Holding

The Tribunal’s finding that the contract price was inclusive of excise duty and that no unjust enrichment occurred is correct, and the refund of duty paid is warranted.

Summary

M/s. Panihati Rubber Ltd., a manufacturer of hose pipes supplied to Indian Railways, paid central excise duty under protest after the goods were classified under sub‑heading 4009.92 despite its claim that they should fall under 4009.99 with nil duty. The company sought a refund of the duty paid, but the excise authorities denied it on the ground of unjust enrichment, alleging that the duty had been passed on to the railway. The Customs, Excise & Gold (Control) Appellate Tribunal held that the contract price was inclusive of duty and that the duty burden was not transferred to the buyer, thereby allowing the refund; the Calcutta High Court affirmed this finding. On appeal, the Supreme Court examined whether the principle of unjust enrichment applied and whether it could disturb the Tribunal’s factual findings. It concluded that the Tribunal’s findings were based on proper material, the price indeed included duty, and no enrichment occurred, so the refund was warranted. Consequently, the Court dismissed the excise commissioner’s appeal, upholding the Tribunal’s order.

Issues considered

The applicability of the doctrine of unjust enrichment when the contract price is inclusive of excise duty and the duty is not passed on to the buyer.
Whether the Supreme Court may interfere with the factual findings of the Customs, Excise & Gold (Control) Appellate Tribunal.
Whether the price of the hose pipes supplied to Indian Railways included the excise duty.
Whether there was any collusion between the railway administration and the respondent affecting the refund claim.

Legislation cited

Central Excise Act, 1944s. 4(4)(d)
Constitution of Indias. Article 136

Subjects

Excise dutyRefundUnjust enrichmentGoods classificationContract price inclusive of dutyTribunal findings of factArticle 136

Judgment

COMMNR. OF CENTRAL EXCISE, CALCUTTA A
v.
M/S. PANIHA Tl RUBBER LTD.

SEPTEMBER 8, 2006

[S.B. SINHA AND DAL VEER BHANDARI, JJ.] B

Central Excise Act, 1944

Dispute regarding classification of goods for payment of excise duty-
Manufacturer depositing excise duty under protest-Contention of C
manufacturer upheld-Manufacturer seeking refund of excise duty paid--
Authorities rejecting claim for refand applying principle of unjust enrichment-
Whether claimant entitled to refund of excise duty paid-Held, principle of
unjust enrichment not attracted as price fixed under contract was inclusive
of excise duty and burden of excise duty not passed on to customers-Jn the D
facts, held, manufacturer entitled to refimd of excise duty.

Constitution of India, 1950-Article 136-/nterference with findings of
fact arrived at by Tribunal-Held, findings of fact by Tribunal should
ordinarily be accepted-Practice and procedure.
E
Respondent_ manufactures 'Hose Pipe' in terms of specifications of
· railway administration and supplies goods against specific contracts to Indian
Railways. Respondent used to pay 30% basic excise duty and 15% special
duty on the said goods under the Central Excise Act, 1944. The goods came
to be classified under Sub-Heading 4009.92. The said.classification was in
dispute as the respondent-manufacturers contended that goods were F
classifiable under Sub-Heading 4009.90. Respondent, however, obtained
clearance of goods on payment of duties under protest under classifiaction
4009.92. The lis ended in favour of the respondent. Applications filed by
respondent for refund of amount paid by way of excise duty was rejected by
the authorities opining that the same would amount to unjust enrichment. G
... Respondent preferred appeal before the Customs, Excise and Gold (Control)
Appellate Tribunal which was allowed and Tribunal directed refund holding
that the. bar of unjust enrichment was not attracted as price fixed under the
contract was inclusive of excise duty and burden of excise duty has not been
passed on to customers. High Court in reference upheld the findings of the
847 II
848 SUPREME COURT REPORTS (2006] SUPP. 5 S.C.R.

