REFUND OF PRE DEPOSIT – THE DISPUTE CONTINUES?

 

by

 

K. VIJAY KUAMR

MA,BL,MBA,B.Ed.

SUPERINTENDENT OF CENTRAL EXCISE

 

 

Is pre deposit under Section 35 F of the Central Excise Act, made as a pre condition for appeal to be treated as duty for the purpose of refund in case the appellant succeeds and is refund to be covered under Section 11B?. One would think that these are silly old questions, which are by now fairly well settled. I share this view and believe that the issue is settled with suvidhe and Mahavir Aluminium and in fact I wrote an article in ELT {2001(128)A21} referring to a Rajkot Trade Notice which provided for return of such deposits without a refund claim. But obviously the issue is still 'live' as can be seen from a very detailed article in the 15^th June ELT, " DEPOSIT OF DUTY – A DEPOSIT WITH REVENUE OR REMITTANCE/ PAYMENT OF DUTY DUE by Mr. KP Sridhara Raman. The learned author who was a very senior and respected officer of the department and who is now an honourable member of the Settlement Commission has different views. Quoting exhaustively from several famous judicial pronouncements including Jain Spinners and Mafatlal, the learned author opines that even such deposits are covered by Section 11B or at least he wants an amendment to Section 11B to include such pre deposits within the purview of Section 11B. He feels that there is a dichotomy in treatment of refunds of duty paid in the normal course and duty paid as a pre condition for appeal. He concludes that pre deposit is also duty (actually paid at a later date later than when it was required to be paid) and so there should be uniformity in dealing with return of the duty paid in all circumstances. Otherwise he feels that it is like " bolting the front door of a stable, whose rear door has been left wide open". With all due respects to the scholarly author, I submit there is no horse in the stable and it does not matter which door is left open.

The learned writer feels that what is deposited is duty and so pre deposit is actually a later day discharge of duty and the provisions of law applicable to refund of duty should apply to these deposits also. He draws his strength from the famous case of UOI v Jain Spinners- 1992(61) ELT 32 as he says that this was a judgement by a three member bench while Mahavir Aluminium was by a two member bench and further there was no indication that jain Spinners was brought to the notice of the Apex court in the later case.

But this case was distinguished by the Hon'ble Supreme Court in OSWAL AGRO MILLS LTD. V ASSTT. COLLECTOR OF C. EX., LUDHIANA -1994 (70) E.L.T. 48 (S.C.) . I quote from the judgement

" 8.The judgment in the case of Jain Spinners applies to a case where excise duty has been deposited in court pursuant to an interim order and has been withdrawn by the excise authorities. In such a case, clearly, the assessee has to make an application for refund and to such a case, therefore, the provisions of Section 11B squarely apply.

9.Section 11B applies when an assessee claims refund of excise duty. A claim for refund is a claim for repayment. It presupposes that the amount of the excise duty has been paid over to the excise authorities. It is then that the excise authorities would be required to repay or refund the excise duty."

 

The learned author also draws his inference from the Mafatlal case wherein it was held that a duty paid under orders of the Court would be treated as payment under protest and the mischief of limitation under Section 11B would not be attracted to such cases.

 

So the crux of the problem remains whether pre deposit is a duty and if so whether the concept of unjust enrichment of Section 11B applies for such cases.

 

Let us study a few real time situations.

 

1. A person pays duty while clearing goods but later feels that he need not have paid the duty or he has paid excess duty. He files a refund claim under Section 11B and naturally the concept of unjust enrichment applies for the reasons that under Section 12 B he is deemed to have passed on the incidence of duty to the buyer and under Section 11B is entitled for refund only if he had not passed on the incidence of duty to any other person.
   
2. A person is issued a Show Cause Notice by the department demanding certain amounts of duty, which he has not paid or has short paid. The department confirms the demand and he pays the ' amount' before going in appeal. Here one school of thought is that what he paid was the duty while others contend that it is a deposit pending appeal. Section 12 A requires the excise duty amount to be shown in the invoice and Section 12 B presumes that the amount of excise duty paid is passed on to the buyer. Now the deposit is not shown on any invoice and it cannot be easily passed on to the buyer. So the presumption under Section 12 B is not meant to apply to deposits. The corollary is that the requirement of not passing on the incidence under Section 11B is not applicable to deposits pending appeal.
   

If deposit pending appeal is a duty and which can be refunded only under Section 11B, it would lead to illogical situations as

1. An assessee goes in appeal after making pre deposit of the duty demanded and another assessee with an identical demand approaches the appellate authority with a request for waiver of pre deposit. (The same assessee can do this for say a subsequent appeal for a periodical order) and waiver is granted. Ultimately both the assessees succeed in the appellate stage. Now the first assessee who sincerely deposited the 'duty' will not be given 'refund' as per Section 11B, while the second assessee who was clever enough to manage a waiver of pre deposit need not pay any duty. That is one who has not paid the duty need not pay it and one who has paid it will not get the refund. Strange Logic? Moral is " Don't make any pre – deposit, somehow manage to get a waiver of pre deposit"
   
2. Still more illogical would be the case of an assessee who is made to pay a part of the demand as pre deposit, as is often the case. If he ultimately wins, he need not pay the rest of the duty demanded but does not get back the amount already paid!
   

 

The Department at least in Rajkot (and this is applicable in other Commissionerates) has taken a view that such deposits are not covered by Section 11B and the pre deposited amount would be returned on a simple application (no need to file refund claim). This is a very fair, just, logical and judicially backed step and need not be disturbed.

 

However I must concede that there was a recent judgement of the AP High Court supporting the views of the learned author, in ITW SIGNODE INDIA LTD. V ASSTT. COMMR. OF CUS. & C. EX., HYDERABAD - 2000 (122) E.L.T. 651 (A.P.) where it was
held that the deposit made is duty and Section 11B is applicable. Of course here the deposit was made consequent to a court order and not as a pre condition for appeal. Further the court held that once the appellant submitted to Section 11B jurisdiction, he was bound by it.

Finally does the department lose anything by returning the pre deposit? The answer interestingly is " NO".

Even assuming that Section 11B is applicable to such pre deposits, it does not contemplate total rejection of the refund claim. As per 11B(2), the department is required to credit the refundable amount to the consumer welfare fund and if the assessee is able to prove that he has not passed on the incidence of duty, instead of crediting it to the fund, it has to be refunded to him. So the money should go either to the fund or the assessee and the department cannot retain it.

As such there is no horse; if there appears to be one, it is not ours; so it does not matter which door is open and which is bolted.

EXCISE LAW TIMES – 01.10. 2001 – A 31