Refund of duty paid under mistake of law escapes ordinary limitation, with interest awarded for unlawful retention

Refund of excise duty collected under an erroneous classification was held not to be defeated by the ordinary statutory limitation period where the levy itself was unsustainable and the payment was made under a mistake of law. Limitation was treated as running from discovery of the mistake, so the refund rejection on limitation grounds failed. The Court also recognised entitlement to interest on unlawfully retained duty, but declined the higher rate and earlier start date sought, awarding interest at 12% per annum from the date of the writ petition until payment.

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Issues: (i) Whether the claim for refund of excise duty paid on flush doors was barred by limitation under the refund provisions; (ii) Whether the petitioner was entitled to refund with interest on duty collected without authority of law.

Issue (i): Whether the claim for refund of excise duty paid on flush doors was barred by limitation under the refund provisions.

Analysis: The duty had been collected on an erroneous classification, and the levy was later held to be unsustainable. Refund claims based on payment under mistake of law are not defeated merely because the statutory refund period has expired, since limitation runs from the date the mistake is discovered. The earlier judicial pronouncements recognised that where the levy itself is illegal, the refund machinery does not bar restitution on the ground of limitation in the manner asserted by the Department.

Conclusion: The refund claim was not barred by limitation and the rejection on that ground was unsustainable, in favour of the assessee.

Issue (ii): Whether the petitioner was entitled to refund with interest on duty collected without authority of law.

Analysis: Once the excess duty was found to have been collected illegally and remained with the Department for a substantial period, compensation by way of interest was justified. The Court declined the higher rate and earlier commencement sought by the petitioner, but held that interest should run from the date of filing of the petition till payment.

Conclusion: The petitioner was entitled to refund with interest at 12% per annum from the date of the writ petition until payment, in favour of the assessee.

Final Conclusion: The challenge to the rejection of the refund succeeded, and the petitioner obtained restitution of the excess excise duty with interest.

Ratio Decidendi: A refund claim for duty collected under a mistake of law is not barred merely by the ordinary statutory limitation period; where the levy is illegal, restitution may be claimed from the date the mistake is discovered, and interest may be awarded for unjust retention of the money.

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