2005 (7) TMI 16 - HC - Central Excise

Court rules insecticide exempt from duty, grants refund with interest. Unauthorized order annulled. Respondents directed to pay promptly.

BOMBAY CHEMICALS LTD. Versus UNION OF INDIA

The court ruled in favor of the petitioners, confirming their product as an insecticide exempt from excise duty. The petitioners were granted a refund of ... Central Excise – The audit cell did not give any hearing to affected parties before finalization of its order thereby depriving them for their rights under the refund order (2) Judical/quasi-judical order (3) Binding effect (4) Government Department (5) Interest (6) Refund Issues Involved:1. Classification of the product as insecticide and its exemption from excise duty.2. Refund claims submitted by the petitioners for excise duty paid.3. Legality of the Assistant Collector's order dated 22nd March 1995.4. Validity of the subsequent order dated 12th October 1995 by the Assistant Commissioner reversing the earlier order.5. Entitlement of the petitioners to the refund amount and interest.Issue-wise Detailed Analysis:1. Classification of the Product as Insecticide and Its Exemption from Excise Duty:The petitioners, holders of Central Excise Registration for manufacturing 'Toys, Brand Mosquito Coils,' claimed that their product fell under the definition of insecticides, classified under Tariff Item No. 68, and was eligible for exemption under various Notifications. The Assistant Collector allowed the exemption, but the Collector Central Excise (Appeals) disallowed it. The petitioners challenged this before the CEGAT, which ruled in their favor, classifying the product as an insecticide. The Department's appeal to the Supreme Court was dismissed, confirming that the product was an insecticide and exempt from excise duty.2. Refund Claims Submitted by the Petitioners for Excise Duty Paid:The petitioners submitted 15 refund claims for the period from 27th September 1979 to 28th February 1994, totaling Rs. 13,17,34,703.65. The Assistant Collector sanctioned a refund of Rs. 67,79,284.95 for the duty paid from 27th September 1979 to 31st December 1983, concluding that the duty was not passed on to the customers. However, he determined that the duty paid from 1st January 1984 to 28th February 1994 was passed on to customers and thus, refundable only to the Consumer Welfare Fund under Section 12C.3. Legality of the Assistant Collector's Order Dated 22nd March 1995:The petitioners argued that the order dated 22nd March 1995, which sanctioned part of the refund, had become final and binding as the Department did not challenge it through an appeal or revision. They contended that the subsequent order dated 12th October 1995 by the Assistant Commissioner, reversing the earlier order without a hearing, was illegal and non-est.4. Validity of the Subsequent Order Dated 12th October 1995 by the Assistant Commissioner:The Respondents claimed that the order dated 22nd March 1995 was a draft subject to pre-audit and not a final order. They argued that the petitioners were not entitled to any refund as the duty incidence was passed on to the customers. The court, however, found that the order dated 22nd March 1995 was indeed signed and final, making the pre-audit and subsequent reversal by the Assistant Commissioner unauthorized and illegal. The court emphasized that quasi-judicial orders, once signed, are final and binding, independent of communication to the concerned parties.5. Entitlement of the Petitioners to the Refund Amount and Interest:The court held that the order dated 22nd March 1995 was final and binding, and the pre-audit procedure was illegal. The petitioners were entitled to the refund amount of Rs. 67,79,285.94 with interest at 9% per annum from 22nd March 1998 until the date of payment, due to the deprivation caused by the illegal order of the Assistant Commissioner dated 12th October 1995.Conclusion:The court ruled in favor of the petitioners, declaring the order dated 12th October 1995 as non-est and restoring the order dated 22nd March 1995. The respondents were directed to make the refund payment with interest within four weeks. The writ petition succeeded, and the rule was made absolute in terms of the petitioners' prayers. No order as to costs was made.