Messrs ADAMJEE INSURANCE COMPANY LTD. through Executive Director (Finance) VS COLLECTOR OF CUSTOMS, SALES TAX AND CENTRAL EXCISE (ADJUDICATION) KARACHI-III, KARACHI
2007 P T D 2
[Karachi High Court]
Before Muhammad Mujeebullah Siddiqui and Faisal Arab, JJ
Messrs ADAMJEE INSURANCE COMPANY LTD. through Executive Director (Finance)
Versus
COLLECTOR OF CUSTOMS, SALES TAX AND CENTRAL EXCISE (ADJUDICATION) KARACHI-III, KARACHI
Special Customs Appeal No. 202 of 2003, decided on 26/09/2006.
(a) Central Excise Act (I of 1944)---
----S.3-D---Central Excise Rules, 1944, Rr.10 & 96ZZF---Limitation Act (IX of 1908), S.10 & Art.145---Premium received by Insurance Company from insured persons---Company charged excise duty on entire premium without first deducting therefrom agents' pay, commissions and discounts---Non-deposit of such wrongly charged excise duty in treasury---Show cause to company for recovery of such wrongly charged excise duty---Limitation---Nature of obligation under S.3-A of Central Excise Act, 1944, was not excise duty, but an amount collected wrongly/ erroneously as excise duty, which could not be termed as short levied or erroneously refunded excise duty---Period of limitation as provided under R.10 of Central Excise Rules, 1944 for short levied or erroneously refunded excise duty would not apply to proceedings initiated for 'recovery of amount under S.3-D of Central Excise Act, 1944-Person collecting amount under S.3-D of the Act would be holding same in trust for Federal Government---Holder of such amount would be regarded either as "depository" as provided in Art.145 of Limitation Act, 1908 or "trust" within meaning of S.10 thereof---Insurance Company was holding such excess recovered amount in trust for depositing same with Federal Government---Status of Insurance Company was more of an express trust as envisaged in S.10 of the Limitation Act, 1908 than of a depository as provided in Art.145 thereof---Right to recover such excess charged amount would accrue the moment such fact became known to Excise " Authority---No period of time would bar recovery of such amount---Principles.
Lala Gobind Prasad v. Chairman of Patna Municipality Calcutta Law Journal (Volume (VI) at page 535; Deputy Custodian of Enemy Property v. Karachi Electric Supply Corporation (KESC) PLD 1975 Kar. 121; Kishtappa Chetty v. Lakshmi Animal AIR 1923 Mad. 578 and ILR 62 Calcutta 393 rel.
(b) Administration of justice---
----Quoting wrong provision of law and/or rules---Effect---Such error would be regarded as a technical error and would be of no legal consequence---Principles.
(c) Words and phrases---
----"Deposit" and "depository"---Meaning.
Corpus Juris Secundum, Vol. 26-A, pp. 198 and 206 ref.
(d) Central Excise Act (I of 1944)---
----S.3-D [as inserted by Finance Act (X of 1993)]---Provision of S.3-D of Central Excise Act, 1944---Retrospective effect---Word "collects" as used in S.3-D of the Act would refer to present and future collections, while words "has collected" as used therein would refer to past collections---Legislature by using both such words intended to cover amounts collected in the name of excise duty either before or after insertion of such provision in the Act by Finance Act, 1993---Principles.
Sirajul Haq and Arshad Siraj for Appellant.
Raja M. Iqbal for Respondent.
Date of hearing: 31st August, 2006.
JUDGMENT
FAISAL ARAB, J.---Under Rule 96ZZF of Central Excise Rules, 1944, as applicable at the relevant time, insurance companies were required to pay excise duty on the premiums that they have received from an insured person. As the insurance companies also pay commissions and discounts to its agents on such premiums, they were allowed to first deduct `the element of agents' commissions and discounts from the premiums and then compute excise duty on the balance premium amount. This method of computing excise duty was permissible under the law uptill 30-6-1995. Thus excise duty was chargeable during the period in question i.e. from 1990 to 1995 on that part of the premium amount which remained after deduction of agents' commissions and discounts and not on the entire collection of the premiums.
Sometime in the year 2002, it came to the knowledge of the Excise Authorities that several insurance companies have wrongly charged excise duty on the entire premium amount, without first deducting from it agents' commissions and discounts and retained with them the excess amount thus charged. Upon receiving such information Excise Authorities scrutinized appellant's balance sheets. Thereupon it was revealed that during the years 1990 to 1995, the appellant charged excise duty on the entire premium amount without first deducting from it agents' commissions and discounts. Having overcharged in such manner, the appellant did not deposit the excess amount with the treasury. In this manner, the appellant retained with itself the amount, which it charged in excess of the actual liability of excise duty. After such detection, the Excise Authorities on 2-1-2002 served show-cause notice on the appellant for recovery of the amount wrongly charged by the appellant in the name of excise duty along with additional duties and penalties.