A Tribunal. Hence this appeal by the authorities.

Appellant contended that finding of fact arrived at by Tribunal is based
on no material; and that subsequent correspondence between respondent and
railway administration regarding contracts were issued in collusion and were
wholly irrelevant.
B
Respondent contended that this Court under Article 136 of the
Constitution of India should not interfere with findings of fact recorded by
Tribunal.

Dismissing the appeals the Court
c
HELD: 1. It is now well settled that despite levy of excise duty in a given
situation being held to be illegal, in the event it is found that the assessee in
fact passed on the burden of excise duty to its customers, applying the principle
of unjust enrichment, the Court would not ordinarily direct refund thereof.
(852-BJ
D
2.1. It is only during the pendency of the application filed by the
<O:"•
respondent for revising classification list, it received four orders from the
Railway Administration. The excise duty was specified as 'Nil' in the order
dated 10th May, 1993. So far as the order dated 6th April, 1993 is concerned,
no excise duty was specified. However, in the order dated 16th February, 1993
E a stipulation was made by the Railway Administration that the price was
inclusive of duty, with a view to avoid the claim made by the respondent at a
later stage on the ground that a duty had to be paid. It is also not in dispute
that clarifications were obtained by the respondent from the Railway
Administration specifically in this behalf. (852-F; 853-A-B)
F Mis. Rubber Products Ltd. v. Union of India, (1992) 43 ECR 520,
referred to.

2.2. If the price for supply of Hose Pipes in respect of the contract dated
10th May, 1993 being@ Rs. 48.65p. did not include the element of excise
duty, the same being 'Nil', the Tribunai may be correct in its opinion that the
G question of excise duty having been p11ssed by the respondent to the Railway
Administration would not arise. In respect of the other three orders, wherein
the rate quoted was Rs. 46.90p., Rs. 47.90p. and Rs. 48.65p. also the said
question would not arise as the rate included the element of excise duty.
(854-E-FJ
<4.
H Commissioner of Central Excise, Mumabi-11 v. Allied Photographies
COMMNR. OF CENTRAL EXCISE, CALCUTTA v. PANIHATI RUBBER LTD. [SINHA, J.] 849
>
India ltd., (2004) 4 SCC 34, distinguished. A
3. The question whether the excise duty had been passed on to the
consumer, however, is essentially a question of fact It is well settled that the
findings of fact arrived at by the Tribunal should ordinarily be accepted by
this Court. It is not the case of the appellant that while arriving at its finding
that the respondent had not passed the amount of excise duty, the Tribunal B
had not considered all relevant facts. The contention oftbe appellant herein
that the railway administration colluded with the respondent herein in issuing
letters and certificates is wholly misconceived and is rejected.
(S52-C; 855-D-EJ

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 3980 of2006. c
From the Judgment and Order dated 31. 7 .2003 of the High Court of
Calcutta in CEXA No. 5/200 I.

Hrish Chander, Anuvrat Shanna, Sanjay Kumar Singh and B. Krishna
Prasad for the Appellant. D
• K.V. Vishwanathan, Anil Agarwalla, Jagdeep Anand, Reshmee Ray, V.N.
Raghupathy, Rajeev Kumar Singh and Anup Kumar for the Respondent.

The Judgment of the Court was delivered by
E
S.B. SINHA, J. Leave granted.

The respondent, which is a Company incorporated and registered under
the Indian Companies Act, manufactures 'Hose Pipe'. It supplies goods
manufactured by it to the Indian Railways. The goods are manufactured in
terms of the specifications of the railway administration. Supplies are, however, F
made against specific contracts. The respondents used to µay 30% basic
excise duty and 15% special duty. The goods came to be classified under Sub-
Heading 4009.92. The said classification was in dispute. The contention of the
manufacturers was that it is classifiable under Sub-Heading 4009.99. The /is
ended in favour of the respondent. It, however, obtained clearance of the G
goods on payment of duties under protest as the products had been classified
under classification 4009.92. The respondent filed two applications for refund
of Rs.6.30 lakhs, which had already been paid by way of excise duty. The said
applications were rejected by the authorities under the Act (CentraJ Excfae
and Salt Act, 1944) opining that the same would amount to unjust enrichment.
H
850 SUPREME. COURT REPORTS [2006] SUPP. 5 S.C.R.

