1. The short point, calling for determination of this appeal, which was originally a revision petition before the Central Government, is as to whether the refund claim filed by the appellants has been rightly rejected by the lower authorities.
2. The facts, as indicated in the order as well as the grounds of appeal are that the appellants are manufacturers of rough die cast rotor cages, which are used for making rotors for electric motors. The appellants asserted that since these rotor cages manufactured by them could not be used directly in the rotor and were semifinished articles, they were not liable to pay excise duty under tariff Item 30(4) of the Central Excise Tariff (CET for short). However, the Department does not seem to have agreed with their contention and they started paying duty as demanded, under protest, with effect from 1972.
3. The dispute was eventually settled by an order passed in March 1975 by the then Collector of Central Excise, Bombay upholding the contention of the party to the effect, that the goods in question were not liable to excise duty. The Show Cause Notice issued on 8-8-1974 was thus withdrawn as a result of this adjudication; the only direction to the appellants being that they were obliged to operate under a licence, and ought to account for die cast rotor cages, on the basis of supplies to different firms so that duty payable on finished rotors could be recovered, specifically holding that there was no case for recovery of the amount alleged as short levied, or for penalisation of the firm as suggested in the Show Cause Notice.
4. The appellants claimed refund of the duty, paid during the period 3-7-1972 to 25-2-1975, basing their claim on the adjudication order of the Collector, holding their products to be nonexcisable.
5. This refund claim was rejected by the Assistant Collector by order dated 18-2-1977 on the view that since the parties to whom the goods were sold had availed of proforma credit to the extent of the duty paid by appellants, that was tantamount to refund of duty, and the claim of the appellants was not entertainable. On an appeal being filed to the Appellate Collector of Central Excise, Bombay, same view was reiterated except for the fact that appellants were held entitled to refund of the amount, to the extent that their customers had not availed of proforma credit on supplies made to them by the appellants, observing that the genuineness of the statement made by the appellants in this regard could be verified with reference to the accounts furnished by them to ascertain if any proforma credit was claimed and adjusted by such manufacturers. Excepting this modification in the Assistant Collector's order, the appeal was dismissed.
6. The appellants contend in this appeal, regarding rejection of their claim by the excise authorities below, that whatever duty was collected from them on die cast cages for rotors was not authorised under law and whole amount of duty was paid "under protest" that they were entitled to receive it back after Collector, Central Excise, Bombay had held in their favour to the effect that no central excise duty was recoverable from them. They plead that even the Appellate Collector had accepted that no duty was payable in this case, in terms of the order of the Collector dated 21-3-1975, but had erred in confirming the order of the Assistant Collector in rejecting refund of the duty in cases where the proforma credit against the duty paid by the appellants had already been given to their customers. They contend that appellants were not responsible for the mistake of the Central Excise Officers in giving proforma credit particularly when they had paid duty under protest asserting from the very beginning that no duty was leviable on their products. They also place reliance on Supreme Court judgment in case of Patel India (P) Ltd. v. Union of India, holding that duty recovered without authority of law is liable to be refunded to the party. They have also further pleaded that Rule 56A itself provides that in respect of duty, for which proforma credit had been allowed, varied subsequently due to any reason, that necessary adjustment can be made by the Department for recovery of amounts for which credit had been allowed earlier, and that in spite of this having been pointed out to the Assistant Collector, no action had been taken to recover the amounts from the parties, and the appellants have been penalised by rejecting their refund claim.
7. Shri D.M. Harish, Advocate, appearing for appellants reiterated the contentions, and took us through the order of the Collector of 31-3-1975 holding categorically that during the relevant period the goods were not liable to excise duty. He argued that refund claim was filed pursuant to this order of the Collector and that duty was undisputedly paid under protest and that provisions of Proviso to Rule 56A(2) of the Central Excise Rules explicitly provided for adjustment of duty amounts allowed erroneously by way of proforma credit, and even recovery thereof in cash in certain cases from the party concerned, who would be customers of the appellants in this case. He has urged that the Department ought to take recourse to these provisions and that there was no justification for rejection of the refund claim filed by the appellants, on the solitary ground that proforma credit having been availed of by the customers of the appellants, they were not entitled to refund of the duty paid.Shri H.L. Verma, Departmental representative, appearing for respondent, except for justifying the view taken by lower authorities and urging that the provisions of Rule 56A(2) do not cover such situation, had no particular arguments to offer.