Before the Excise Authorities, the appellant did not controvert this fact of overcharging and retaining the excess amount with itself. However, it contested the show-cause notice on the ground that (i) the disputed amount related to the years 1990 to 1995 whereas the show cause has been issued in the year 2002 and therefore the demand was clearly barred by time prescribed in rule 10 of the Central Excise Rules and (ii) there was no legal justification to issue show-cause notice under section 3-D for the period prior to 30-6-1993 as the said provision was inserted in the Act on 30-6-1993 under Finance Act, 1993.
The Collector of Excise vide his order dated 30-3-2002 held that the appellant was liable to pay a sum of Rs.12,141,010 which was wrongly charged as excise duty on agents' commission and discounts and deliberately retained with itself. The appellant-was also required to pay additional tax till the recovery of the entire amount wrongly retained by it. The appellant preferred appeal before the Customs, Sales Tax and Central Excise Tribunal, Karachi, which was dismissed vide order dated 21-4-2003. Therefore the appellant preferred the present appeal before this Court.
Mr. Sirajul Haque, learned counsel for the appellant argued that the impugned demand was made for the first time in the year 2002 in relation to the periods 1990 to 1995 and therefore the said demand was patently barred under the law.
As the impugned demand arose under the provisions of section 3-D of the Central Excise Act, 1944, therefore, before the period of limitation as provided for recovery of excise duty in the Act is applied, it is to be first examined whether the impugned demand can be regarded as evaded excise duty or is it some other obligation independent of excise duty though emanating from the provisions of Central Excise Act, 1944. In order to examine this, it is necessary to examine the provisions of section 3 as well as section 3-D of the Central Excise Act, 1944.
Excise duty is levied on all excisable goods and services in the manner provided in section 3 of the Central Excise Act, 1944. Section 3-D of the Central Excise Act on the other hand creates an obligation on a person to pay to the Federal Government any amount, which he has recovered from his client or customer in the name of excise duty but in reality was not chargeable as excise duty. Thus, the levy of excise duty under section 3 is purely `excise duty' whereas the obligation arising under section 3-D is not definable as `excise duty' but is something, which has been wrongly or erroneously collected in the name of excise duty and retained by an assessee. Since the recovery of this excess amount can neither be defined as short levied excise duty nor as erroneously refunded excise duty, which are the only two situations for recovery of evaded excise duty mentioned in Rule 10 of the Central Excise Rules, the amount recoverable under section 3-D by no stretch of imagination could be termed as `excise duty'.
As the impugned show-cause notice did not arise under the provisions of section 3 but under section 3-D, the provisions of Rule 10 of Central Excise Rules prescribing the period of limitation for recovery of short levied or erroneously refunded excise duty shall not ipso facto become applicable for initiating proceedings for recovery of the amount under the provisions of section 3-D, though the machinery and manner of its recovery provided in the Act is the same as prescribed for recovery of excise duty. Mere mention of Rule 10(2) of the Central Excise Rules in the show-cause notice is of no legal consequence. Quoting wrong provision of the law and/or the rules have always been regarded as a technical error and does not vitiate any proceedings so long the object and substance of the action taken in a show-cause notice is clearly discernable from its text.
There is no specific period of limitation prescribed in the Central Excise Act for recovery of the obligation arising under section 3-D. The period of limitation for its recovery therefore has to be examined, keeping in view the provisions of general law of limitation. As already discussed above, the nature of the obligation in question is not excise duty but a different obligation created under section 3-D, this obligation can easily by defined as an amount belonging to the Federal Government lying in trust with the person who has collected the same in the name of excise duty. When this amount is held in trust on behalf of the Federal Government, then the person holding the same is either to be defined as depository within the meaning and scope of the word `depository' as provided in Article 145 of the second schedule to the Limitation Act or the holder of the amount is to be regarded as a `trust' within the meaning of section 10 of the Limitation Act. In order to ascertain this, it would be worthwhile to examine the terms `depository' as well as the 'trust'.
The terms `deposit' and `depository' have been defined in Corpus Juris Secundum, Volume 26-A at page 198:
"The term "deposit" is borrowed from the civil law, and is a word of large and varied significance. In the technical legal sense a deposit is a naked bailment of goods, to be kept for the depositor without reward, and to be returned when the shall require it; and the term "depositum" a term used in the civil and common law, is given the same meaning. The term "deposit" is also used to denote the thing deposited.
A depository is the person receiving a deposit and the term "special depository" has been held to mean merely a bailee whose possession is the possession of this principal."
At page 206 of the same volume of Corpus Juris Secundum, the rights and duties of a depository are stated as follows:---
"A depository is bound to deliver the res to the depositor or his representative, or to his order, except where, as stated infra, delivery to a third person is authorized. Any delivery made pursuant to the terms of a deposit relieves the depository from further liability; but a mis delivery of the res or its destruction renders the depository liable therefore, unless he has a sufficient excuse for his failure to deliver properly."