A The respondent preferred an appeal before the Customs, Excise & Gold
(Control) Appellate Tribunal, which was registered as Appeal No.E/R-79/98.
The question, which arose before the Tribunal, was : "As to whether the
goods supplied to the railway administration included the element of excise
duty?" The Tribunal for determining the issue went through the
correspondences exchanged by and between the contracting parties, as also
B the certificate issued by the railway administration and held : -~·
{_
"I have perused the records and considered the rival submissions.
According to the contract, the prices were inclusive of excise duty.
'
The subsequent letter from the railways indicated that no amount was ~

provided towards excise duty while pricing was ~vorked out. One letter
c specifically stated "E.D.-Nil". This would suggest that the price fixed
under the contract did not provide for an element towards the Central
Excise duty."

While arriving at the said finding, the Tribunal relied upon its own
judgment in Cimm co Lid. v. Collector of Central Excise, Jaipur, (1999) 107
D
EL T 246 (Tribunal), wherein it was held :
•
"We have given careful consideration to the rival submissions.
The clue to the problem in this case lies in a proper understanding
of the provisions in the work order particularly with reference to the
E rates. There is an apparent conflict in what is stated in different parts
of the schedule of rates. Thus, as against a note that the rates are
inclusive of all duties, taxes and to and fro handling charges in one
place there is another remark regarding the rates unde,r the caption
~
condition of contract which is more elaborate than the earlier referred
to sentence. This rea~s as follows :
F
(I) Rates

The rates are inclusive of all materials, labour, equipment, lifts,
leads, Sales tax, octroi required in connection with completion of work
to the entire satisfaction of the Corporation. All the materials are to
G be supplied by the Contractor unless otherwise stated.

(2) Rates shall be valid till the entire work is I 00% complete, and
no escalation will be cot:isidered at any stage."

An application for reference was filed by the appellant herein before the
Calcutta High Court. The Tribunal was directed to refer to the High Court the
~ .....
H
COMMNR. OF CENTRAL EXCISE, CALCUTTA''· PANIHATI RUBBER LTD. [SINHA, J.] 851
)
following questions:

"(i) Whether or not the bar of unjust enrichment will be attracted in
a case where duty has been passed on to the buyer of goods not
separately as duty but by inclusion in the price as one component of
the same?
B
(ii) Whether the Learned Tribunal was justified in holding that the bar
of unjust enrichment would not be attracted when the price is inclusive
of duties and taxes following the case of CIMMCO ltd. reported in
1999 (I 07) EL T 246 (Tribunal)?

(iii) Whether the Hon'ble Tribunal was justified in passing the order C
ignoring the principles of law laid down in the case of Mafatlal
Industries reported in 1997 (89) ELT 247 (SC) and the findings of the
department indicated in the order in original?"

The High Court, by its impugned judgment, affirmed the findings of the
Tribunal, holding : D
"Having regard to the definite view expressed by the learned
Tribunal that the bar cf unjust enrichment was not attracted in the
instant case the questions as framed in our view do not require any
answer since we agree that having paid the excise duty under protest
and there being a subsequent finding that no excise duty was payable E
in respect of the goods, the respondent company was entitled to
refund and there was no question of unjust enrichment in the instant
case."

Mr. Harish Chander, learned Senior Counsel appearing on behalf of the
appellant submitted that - F
(i) The Tribunal and consequently, the High Court committed an error
in passing the impugned judgment in so far as they failed to take into
consideration that the question, 'As to whether the price included excise duty
or not?', was a comprehensible one, having regard to the terms of the contract.

