1. JUDGMENT: MR. SARFRAZ AHMAD KHAN, MEMBER (TECHNICAL).--(1). This appeal is directed against order-in- appeal No, 895/99, dated 06.11.99 passed by Collector, Central Excise and Sales Tax (Appeals-II), Lahore where under the appellants appeal filed against order-in-original No, 72/99, dated 17.3.99 passed by the Additional Collector Central Excise (Adjudication), Lahore was rejected. Earlier the Additional Collector Central Excise (Adjudication) in her order-in-original No, 72/99 had ordered the appellants to pay an amount of Rs, 5328750/- which was not found admissible as refund to the appellants in view of the provisions of Section 3-D of the Central Excises Act, 1944.
2. 2.The events which led to the present appeal are that the appellants manufactured 7-UP brand of aerated water. They opted to pay central excise duty on the basis of the excise duty on Production Capacity (Aerated Waters) Rules, 1990 issued vide S.R.O. 507(1)/90, dated 7.6.90. The said rules were issued under Section 3(4) of the Central Excises Act, 1944 for collection of central excise duty on the basis of filling valves or spouts installed by the manufacturers of aerated waters and the same were in lieu of collecting central excise duty under sub-section (1) of Section 3 ibid (on the basis of actual production/clearance). Rule 6 of the said Capacity Rules prescribed the rate of duty per filling valve/spout per financial year. Rule 7 of the said Capacity. Rules, as amended vide SRO 701(1)/90, dated 2.7.90 and SRO 559(1)/91, dated 16.6.91, prescribed that all the filling machines/valves/spouts installed in the factory would be taken into account for purposes of calculating the liability of central excise duty regardless of the fact whether any valve/spout was in working condition or not. A Proviso was added to the said Rule 7 which laid down "that in the case of manufacturers who have paid higher amount of excise duty and sales tax on the aerated waters during the financial year 1989-90 than that worked out under Rule 6, such higher amount shall be levied". The appellants fell in the said category and hence they were required to pay central excise duty on the basis of the said Proviso to Rule 7. The appellants kept on paying central excise duty accordingy, but challenged the same in the Lahore High Court which in its judgment in writ petition No, 245/92 declared the said Proviso to Rule 7 of the Capacity Rules as ultra vires. The department went into Intra Court Appeal which was also rejected vide ICA No, 594/93, dated 11.12.93. The department went into appeal ,vide Civil Appeal No, 20/94 in the Supreme Court of Pakistan which was dismissed on 4.2.96, reported as 1996 SCM R 700. While the department's appeal was still pending in the Hon'ble Supreme Court of Pakistan the department moved C.M. petition No, 411 and 469 of 1994 in Civil Appeal No, 20/94 for staying the operation of the Hon'ble High Court's orders.
3. Vide its interim orders the Hon'ble Supreme Court did not stay the operation of the impugned judgment of the Hon'ble High Court and also did not grant the status quo. Rather the Hon'ble Supreme Court ordered that the amount paid in question could be adjusted to the dues subject to the result of the appeal. The appellants moved local central excise authorities for the refund of Rs, 65076212/-paid in excess in terms of the Proviso to Rule 7 of the Capacity Rules. The appellants filed contempt proceedings against concerned central excise authorities in the Hon'ble Lahore High Court vide Criminal Original No, 363-W/94 wherein the Hon'ble High Court ordered the central excise authorities to dispose of the refund claim of the appellants within 60 days. Superintendent, Central Excise Circle, Gulberg addressed a letter to the appellants on 14.11.94 asking them to submit TR-41 for refund/adjustment of the amount in the light of the Hon'ble Supreme Court's orders dated 31.10.94. On 16.11.94 the Superintendent withdrew his earlier letter dated 14.11.94 and informed the appellants that TR-41 was not needed and the adjustment could be made in the light of the Hon'ble Supreme Court's orders. The Superintendent, Central Excise addressed a third letter to the appellants on . 27.11.94 informing that the Deputy Collector, Central Excise had been pleased to order adjustment of Rs, 58462642/- in the account current of the appellants. Superintendent Central Excise addressed fourth letter to the appellants on 5.12.94 intimating that the earlier letter dated 27.11.94 stood partially modified and the adjustment of the said amount would be provisional subject to final decision by the Hon'ble Supreme Court. Subsequently a show cause notice was issued to the appellants on 15.12.98 which culminated in passing of the order-in-original No, 72/99, dated 9.3.99 by the Additional Collector, Central Excise (Adjudication), ordering the appellants to pay Rs, 5328750/-which were not permissible as refund after the coming into the operation of Section 3-D of the Central Excises Act, 1944 since the incidence of duty had been passed on to the consumers.
