Central Excises Act (1 of 1944)‑‑

‑‑‑‑S.3‑D‑‑‑Central Excise Rules, 1944, R.11‑‑‑Production capacity (Aerated Water) Rules, 1990, R.7A(i)‑‑‑Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.9‑‑‑Collection of excess duty, etc.‑‑‑Refund of‑‑‑Claim for refund of excess charged excise duty paid under the Production Capacity Rules, 1990 in view of High Court judgment‑‑‑Department contended that refund claim was barred by limitation as it was filed after one year from the date of High Court judgment and refund was also not admissible under S.3‑D of the Central Excises Act, 1944 as the incidence to tax had been passed on to the consumers‑‑‑Validity‑‑‑Section 3‑D of Central Excises Act, 1944 contemplates that every person, who had collected or collects any duty under misapprehension of any provision of the Act or which was not payable as duty or which was in excess of duty actually payable, was bound to pay the amount so collected to the Federal Government provided the incidence of same had been passed on to the consumer‑‑ Any person collecting any duty incidence of which had been passed on to the consumer could not retain the duty so collected and he was duty bound‑to deposit the same in the Government Treasury‑‑‑Burden of proof of passing the incidence of such duty to the consumer shall be on the person collecting the duty‑‑‑Complainant was not the collecting agent nor the person who had collected any duty, in fact it had paid duty in excess to the Federal Government which was being claimed as refund‑‑‑If the department chose to press the objection that the incidence of duty had passed on the consumer, the burden of proof shall be on the department to establish the same‑‑‑Stand that similar matter in the cases of two other beverage companies was sub judice was no ground to reject the complaint or stay the proceedings for recovery of refunds already paid‑‑ Federal Tax Ombudsman recommended that Central Board of Revenue should direct the concerned Collector of Sale Tax & Central Excise to decide the refund claim within thirty days.

Muhammad Usman, Consultant.

G. M. Farooq, Secretary and Chief Accountant.

Imtiaz Ahmad Shaikh, Deputy Collector, Sales Tax and Central Excise (West), Karachi.

FINDINGS/DECISION

The complaint relates to the claim for refund excise duty Rs.21,203,118 excess charged and paid during the period 1990‑91 to 1993‑94 When the Complainants' company worked under the Production Capacity Rules. The complainants have stated that they have been trying for the last 6 years for refund of the excess duty paid with the Sales Tax and Central Excise Department but without success. The Honourable Lahore High Court had passed order on 7‑7‑1993 allowing the Constitutional petition of Seven‑Up Bottling Company, Lahore, and in view of the said judgment their claim for refund deserved to be considered favourably.

2. The Collector of Sales Tax and Central Excise (West) replied to the complaint that the refund claim was barred by limitation as it was filed on 20‑10‑1994 whereas the Lahore High Court decided the case on 7‑7‑1993. Under rule 11 of the Central Excise Rules the refund claim could be lodged within one year. The refund was also not admissible under section 3‑D of Central Excises Act as the incidence of tax had been passed on to the consumers. The Supreme Court had held in several judgments that the manufacturers were the agents of the Federal Government, they collected taxes and duties from the purchasers and deposited into the Federal Treasury and their function ended. Similar matter relating to the case of Messrs Pakistan Beverages and Messrs Mehran Bottlers was subjudice before the Honourable Supreme Court wherein leave had been granted to the Department. The refund of duty was not admissible in view of section 3‑D of the Central Excises Act read with rule 11 of Central Excise Rules and the complaint be dismissed as inadmissible.

3. Mr. Muhammad Usman, Consultant, attended hearing on behalf of the complainants. He invited attention to the Lahore High Court ruling, 1994 CLC 994, that

"Rule 11 does not apply to a case where the amount of tax is paid under a mistake of law or fact of compulsion. ‑‑‑Rule 11‑of Central Excise Rules does not apply to a 'case where the amount of tax is paid under a mistake of law or fact or under compulsion; that the claim of refund of any amount realized without any authority of law, if is not barred by any specific statutory provision enforceable in law... " and,

"The examination of these judgments show that rule 11 of Central Excise Rules does not apply to a‑case where the amount of tax is paid under a mistake of law of fact or under compulsion; that the claim of refund of any amount realized without any authority of law, if is not blip red by any specific statutory provision enforceable in law..."