(ii) Subsequent correspondence by and between the respondent and
the railway administration were wholly irrelevant.

Mr. K.V. Vishwanathan, learned counsel appearing on behalf of the
respondent, on the other hand, contended -
H
852 SUPREME COURT REPORTS [2006] SUPP. 5 S.C.R.
(,
A (i) The findings of the Tribunal being findings of fact, this Court should
not interfere therewith.

(ii) The question as to whether the assessee has passed on the element
of excise duty to its customers, being essentially question of fact, this Court
may not exercise its jurisdiction under Article 136 of the Constitution of India.
B
It is now well settled that despite levy of excise duty in a given situation
being held to be illegal, in the event it is found that the assessee in fact
passed on the burden of excise duty to its customers, applying the principle
of unjust enrichment, the Court would not ordinarily direct refund thereof.

c The question whether the excise duty had been passed on to the
consumer, however, is essentially a question of fact. It is not in dispute that
prior to 1993 goods were being classified under the Sub-Heading 4009.92 of
the Schedule appended to the Central Excise Tariff Act, 1985 attracting @ 30%
advalorem as basic excise duty and 15% as special basic duty. It is furthermore
not in dispute that the Bombay High Court in the case of Mis. Rubber
D
Products ltd. v. Union of India, reported in (1992) 43 ECR 520 held :

"The duty was recovered from the Company on the basis that the • >
product manufactured attracts sub··heading 4009 .92 of the Tariff and
that was the basis of order passed by the Assistant Collector. The
E order of the Assistant Collector was set aside by the Appellate
Collector and it was ordered that the duty is payable under sub-
heading 4009.99 of the Tariff. The order of the Appellate Collector has
acquired finality and, therefore, excess duty recovered by the
Department is liable to be refunded."

F In this case also, the respondent had, in view of the decision rendered
by the excise authorities as affirmed by the High Court in Mis. Rubber
Products Ltd. (supra), filed a revbed classification list. It is only during the
pendency of the said application it received. four orders from the Railway
Administration. The prices fixed for the goods were as under :

·G "Order Date Price per unit

16.02.1993 Rs. 48.90 p.
18.02.1993 Rs. 46.90 p.

06.04.1993 Rs. 47.90 p.
~~
H
COMMNR. OF CENTRAL EXCISE. CALCUTTA v. PANIHATI RUBBER LTD. [SINHA, J.) 853
)
10.05.1993 Rs. 48.65 p." A
The excise duty was specified as 'Nil' in the order dated I0th May, 1993.
So far as the order dated 6th April, 1993 is concerned, no excise duty was
specified. However, in the order dated 16th February, 1993 a stipulation was
made by the Railway Administration that the price was inclusive of duty, with
a view to avoid the claim made by the respondent at a later stage on the B
ground that a duty had to be paid. It is also not in dispute that clarifications
were obtained by the respondent from the Railway Administration specifically
in this behalf. The railway administration by its letter stated :
"Assistant Controller Controller of Stores
Central Excise Department N.Rly. c
Khardah Division ~onda House
4, Barabourne Road New Delhi.
Calcutta-700 001
Sub: This Office Purchase order of07938759l 01595 Dt. 10.5.93 for the
supply of Hose Pipe VB-504/M Fix I0.000.
D
Ref: Firn1 Letter No.BPE/Sales/M2 (I 9-D-11-7-0 I) .
••
This Office Purchase order 07923259101595 dated I 0-5-93 for the
supply of Hose Pipe VB-504/M@ Rs. 48.65 each and 4/CST-E.DC Nil
Spare copy of the same enclosed for your ready reference :-
E
Sd/- Illegible
For Controller of Stores"

A certificate was also issued by the Railway Administration on 26.9. I 994
stating :
F
"This is to certify that Mis. BAJORIA RUBBER fNDUSTRIES
LIMITED, CALCUTTA had supplied the full quantity of7,000 Nos. of
Vaccum Hose Pipe VB-504/M at Rs.48.90 each (inclusive of Excise
Duty) plus CST 4%. It is confirmed that the firm has supplied the
materials at the ordered ·rate and payment has been arranged at
contracted rate which w~s always payable irrespective of the Central G
Excise Duty rate being NIL or otherwise. No separate payment has
been arranged for actual CED."