In the case of Lala Gobind Prasad v. Chairman of Patna Municipality reported in Calcutta Law Journal (Volume (VI) at page 535, it was held that where Government securities or a sum of money is delivered to be held for the performance of some engagement and upon the express or implied understanding that the thing deposited is to be restored to the owner as soon as the engagement is fulfilled, the person with whom the deposit has been made may rightly be treated as depository within the meaning of Article 145 of the second schedule of the Limitation Act.
On the other hand section 10 of the Limitation Act provides that where a property has become vested in a person in trust for specific purpose, no suit for its recovery against such person shall be barred by any length of time.
In the case of Deputy Custodian of Enemy Property v. Karachi Electric Supply Corporation (KESC) reported in PLD 1975 Kar. 21, KESC had unauthorizedly altered its share register by changing the address of the original shareholder, a company in Bombay to that of its Karachi office. The Bombay Company filed suit, which was finally dismissed by the Supreme Court because shares were vested in Custodian of Enemy Property (CEP). During proceedings KESC continued to give dividend warrants in the name of Bank of India Ltd., Karachi instead of Bombay and the same were returned unrealized by Karachi branch. When the Bombay Company tried to recover the outstanding dividend warrants in respect of these shares, KESC? refused to do so on the grounds that the same was time-barred. However, this Court held that KESC was holding these unpaid dividends in trust for a specific purpose namely correction in share register of property name which was the Bombay Company. Each of the dividend warrants was returned by Karachi office to KESC for correction in the name of the correct shareholder being the Bombay Company. The KESC was thereby regarded as an express trustee of unpaid dividends for the Bombay Company, which it held in trust for a specific purpose. Referring to Indian judgments i.e. Kishtappa Chetty v. Lakshmi Aminal reported in AIR 1923 Mad. 578 and the other in ILR 62 Calcutta 393, the Court interpreted the meaning of the word "vested" under section 10 of the Limitation Act as nothing more than having "control of the property" while the word "specific purpose" were defined as an obligation to apply the money for the benefit of another person. Hence, this Court held that the suit couldn't be treated as barred by limitation as provisions of section 10 of the Limitation Act are attracted to the case.
In the present case it is an admitted position that the appellant recovered an amount in the name of excise duty which was in fact in excess of the obligation towards excise duty. Under section 3-D of the Central Excise Act, the appellant was obligated to deposit this excess amount with the Federal Government, which it failed to do, and retained the excess recovered amount with itself. Thus the appellant was holding this excess recovered amount in trust for a specific purpose created under section 3-D of the Central Excise Act i.e. for depositing it with the Federal Government. In our view therefore, the status of the appellant is more of an express trust as envisaged in section 10 of the Limitation Act than of a depository as provided in Article 145 of the second schedule of the Limitation Act, which prescribes a period of 30 years.
The factum of recovery of excess amount may come to light several years later but the moment such fact becomes known to the Excise Authorities, the right to recover such amount accrues. In the year 2002 for the first time it becomes known to the Excise Authorities that excess amount has been recovered and retained by the appellant in the name of excise duty. As the amount was lying in trust, which was created under the express provisions of section 3-D of the Central Excise Act, the same principles as are applicable to express trusts created under section 10 of the Limitation Act would apply and no period of time would bar recovery of such amount.
Mr. Sirajul Haque, learned counsel for the appellant next argued that demand was raised on the basis of section 3-D of the Central Excise Act, which was inserted through amendments made on 30-6-1993 and therefore there was no legal justification to demand any sum under section 3-D for the periods prior to 30-6-1993.
Section 3-D starts with the words "Every person who has collected or collects any duty...". The word `collects' refers to present and future collections whereas the words `has collected' refer to past collections. If the argument that section 3-D shall be made applicable only to collections made from the date when section 3-D was inserted in the Act is accepted, then, the words `has collected' would become redundant as the word `collects' is clear enough to cover all collections made on the date when section 3-D was inserted in the Central Excise' Act i.e. on 30-6-1993 and onwards.
Redundancy cannot be attributed to any provision of the Central Excise Act unless it is irreconcilable with any other provision of the said Act. Thus, the context in which the words `has collected' have been used along with the word 'collects' it becomes clear that the legislature intended to cover such amounts also which have been collected in the name of excise duty even prior to the insertion of section 3-D. Therefore, the argument of Mr. Sirajul Haque that provisions of section 3-D of the Central Excise Act have no application to the period which is prior to the insertion of section 3-D is not tenable.
In view of the above discussion, we find no merit in this Appeal which is dismissed. However, there shall be no order as to costs.
S.A.K./A-122/KAppeal dismissed.