4. 3.The learned counsel for the appellants emphasized on the following issues to justify the appellant's case:-- (i)The Hon'ble Supreme Court of Pakistan vide its judgment in Civil Appeal No, 20/94, dated 4.2.96 agreed with the Hon'ble Lahore High Court's judgment in writ petition No, 245/92 where under the Proviso to Rule 7 of the Capacity Rules was declared ultra vires. The department filed review petition No, 19/96 which was also dismissed by the Hon'ble Supreme Court vide its judgment dated 29.10.98. Thereafter there was no justification with the respondents to press into service the provisions of Section 3-D of the Central Excises Act, 1944 for acting in violation of the orders of the Hon'ble Supreme Court of Pakistan.
5. (ii)Show cause notice was issued on 15.12.98 and the period involved is 1.7.93 onwards. There was no charge of fraud, forgery or mis-declaration on the part of the appellants and hence only the provision of sub-rule (1) of Rule 10 of the Central Excise Rules, 1944 could be pressed into service and the time limitation for demanding the amount was one year. Thus the show cause notice dated 15.12.98 was time barred. All proceedings based thereon were void.
(iii) The appellants paid central excise duty on production capacity basis and hence the ground for ordering them to pay the amount in question due to the incidence of duty having been passed on to the consumers is incorrect. This reason could be applied only if the appellants had paid central excise duty on the basis of actual production/ clearance. Hence the provisions of Section 3-D of the Central Excises Act, 1944 were not applicable.
6. 4.The learned D.R. and the Counsel appearing on behalf of the respondents vehemently opposed the contentions of the learned Counsel for the appellants on the following grounds:-- (i)The Hon'ble Supreme Court of Pakistan vide its orders dated 29.10.98 in Civil Review Petition No, 19/96, in Civil Appeal No, 20/94 ordered as under:-- "The learned counsel for the petitioners has vehemently contended that as a result of insertion of Section 3-D in the Act, any amount of excise duty, received by the manufacturers, burden whereof has been passed on to the consumers, can not be refunded or adjusted. Since this contention was neither noticed in the judgment of the learned single judge nor in the decision of the I.C.A. Bench and this Court also gave no decision in the impugned judgment, we would not like to express any opinion on this judgment. The parties are free to take such steps as are open to them under the law in this behalf. No ground for review is made out. This review petition stands dismissed accordingly".
7. Since the implication of the Section 3-D of the Central Excises Act, 1944 had not been takeninto consideration either at the level of the Hon'ble High Court Or at the level of Hon'ble Supreme Court's, the Hon'ble Supreme Court observed that. it "would not like to express any opinion on this controversy" and let the parties "to take such steps as are open to them under the law in this behalf". This means that the respondents were not barred from recovering from the appellants the amount which was not due to them w,e,f, 1.7.93 due to operation of Section 3-D of the Central Excises Act, 1944.
8. (ii)The Superintendent Central. Excise Gulberg Circle vide his letter dated 05.12.94 informed the appellants that the adjustment allowed vide their earlier letter dated 27.11.94 was provisional and would be subject to final decision of the Hon'ble Supreme Court of Pakistan. The adjustment being provisional, the time limitation of Rule 10(1) of the Central Excise Rules, 1944 would not apply. The final decision of the Hon'ble Supreme Court of Pakistan with regard to the operation of Section 3-D of the Central Excises Act, 1944 was that the parties were "free to take such steps as are open to them under the law in this behalf". That being so neither the show cause notice was time barred and nor the respondents orders for recovery of the amount in question were in violation of the orders of the Hon'ble Supreme Court of Pakistan, which had not passed any orders with reference to Section 3-D ibid. (iii)Central excise duty was an indirect tax and whether collected on the production capacity basis or on actual clearance basis, its nature remains the same and it is always included in the price of the product and thus gets passed on to the consumers. Collection of central excise duty either on Production Capacity basis or actual clearance basis just reflected the mode of collection and payment but its nature as central excise duty remained the same under either of the prescribed modes.
(iv) The impugned order has been correctly passed and therefore the appeal May be rejected.