In a letter dated 18. 7.1995, the Eastern Railway Administration furthermore
contended as under :
H

• l
854 SUPREME COURT REPORTS [2006] SUPP. 5 S.C.R.
<
A "To Dated 18.7.95.
The Assistant Collector
Central Excise
Khardah Division,
4, Braboune Road,
B Calcutta-70000 t.
(
Dear Sir,

Sub: Purchase from Mis. Bajoria Rubber Industries Ltd. 27, Bentinck
Street Calcutta- I.
c Ref: Letter No. i) Case No. V{l 8)KDH/BRU/94/ 2600 dt. 21.6.95.

ii) Case No.V{l8) IKDH/BRU/ 94/57 dt. 4.1.95.

In case of Purchase order No.11198/23/4/1/81288 dated 4.93, the
rate was Rs.47.90 each and WBST @4.6% extra, Ex. duty not mentioned
D in the said P/O payment was made to the diem as purchasers of the
P/O.

In case of P.O. No. 11/93/2313/1/78290 dated 18.2.93, the rate was
Rs. 46.90 each inclusive of Excise duty and WBST @ 4.6% extra.
Payment made accordingly."
E
If the price for supply of Hose Pipes in respect of the contract dated
I 0th May, 1993 being@ Rs. 48.65p. did not jnclude the element of excise duty,
the same being 'Nil', the Tribunal may be correct in its opinion that the
question of excise duty having been passed by the respondent to the Railway
F Administration would not arise. In respect of the other three orders, wherein
the rates quoted was Rs.46.90p., Rs.47.90p. and Rs.48.65p. also the said ,.
question would not arise as the rate included the element of excise duty.

The respondents, in our opinion, rightly contended that as the Central
Excise Authorities were unwilling to accept the classification under the Sub-
G Heading 4009.99 with 'Nil' rate of duty, they had no other option but to clear
the said goods upon payment of duty under protest, wherein they were
required to compute the value in terms of Section 4(4)(d) of the Central Excise
Act, 1944.

The respondent, in his counter affidavit, categorically stated :
H
COMMNR. OF CENTRAL EXCISE, CALCUTIAv. PANIHATI RUBBER LTD. [SINHA, J.) 855
)
" ..... According to the said provision, the value on which duty was A
payable did not include the amount of excise duty payable.
Accordingly, though the contract price did not include any amount on
account of duty, the respondent had to deduct from the contract price
the amount of duty it was required by the Central Excise Authorities
to pay undei sub-heading No. 4009.92 in ord~r to arrive at the value
and the amount paid under protest was worked out accordingly. In the B
Central Excise gate-passes in form No. GP-I and the Central Excise
price-lists filed under rule l 73C of the Central Excise Rules, 1944
(hereinafter referred to as "the Rules"), the respondent mentioned the
assessable value and duty in accordance with the provisions of Section
4(4)(d)(ii) by breaking up the contract price although the same did not C
include any amount on account of excise duty. In the invoices raised
on the Railways, the respondent mentioned the contract-price without
any break-up. In this connection, specimen copies of excise gate-
passes in form GP-1 and corresponding invoices raised on the Railways
are annexed hereto and collectively marked "D"."
D
It is well settled that the findings of fact arrived at by the Tribunal
should ordinarily be accepted by this Court. It is not the case of the appellant
that while arriving at its finding that the respondent had not passed the
amount of excise duty, the Tribunal had not considered all relevant facts. The
contention of the appellant herein that the railway administration colluded
with the respondent herein in issuing the aforementioned letters and certain E
certificate is, in our considered opinion, wholly misconceived. We have no
hesitation to reject the same.

