buyer’s refund claim is within time.
• The appellant argued that when the duty paid by the manufacturer is permitted to be claimed by the buyer, the protest made by the manufacturer should also be considered for the buyer’s refund claim.

Respondent’s Arguments (Commissioner of Central Excise):

• The respondent argued that while a buyer can apply for a refund under Section 11B, they must prove that the duty was borne by them and not passed on to any other person.
• The respondent contended that the buyer’s application must be submitted within six months from the date of purchase of the goods.
• The respondent relied on the Supreme Court’s judgment in *Commissioner of Central Excise, Mumbai-II Vs. Allied Photographics India Ltd.*, arguing that the rights of the manufacturer and the buyer to claim a refund are separate and distinct.
• The respondent submitted that the application filed by the appellant (buyer) was much after the period of six months from the date of purchase of goods, which was time-barred in terms of 2nd proviso to Section 11B(1) of the Act.

Issues Framed by the Supreme Court

The Supreme Court framed the following issue for consideration:

1. Whether the period of limitation of six months shall apply where the refund of central excise duty has been claimed by the buyer and paid by the manufacturer under protest.

Treatment of the Issue by the Court

Authorities

The Supreme Court considered the following authorities:

Cases:

• *M/s. Fenner (India) Ltd. Vs. Collector of Central Excise, Madurai* [1995 (Suppl.) 2 SCC 567] – Supreme Court of India: This case was regarding the classification of conveyor beltings, which led to the payment of duty under protest by the manufacturer.
• *Commissioner of Central Excise, Mumbai-II Vs. Allied Photographics India Ltd.* [2004(4) SCC 34] – Supreme Court of India: This case held that the rights of a manufacturer and a buyer to claim a refund are separate and distinct, and the buyer is bound by the limitation period.
• *National Winder Vs. Commissioner of Central Excise, Allahabad* [2003(11) SCC 361] – Supreme Court of India: This case was overruled in *Commissioner of Central Excise, Mumbai-II Vs. Allied Photographics India Ltd.*

Legal Provisions:

• Section 11B of the Central Excise Act, 1944: This section deals with claims for refund of excise duty.
• Section 11B(1) of the Central Excise Act, 1944: This sub-section specifies the conditions for claiming a refund, including the limitation period of six months.
• Second Proviso to Section 11B(1) of the Central Excise Act, 1944: This proviso states that the limitation period does not apply when duty is paid under protest.
• Section 11B(2)(e) of the Central Excise Act, 1944: This sub-section allows a refund to be paid to the buyer if the duty was borne by the buyer and not passed on.
• Section 11B(5)(B)(e) of the Central Excise Act, 1944: This sub-section defines the “relevant date” for the buyer as the date of purchase.

Judgment

How each authority was viewed by the Court?

• The Supreme Court followed the ratio in *Commissioner of Central Excise, Mumbai-II Vs. Allied Photographics India Ltd.* [2004(4) SCC 34]* , which held that the rights of the manufacturer and the buyer to claim a refund are separate and distinct and the buyer is bound by the limitation period.
• The Supreme Court held that the view expressed in *National Winder Vs. Commissioner of Central Excise, Allahabad* [2003(11) SCC 361]* was per incuriam in view of the judgment in *Commissioner of Central Excise, Mumbai-II Vs. Allied Photographics India Ltd.*

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the legal interpretation of Section 11B of the Central Excise Act, 1944, and the precedent set by the case of *Commissioner of Central Excise, Mumbai-II Vs. Allied Photographics India Ltd.* The Court emphasized the distinct rights and obligations of manufacturers and buyers in claiming refunds, highlighting the importance of adhering to the prescribed limitation periods. The Court’s reasoning focused on maintaining the legal framework and ensuring that each party complies with the statutory requirements for refund claims. The sentiment analysis shows a strong emphasis on legal compliance and the separation of rights between the manufacturer and the buyer.

Fact:Law

The ratio of fact to law shows that the Supreme Court was primarily influenced by legal considerations (80%) rather than the specific facts of the case (20%). The court’s focus was on the interpretation of Section 11B and the application of precedent, rather than the particular circumstances of the appellant’s refund claim.

The Supreme Court’s reasoning was based on the interpretation of Section 11B of the Central Excise Act, 1944, and the precedent set by *Commissioner of Central Excise, Mumbai-II Vs. Allied Photographics India Ltd.* The Court emphasized that the rights of the manufacturer and the buyer are separate and distinct. The Court rejected the argument that the manufacturer’s payment under protest should exempt the buyer from the limitation period.

The Court stated:

“The scheme of Section 11B makes a distinction between right of the manufacturer to claim refund from right of the buyer to claim refund treating them separate and distinct for making an application for refund exercising their right under Section 11B of the Act…”

The Court further clarified:

“The accounts of the manufacturer are different from the accounts of a buyer(distributor). Consequently, there is no merit in the argument advanced on behalf of the respondent that the distributor was entitled to claim refund of “on-account” payment made under protest by the manufacturer without complying with Section 11-B of the Act.”

The Supreme Court rejected the appellant’s argument and upheld the decision of the Appellate Tribunal, stating:

“In the instant case, indisputedly the application was filed by the appellant as a buyer of the goods(conveyor belts) from M/s. Fenner (India) Ltd. who paid the duty under protest much after a period of limitation(six months) as prescribed under the mandate of law disentitles the claim of refund to the appellant as prayed for…”

There was no minority opinion in this judgment.

Key Takeaways

• Buyers cannot claim a refund of excise duty based on the manufacturer’s payment under protest if they file the claim after six months from the date of purchase.
• The rights of a manufacturer and a buyer to claim a refund under Section 11B of the Central Excise Act, 1944, are separate and distinct.
• Buyers must adhere to the six-month limitation period for refund claims, as defined by Section 11B(5)(B)(e) of the Central Excise Act, 1944.
• This judgment reinforces the importance of timely filing of refund claims to avoid rejection due to limitation.

Directions

No specific directions were given by the Supreme Court in this judgment.

Specific Amendments Analysis

There is no specific amendment analysis in this judgment.

Development of Law

The ratio decidendi of this case is that a buyer cannot claim a refund of excise duty based on the manufacturer’s payment under protest if they file the claim after six months from the date of purchase. This judgment reinforces the principle that the rights of the manufacturer and the buyer are separate and distinct under Section 11B of the Central Excise Act, 1944. The Supreme Court upheld its previous position in *Commissioner of Central Excise, Mumbai-II Vs. Allied Photographics India Ltd.* [2004(4) SCC 34], and overruled the view in *National Winder Vs. Commissioner of Central Excise, Allahabad* [2003(11) SCC 361].

Conclusion

In *Western Coalfields Ltd. vs. Commissioner of Central Excise*, the Supreme Court held that a buyer’s claim for refund of excise duty is subject to the six-month limitation period from the date of purchase, even if the manufacturer had paid the duty under protest. The Court emphasized that the rights of the manufacturer and the buyer are separate and distinct under Section 11B of the Central Excise Act, 1944. This judgment clarifies the legal position on refund claims and reinforces the need for buyers to adhere to the prescribed limitation periods.