5. We have considered contentions of both the sides and perused the appeal files before us The adjudicating officer in the operative part of her order-in-original No, 72/99 dated 17.3.99. ordered the appellants to pay Rs, 5328750/- "which was not admissible as refund m view of the provisions of Section 3-D of the Central Excises Act. 1944 and which is liable to be recovered" from the appellants. The Collector Appeals Lahore also rejected the appeal of the appellants vide order-in- appeal No, 895/99 dated 6.11.99 on the ground that the refund was not admissible in view of the coming into force of Section 3-D of the Central Excises Act, 1944 w,e,f, 01.11.93. It is evident that the core issue in the case is the interpretation of Section 3-D of the Central Excises Act, 1944 and its applicability to the appellant's case. The said Section 3-D ibid is reproduced below:-- 3-D. Collection of excess duty, etc.--(1) Every person who has collected or collects any duty, whether under misapprehension of any provision of this Act or otherwise, which is not payable as duty or which is in excess of the duty actually payable and the incidence of which has been passed on to the consumer, shall pay the amount so collected to the Federal Government.
9. (2)Any amount payable to the Federal Government under sub- section (1) shall be deemed to be an arrears of duty payable under this Act and shall be recoverable accordingly and no claim for refund in respect of such amount shall be admissible.
10. (3)The burden of proof that the incidence of such duty has not been, or is not, passed on to the consumer shall be on the person collecting the duty".
11. 6.Sub-section (1) of Section 3-D encompasses the following situation:--
(a) Every person who has collected or collects any duty whether under:--
(i) misapprehension of any provision of the Central Excises Act; or
(ii) otherwise; (b)The central excise duty is not payable or which is paid in excess than actually payable;
(c) And the incidence of such duty has been passed on to the consumers; and
(d) Such collected amount of duty shall be payable to the Federal Government.
12. From the above it is evident that passing of incidence to the consumers is only with reference to that duty which has been collected due to misapprehension of any provision of the Central Excises Act or otherwise (due to any other reason) but that duty was otherwise not actually payable or was paid in excess than actually payable. The scenario in the present case is that when the appellants collected and paid central excise duty in the light of the Proviso to Rule 7 of the Excise Duty on Production Capacity (Aerated Waters) Rules, 1990, that was the legal position operative at that point of time. There was no misapprehension of any provision of the Central Excises Act or any other reason and it would be incorrect to presume that duty was actually not payable at that point of time. The appellants collected and paid the duty in compliance with the Proviso to Rule 7 of the said Capacity Rules. Here it is deemed fit to clarify that levy and collection of central excise duty either on actual production/clearance basis (in terms of sub-section (1) of Section 3 ibid) or on the basis of production capacity of the plant/ machinery installed by the producer/manufacturer (in terms of sub-section (4) of Section 3 ibid) just refer to the alternate modes of collection and payment of central excise duty without changing its nature as a levy.
13. Central excise duty being an, indirect tax always gets passed on to the final consumer and it is a futile attempt to enter into any controversy, argumentation or disputation on this account. Before the Hon'ble Lahore High Court passed its judgment in writ petition No, 245/92 by declaring the Proviso to Rule 7 of the said Capacity Rules ultra vires and which orders were ultimately confirmed by the Hon'ble Supreme Court of Pakistan on 4.2.96 in Civil Appeal No, 20/94, the collection and payment of central excise duty was the requirement of the said legal provision at that point of time. The criteria of the incidence of duty having been passed on to the consumers would apply only to that duty which was collected due to misapprehension of any provision of the Central Excises Act, 1944 or otherwise (due to any other reason) but that duty was not payable or it was paid in excess than actually payable. This is abundantly clear from the explicit provisions of sub- section (1) of Section 3-D ibid that the central excise duty in question collected by the appellants and paid to the government exchequer did not fall in the category of the central excise duty having been collected due to misapprehension of any provision of the Central Excises Act or otherwise (due to any other reason) and the same was actually not due/not payable. That being so, the criteria of the incidence of the duty having been passed on to 'the consumers does not apply here and the appellants case falls out of scope of section 3-D ibid. Reluctantly the findings of the 'adjudicating officer in order-in-original No 72/99, dated 17.3.99 and that of the Collector (Appeals), Lahore order-in-appeal No 895/99, dated 6.11.99 for ordering the appellants to 'pay the amount already received by them as refund/adjustment by pressing into service the provisions of Section 3-D of the Central Excises Act, 1944 w,e,f, 1993 onward are found incorrect and a result of misreading/misinterpretation of the provisions of Section 3-D ibid. Reluctantly the impugned orders are set aside and the appeal is accepted.