8. We have given our careful thought to the matter. We find that there are certain uncontroverted facts in the case, namely, that the appellants had contended from the very beginning that duty was not payable on these goods and when compelled to pay the same, did so under protest. It is also established that the Collector of Central Excise, Bombay, by an adjudication order made in March 1975 upheld the contention of the appellants and categorically held that the products were not liable to pay excise duty. We find that claim for refund of duty, which was paid under protest, was made pursuant to this order of the Collector. The lower authorities also do not seem to be entertaining any doubt as to the entitlement of the appellants to this refund, claimed by them, on merits. The only reservation they have in this regard is, that the amount of duty having been adjusted by way of proforma credit, by the parties to whom goods were sold by appellants; the appellants were no more entitled to get back the amount.
9. We find that this view of the lower authorities is not sustainable because the very concept of the refund implies that it is available to the party who had paid a given amount, and which amount was not payable for whatsoever reason. The fact that some third party/parties have availed benefit, under some different dispensation, of the amount unduly recovered from the appellants could not be held as a ground to deny refund to the appellants, which on principle, has been recognised to be available to them. We find that the Appellate Collector was not right in holding that the provisions of Rule 56A, as cited by the appellants did not cover such situations because in our view the third proviso to Rule 56A(2) is in very clear terms, inasmuch as it contemplates ihat whenever duty paid on any material or component parts, is varied subsequently, due to any reason (emphasis supplied) and a refund is the result then the credit allowed under Rule 56A could be adjusted or even recovered in cash. The term variation would cover the cases of total cancellation of duty demand, which in this case, was by an order of adjudication at the level of the Collector of Central Excise and rather than having recourse to the provisions of Proviso to Rule 56A, the excise authorities unjustifiably denied refund due to the appellants.
10. In view of the above, we think it to be a fit case where the order of rejection of refund claim, deserves to be set aside. We order accordingly, and allow appeal of the appellants with consequential relief.
11. A claim for refund is admissible, among other reasons, not simply because the duty was paid when it need not have been paid, but also because the claimant has suffered a loss, and that the money had enriched the State beyond what was due to it. The State can be parted from that unearned money. [Cases of "undue enrichment" of the claimant are those in which the claimant takes duty from the customers, and refund from the State of money paid in excess to it].
12. The situation here is very different. The money is not with the State to be paid as refund. The claimant may have paid the money in excess, but he got it back from the customer and that customer took it from the revenue in 56A credits. Can we say that this claimant deserves the refund simply because he was the one who paid the excess money as duty We cannot. And what was excess money is no longer so-it has been paid out as 56A credit. The effect is that the excess has been returned to this claimant.
13. Refund must be made only from money received in excess of what is due to the state (compensation is not governed by this principle of revenue). Any money that is sought as refund by a citizen must, firstly, be shown to be excess money paid, and, secondly, payable under the law. This is why before refund is given, the revenue office verified that such money was, in fact, paid. To rephrase, only money paid in excess, and available, can be paid as refund. Such excess is not revenne, and if the claim is not affected by any disability, it must be paid.
14. For this reason, no refund can be paid from revenue. When a refund is paid, it is always paid from the excess. It follows that only excess can be refunded. If, because of the procedures of the law, that excess, as such excess, is returued to the public, the return having been made necessary because the payer of the excess recovered from his customer, the sum, which he paid as excess to the state, no refund can be paid to the payer of the excess because there is no longer any excess. Had there been no payment away to the public of the excess, there could be a case for refunding that excess, even if the payer of the excess had recovered it from his customer ; because in that case, the refund will be made from excess still available with the state.
15. In this case, that excess is no longer available, because when this claimant paid an excess to the state he compensated himself by recovering it from his customer, who in turn took away that money from the state as credit.
16. My order is that the refund can be given only of such money as has not been given as credit and this may be done. The refund for the rest deserves to be rejected.
17. The Appellate Collector's order is confirmed. The appeal is rejected.
18. In accordannce with the decision of majority, the order is set aside and the appeal allowed with consequential relief to the appellants.