4. He stated that excise duty on aerated beverages was leviable on actual production before 1‑7‑1990. Under the new scheme, if a manufacturer had paid higher amount, of duty in the previous year, he would pay the higher amount in future notwithstanding that duty worked out on the basis of its capacity was less. Rule 7A(i) of the Capacity Rules was struck down by Lahore High Court acid Department's appeal was dismissed by the Supreme Court. After Lahore High Court judgment, the complainants applied for refund of the excess amount paid.

The refund of excise duty was not barred by rule 11 of Central Excise Rules which related to refund of duty paid through inadvertence, error or misconstruction. It did not apply to a case where duty was charged and recovered under a mistake of law. "The refund was claimable under Article 96 of the First Schedule of the Limitations Act within three years from the date of becoming aware of the mistake".

5. The learned Consultant stated that the Supreme Court had also decided in the case of Pfizer Laboratories that when Excise Duty not leviable was charged, the limitation of one year under rule 11 was not applicable. The claim was also not hit by the section 3‑D of Central Excises Act as this section stipulated tax on goods. But under the capacity system, the tax wa4 leviable on plant and machinery in lieu of duty on actual production. It was not possible to pass on such fixed tax to the consumers. In a case of similar nature, the Appellate Tribunal had remarked in its order dated 9‑6‑1999 that the proviso to rule 7 of the Excise Duty on the Production Capacity (Aerated Waters) Rules, 1990 had been declared to be without law authority. This decision of the Tribunal was also applicable to this case. He stated that the refund application was pending in the Sales Tax Office since 1994 but no action had been taken.

6. The Department's representative admitted that in the case of Seven‑Up Bottling Co., the Supreme Court had given a decision that rule 7A (i) of the Capacity Rules was ultra vires of the Constitution. The Seven Up Bottling Co. had already received refund on the basis of the order of the Lahore High Court and an Intra‑Court Appeal against this order filed by the department was dismissed. Supreme Court also dismissed the Department's appeal. When Pakistan Beverages and Mehran Bottlers applied for refund, it was rejected by the department on the basis of section 3D of Central Excises Act, 1944. Their writ petitions before the Lahore High Court were disposed of in terms of the decision of the Lahore High Court's abovementioned order, upheld by the Supreme Court, in case of Seven‑Up Bottling Co. The refund was allowed to both Pakistan Beverages and Mehran Bottlers. However, the department went in appeal to the Supreme Court who suspended the order of the Lahore High Court.

7. It has been established that the provisions of rule. 7A(i) of the Production Capacity (Aerated Water) Rules, .1990, has been struck down by the Supreme Court. As a result of this order the complainant was justified in filing claim for refund in 1994. The department has failed to decide the claim since then which is clearly a case of maladministration. The department's argument that the refund claim is barred by time under rule 11 of Central Excise Rules cannot be upheld. As the duty was not leviable under law the question of bar of limitation does not arise. This finds support from the judgments of the Supreme Court of Pakistan and High Court referred above.

8. So, far the objection regarding passing of incidence of duty to the consumers is concerned it is pertinent to note that section 3‑D of Central Excises Act contemplates that every person who has collected or collects any duty under misapprehension of any provision of the Act or which is not payable as duty or which is in the excess of duty actually payable is bound to pay the amount so collected to the Federal Government provided the incidence of which has been passed on to the consumer. It, therefore, follows that any person collecting any duty as stated above incidence of which has been passed on to the consumer cannot retain the duty so collected and he is duty bound to deposit the same in the Government Treasury. The burden of proof of passing of the incidence of such duty or that it has not been passed on to the consumer shall be on the person collecting the duty. In this case the complainant is' not the collecting agent nor the person who has collected any duty. In fact it has paid duty in excess to the Federal Government which is being claimed as refund. In these circumstances if the department chooses to process in to the objection that the incidence of duty has been passed on the consumer, the burden of proof shall be on the department to establish it.

8. The stand that similar matter in the cases of two other beverage companies is sub judice is no ground to reject the complaint or stay the proceeding for recovery of refunds already paid.

9. It is recommended that CBR direct the Collector of Sales Tax and Central Excise (West):

(i) to decide the refund claim within thirty days; and

(ii) report compliance within seven days thereafter.

C.M.A./M.A.K./439/FTO Order accordingly.