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

Date of the Judgment: 20 February 2019
Citation: 2019 INSC 141
Judges: A.M. Khanwilkar, J., Ajay Rastogi, J.

Can a buyer claim a refund of excise duty paid by the manufacturer under protest, even if the buyer’s refund application is filed after the limitation period? The Supreme Court addressed this question in a batch of appeals concerning the Central Excise Act, 1944. The core issue revolves around whether the limitation period of six months applies to a buyer’s refund claim when the manufacturer paid the duty under protest. The court, in this case, has clarified the distinct rights of manufacturers and buyers in claiming refunds under the Central Excise Act. The judgment was delivered by a two-judge bench comprising Justice A.M. Khanwilkar and Justice Ajay Rastogi, with Justice Rastogi authoring the opinion.

Case Background

The appellant, Western Coalfields Ltd., is a public sector undertaking involved in coal mining. The price of coal is regulated by the Coal Ministry, and no central excise duty is applicable to coal. M/s. Fenner (India) Ltd., the manufacturer, produced PVC impregnated conveyor beltings. The excise department classified these beltings under sub-heading 3920.12 of the Central Excise Tariff Act, 1985, and M/s. Fenner paid the duty under protest.

The classification dispute 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], ruled that the conveyor 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 had deposited the central excise duty under protest during the pendency of the classification dispute but never applied for a refund after the Supreme Court’s decision.

Western Coalfields Ltd., the buyer of the conveyor beltings, filed a refund application on 20th December 1996, for the period from 20th July 1988 to 15th January 1994. They argued that since the manufacturer had paid the duty under protest, the limitation period of six months should not apply to their refund claim.

Timeline

Course of Proceedings

The excise department issued a show cause notice on 17th February 1997, stating that Western Coalfields Ltd. was not entitled to claim a refund as they had not paid the duty. The original authority rejected the refund application on 4th August 1997, citing limitation and unjust enrichment. The appellate authority in Chennai upheld this decision on 18th January 1999. The Customs, Excise and Service Tax Appellate Tribunal also rejected the appeal 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 refunds 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]… 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 is borne by the buyer and not passed on to any other person. Section 11B(5)(B)(e) defines the relevant date for a buyer as the date of purchase of the goods. The court noted that the scheme of Section 11B distinguishes between the rights of the manufacturer and the buyer to claim a refund.

Arguments

Appellant’s Arguments:

• The appellant argued that since the manufacturer had paid the 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 key factor should be whether the excise duty for which the refund is claimed was paid under protest. If so, the protest made by the manufacturer should be considered even for determining if the buyer’s claim is within time.
• When the duty paid by the manufacturer is permitted to be claimed by the buyer, who ultimately bears the burden, the protest made by the manufacturer should extend to the buyer’s refund claim.

Respondent’s Arguments:

• The respondent contended that while a buyer can apply for a refund under Section 11B, it is subject to the condition that the incidence of duty has not been passed on to any other person, and the application must be within six months from the date of purchase.
• The rights of the manufacturer and the buyer to claim a refund are separate and distinct. The application by the buyer was filed much after the six-month limitation period, making it time-barred.
• The respondent relied on the Supreme Court’s judgment in *Commissioner of Central Excise, Mumbai-II Vs. Allied Photographics India Ltd.* [2004(4) SCC 34], which held that a buyer is bound to comply with the limitation period under Section 11B.

Issues Framed by the Supreme Court

The core issue before the Supreme Court was:

1. Whether the period of limitation of six months applies when the refund of central excise duty is claimed by the buyer, and the duty was paid by the manufacturer under protest.

Treatment of the Issue by the Court

Authorities

The court considered the following authorities:

Judgment

The Supreme Court held that the buyer’s claim for refund is subject to the limitation period of six months from the date of purchase, as specified in Section 11B of the Central Excise Act, 1944. The court emphasized that the rights of the manufacturer and the buyer to claim a refund are separate and distinct. The protest made by the manufacturer at the time of payment of duty does not extend to the buyer’s claim for refund.

The court relied on *Commissioner of Central Excise, Mumbai-II Vs. Allied Photographics India Ltd.* [2004(4) SCC 34], which had already settled this legal position. The court also noted that the earlier view in *National Winder Vs. Commissioner of Central Excise, Allahabad* [2003(11) SCC 361], was held to be *per incuriam* in *Allied Photographics*.

The court observed that *“the scheme of Section 11B makes a distinction between the right of the manufacturer to claim refund from the 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 stated, *“under Section 4 of the said Act, every payment by the manufacturer whether under protest or under provisional assessment was on his own account. The accounts of the manufacturer are different from the accounts of a buyer (distributor).”*

The court also held that, *“the purchaser of the goods was not entitled to claim refund of duty made under protest by the manufacturer without complying the mandate of Section 11B of the Act, 1944.”*

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the interpretation of Section 11B of the Central Excise Act, 1944, and the precedent set in *Commissioner of Central Excise, Mumbai-II Vs. Allied Photographics India Ltd.* The court emphasized the distinction between the rights of the manufacturer and the buyer, highlighting that the limitation period applies separately to each. The court focused on the statutory provisions and the established legal position, rather than the equities of the case.

Logical Reasoning

Key Takeaways

• A buyer cannot claim a refund of excise duty paid by the manufacturer under protest if the buyer’s refund application is filed after six months from the date of purchase.
• The rights of a manufacturer and a buyer to claim refunds under Section 11B of the Central Excise Act, 1944, are separate and distinct.
• The protest made by a manufacturer while paying excise duty does not extend to the buyer’s refund claim.
• Buyers need to adhere to the limitation period of six months from the date of purchase when claiming a refund of excise duty.

Directions

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

Development of Law

The ratio decidendi of the case is that the limitation period of six months applies to the buyer from the date of purchase, irrespective of the fact that the manufacturer had paid the duty under protest. This case reinforces the legal position established in *Commissioner of Central Excise, Mumbai-II Vs. Allied Photographics India Ltd.* and clarifies the separate and distinct rights of manufacturers and buyers in claiming refunds under Section 11B of the Central Excise Act, 1944. There is no change in the previous position of law, but rather a reaffirmation of the same.

Conclusion

The Supreme Court dismissed the appeals, holding that the buyer’s refund claim was time-barred. The court reiterated that the limitation period of six months applies to the buyer from the date of purchase and the protest made by the manufacturer does not extend to the buyer. This judgment reinforces the distinct rights of manufacturers and buyers in claiming refunds under Section 11B of the Central Excise Act, 1944.