2002 (2) TMI 136 - HC - Central Excise

Section 17 applies to Section 11B refund claims; limitation runs from discovery of mutual mistake in Nov 1995

HC held that Section 17 of the Limitation Act applies to refund claims under Section 11B, so the limitation period ran from discovery of the mutual ... Applicability of Section 11B - Limitation period for filing refund claims - mutual mistake - Cenvat/Modvat credit - Unjust enrichment - Interpretation of statutes - Res judicata - Legal position - period involved in the present case is between the years 1994 and 1995 and in the relevant period, there were two policies of the Union of India under the Import Export Policy for granting licences to various exporters for import of goods against such exports. One scheme was known as Value Based Advance Licence Scheme (VBAL) and the other scheme was known as Quantity Based Advance Licence Scheme (QBAL) - Whether in this case, period of limitation for the purpose of Clause (f) should necessarily be counted from February/March 1995 when the credit entries were reversed. HELD THAT:- For the application of the general principle of Limitation mistake and so far as reasonable diligence is concerned even the excise authorities locally stationed were unaware of the Public Notice, which enabled the Petitioner to avail Modvat credit on inputs. In such circumstances, provisions of Section 17 can be passed into service in favour of the petitioner. Sub-section (2) of Section 29 of the Limitation Act provides that provisions of Sections 4 to 24 (which includes Section 17) shall apply to Special law in so far as and to the extent to which they are not expressly excluded, by such special law or local law. Since the provisions of the Act, do not expressly exclude applicability of Sections 4 to 24 and particularly Section 17 of the Limitation Act, the said provision of the Limitation Act can be made applicable to refund claims filed under Section 11B of the Act. For the purpose of commencement of limitation under Clause (f) of Explanation (B) to Section 11B of the Act, even though reversal of Modvat credit was done in February/March 1995, since the mistake was discovered only in November 1995 when the Public Notice clarifying the legal position came to the knowledge of the petitioner, the period of limitation for the purpose of refund application would commence from November, 1995 i.e. on discovery of mutual mistake of the parties. In the circumstances, we hold that provisions of Section 11B of the Act are attracted to the refund application filed by the Petitioner. On the question of limitation, our conclusion is that since the claim is based on discovery of mistake, the period of limitation would not commence from the date of reversal of Modvat credit, but from the date when the mistake committed mutually of wrong reversal of credit by the parties was discovered in November, 1995. The refund claim has therefore to be held to be within time. The concept of unjust enrichment so as to justify denial of refund claim to the tax payer should justly operate against the Department as well. If the tax payer is not to be allowed to make unjust enrichment, the Taxing Authority should also not be permitted to make unjust gain. In the instant case, the Department has not been able to deny that although Modvat credit could have been availed by the petitioner, on the insistence of the local Central Excise Authorities, credit already taken was erroneously reversed. In such circumstances, the Department cannot be allowed to take advantage of the mutual mistake committed by the parties in ignorance of Public Notice clarifying the legal position on QBAL Scheme. We make no order as to interest payable on the refund claim and would direct the parties to bear their own costs. Issues Involved:1. Applicability of Section 11B of the Central Excise Act, 1944 for refund claims based on Modvat credit.2. Interpretation of Modvat credit as 'duty' under the Central Excise Act.3. Limitation period for filing refund claims under Section 11B.4. Equitable considerations and unjust enrichment in refund claims.Issue-wise Detailed Analysis:1. Applicability of Section 11B of the Central Excise Act, 1944 for refund claims based on Modvat credit:The petitioner-company, engaged in manufacturing plasticizers, availed Modvat credit on inputs for goods manufactured for home consumption and export. Due to a mutual mistake, the Modvat credit was reversed in February/March 1995, following the insistence of local Central Excise Officers who were unaware of Public Notice No. 6/1995 that allowed input stage credit under the QBAL Scheme. The petitioner filed a refund application under Section 11B, which was rejected on the grounds of limitation. The court had to determine whether Section 11B was applicable to refund claims based on Modvat credit.2. Interpretation of Modvat credit as 'duty' under the Central Excise Act:The petitioner argued that Modvat credit is not 'duty of excise' and thus, Section 11B should not apply. This argument was supported by the Supreme Court decision in Collector of Central Excise v. M/s. Raghuvar (India) Ltd., which held that Modvat credit is not 'duty' under Section 3 of the Act. However, the court found that Modvat credit, being a constituent of duty, is effectively a part of duty. The legislative change with the insertion of Section 2A in 2000, which included Modvat/Cenvat in the definition of 'duty', was not a reason to exclude Modvat credit from the definition of duty prior to this insertion. Therefore, the court rejected the argument that Modvat credit is not part of duty.3. Limitation period for filing refund claims under Section 11B:The Assistant Commissioner of Central Excise rejected the refund claim as it was filed beyond the six-month limitation period prescribed under Section 11B. The petitioner discovered the mutual mistake in November 1995 and filed the refund claim the same month. The court held that the limitation period should commence from the date of discovery of the mistake, applying the principle in Section 17 of the Limitation Act, which states that the period of limitation would not begin to run until the mistake is discovered. Since the mutual mistake was discovered in November 1995, the refund claim filed in the same month was within the limitation period.4. Equitable considerations and unjust enrichment in refund claims:The court considered whether there were any equitable considerations to deny the refund. It was undisputed that the Modvat credit was availed for inputs used in manufacturing goods for export, and thus, the burden of excise duty was not passed on to any other party. Therefore, there was no unjust enrichment by the petitioner. The court emphasized that just as the taxpayer should not be allowed to make unjust enrichment, the taxing authority should also not be permitted to make unjust gain. The Department's insistence on reversing the Modvat credit, despite the petitioner being entitled to it, constituted a mutual mistake. Thus, the court found no grounds to deny the refund based on equitable considerations.Conclusion:The court allowed the petition, setting aside the adverse order passed by the Assistant Commissioner of Central Excise. It directed the respondents to restore the Modvat credit of Rs. 41,18,212/- to the petitioner, either in cash or by adjustment towards future liability. The court made no order regarding interest on the refund claim and directed each party to bear their own costs.