Captive-consumption exemption and mistake-of-law refund principles permitted writ relief despite a time-barred refund claim.

Goods manufactured in a factory for use in the same factory were treated as captive-consumption goods and fell within the exemption under Rule 8(1) of the Central Excise Rules, 1944 and Notification No. 118/75-C.E.; duty collected on parts used to repair transformers was therefore not sustainable and refund was due on that issue. The refund claim, however, was held to be time-barred because it arose from payment under a mistake of law and the statutory refund period ran from knowledge of the mistake. Even so, the writ petition was not rejected for unreasonable delay, as it was filed within a reasonable time after non-adjudication of the refund claim, and refund relief was granted in writ jurisdiction.

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Issues: (i) whether goods or parts manufactured in the factory and used for repairing transformers for captive consumption were liable to excise duty; and (ii) whether the refund claim and writ petition were barred by time or unreasonable delay.

Issue (i): whether goods or parts manufactured in the factory and used for repairing transformers for captive consumption were liable to excise duty.

Analysis: Goods falling under the relevant tariff entry, when manufactured in a factory and intended for use in the same factory, were exempt under Rule 8(1) of the Central Excise Rules, 1944 and Notification No. 118/75-C.E. dated 30.4.1975. The parts produced for use in transformer repair were treated as goods manufactured for captive consumption, and duty collected on them was therefore contrary to the exemption.

Conclusion: The levy on the parts used in the repair process was not sustainable and the assessee was entitled to refund on this issue.

Issue (ii): whether the refund claim and writ petition were barred by time or unreasonable delay.

Analysis: The Court treated the claim as one arising from payment under a mistake of law. It held that the statutory refund remedy had to be pursued within six months from knowledge of the mistake, and that delay in invoking Article 226 is ordinarily measured by reference to the reasonable period recognised in law. On the facts, the refund application was time-barred, but the writ petition was filed within a reasonable time after the claim was not being adjudicated and could not be rejected for delay.

Conclusion: The refund application was barred by time, but the writ remedy was not barred by unreasonable delay.

Final Conclusion: The assessee succeeded in obtaining refund relief in writ jurisdiction notwithstanding the statutory bar to the refund application, because the duty had been collected on exempt captive-consumption goods and the petition was filed within a reasonable time.

Ratio Decidendi: Goods manufactured in a factory for use in that same factory are exempt from excise duty under the captive-consumption exemption, and a writ for refund based on mistake of law may be entertained within a reasonable time even where the statutory refund claim is time-barred.

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