Our attention has been drawn to a decision of this Court in Commissioner
of Central Excise, Mumbai-II v. Allied Photographies India Ltd., [2004] 4 F
SCC 34, wherein this Court opined that the doctrine of unjust enrichment
. would be attracted, although, the duty might have been paid under protest.
In that case the manufacturer has passed on the burden of duty to the
distributor. The question, therefore, which fell for consideration was : "Whether
the distributor in tum passed on a duty burden to its dealers?" It was in the
said factual matrix held : G
" ..... .It is important to _note that M/s AGIL was the sole distributor of
NHL. Therefore, it is highly improbable for a distributor to incur cost
of purchase which included 20% element of duty in addition to the
purchase price without passing on the burden to its dealers. From the
H
856 SUPREME COURT REPORTS [2006] SUPP. 5 S.C.R.
<.
A record it appears that during the disputed period 1974 to 1984, Mis
AGIL was in trading which further supports the above improbability.
In the present case, there is no material placed on record by Mis AGIL
as to how it had accounted for the cost of purchase in its books and
the accounting treatment it gave to the said item at the time of
payment of the purchase price. No record as to costing of that item
B has been produced. This material was relevant as in the present case
Nill conceded that it had passed on the burden of duty to its (
distributor Mis A(;IL (buyer) and it was the buyer who claimed
refund. It has been urged on behalf of the respondent and which
argument has been accepted by the authorities below that 20% of the
c total price paid by Mis AGIL to NIIL represented total excess excise
duty levied and not the excess duty collected by NIIL in the form of
sale price from its distributor Mis NllL. It was argued that excess duty
collected by NIIL represented only 1.62% of the total price. It was
argued that resale price charged by M/s AGIL to its dealers had no
relevance to excess excise duty paid by Mis AGIL to NIIL at the time
D of purchase as the sale price charged by Mis AGIL to its dealers was
based on the prevailing market price. We do not find any merit in this
argument. Jn the present case, the refund claim is made by a buyer
and not b~ the manufacturer. The buyer says that he has not passed
on the burden to its dealers. The buyer has bought the goods from
E the manufacturer paying the p1m:hase price which included cost of
purchase plus taxes and duties on the date of purchase. In such
cases, cost of purchase to the buyer is a relevant factor. None of the
authorities below have looked into this aspect. Even the Appellate
Tribunal has not gone into this relevant factor. It has merely quoted
the passages from the order of the lower authority, whose ord~r was
F impugned before it. Costing of the goods in the hands of the distributor,
the cost element and the treatment given to purchases by the buyer J.
in his own account were relevant circumstances which the authorities
below failed to examine. It was submitted that cost of purchase was
not a relevant factor. It was submitted on behalf of the respondent
that the resale price charged by the buyer was not a relevant factor.
G
It \!!fas submitted that since the sale price of the goods before and
after the assessment remained the same, the burden of excess duty
was absorbed by the respondent. It was submitted that in any event
the sale price of the goods increased much less than the amount of

H
duty (differential) involved in this case and, therefore, incidence of
•
)
COMMNR. OF CENTRAL EXCISE, CALCUTTA v. PAN IHA TI RUBBER LTD. [SINHA, J) 857

duty was not passed on to the consumers." A
The said decision, therefore, was rendered on its own facts. We, however,
as noticed hereinbefore, are not in a position to agree with the contention of
the appellant that the finding of fact arrived at by the tribunal. is based on
no material.
B
There is, thus, no merit in this appeal. It is accordingly dismissed. The
appellant is directed to comply with the Tribunal's order within four weeks
from today. The appellant shall bear the costs of the respondent which is
assessed at Rs.10,000/-.

A.K.T. Appeal dismissed. C

••