1980 (6) TMI 34 - HC - Central Excise

Court rules post-manufacturing costs excluded from excise duty calculation. Refund granted.

The Court held that post-manufacturing expenses cannot be included in the excise duty calculation. The claim for refund was not time-barred, as it fell ... Valuation - Refund of excise duty illegally collected Issues Involved:1. Whether post-manufacturing expenses can be included in the price of the manufactured article for the purpose of determining Excise Duty.2. Whether the claim for refund is barred by limitation prescribed u/r 11 of the Excise Rules.3. Whether the petitioners should have availed the alternative remedy of filing a civil suit.4. Whether the refund would result in unjust enrichment of the petitioners.Summary:Issue 1: Post-Manufacturing Expenses and Excise DutyThe Court held that post-manufacturing expenses, including the cost of containers, freight charges, and marketing and distribution expenses, cannot be included in the price of the manufactured product for the purpose of determining Excise Duty. This conclusion was based on the precedent set by the Court in Union of India v. Mansingka Industries Private Limited and Indian Tobacco Company Limited v. Union of India and Others, which established that such costs are not part of the manufacturing process and thus should not be considered in the excise valuation.Issue 2: Limitation u/r 11 of the Excise RulesThe Court referred to the decision in Associated Bearing Company Limited and Another v. Union of India, which clarified that a claim for refund on the ground that certain items were post-manufacturing expenses does not fall within the limitation prescribed by Rule 11 of the Excise Rules. The levy being without jurisdiction and outside the provisions of Section 3 of the Act would not attract the bar of limitation, thus rejecting the contention that the claim for refund must be negatived for being beyond one year.Issue 3: Alternative Remedy of Civil SuitThe Court rejected the argument that the petitioners should have filed a civil suit instead of a writ petition. It emphasized that the existence of an alternative remedy is not an absolute bar to entertaining a petition under Article 226. The Court noted that the claim was based on the constitutional invalidity of a part of the levy and that the facts were not in dispute. The Court also highlighted the inefficiency and prolonged nature of civil suits compared to the writ jurisdiction under Article 226.Issue 4: Unjust EnrichmentThe Court considered the argument that a refund would result in unjust enrichment of the petitioners. It noted that in a civil suit, the defense of unjust enrichment would not be available to the Union of India. The Court also pointed out that the goods were sold at a controlled price, making it difficult to ascertain if the petitioners had indeed passed on the excise duty to the consumers. The Court concluded that the petitioners were entitled to the refund as the excise duty was recovered without authority of law.Conclusion:The petition was allowed, and the Court issued a mandamus directing the authorities and the Union of India to refund the excess amounts recovered by including post-manufacturing expenses in the excise duty calculation. The petitioners were instructed to satisfy the appropriate authorities about the exact quantum of the amount under the specified heads. The application for leave to appeal to the Supreme Court was rejected.