Holding

Section 11B does not apply to bank guarantees as they are security, not payment, and therefore no refund is due.

Summary

The appellants, Oswal Agro Mills Ltd. and another, paid 50% of the assessed excise duty and furnished bank guarantees for the remaining 50% under interim Supreme Court orders. After the Supreme Court allowed their appeal on the classification of toilet soap, the appellants sought a refund of the duty and the bank guarantees, but the excise authorities refused, invoking Section 11B of the Central Excises and Salt Act. The High Court directed the authorities to dispose of the refund claim and to extend the bank guarantees, a direction the Supreme Court later set aside. In a review petition, the Court examined whether a bank guarantee constitutes payment of excise duty for purposes of Section 11B. It held that a bank guarantee is merely security and not a payment, so Section 11B does not apply and there is no right to refund the guarantee amount. Consequently, the respondents were ordered to repay the amount encashed from the bank guarantees to the bank. The review petition was dismissed.

Issues considered

Whether Section 11B of the Central Excises and Salt Act, 1944 applies to bank guarantees furnished as security for disputed excise duty
Whether a bank guarantee can be treated as payment of excise duty for the purpose of claiming a refund under Section 11B
Whether the High Court could direct the renewal of bank guarantees in a writ petition concerning refund
Whether the excise authorities are required to refund amounts collected upon encashment of bank guarantees

Legislation cited

Central Excises and Salt Act, 1944s. 11B

Subjects

excise dutyrefundbank guaranteeSection 11BCentral Excises and Salt Actreview petitionhigh court directiontax security

Judgment

A OSWAL AGRO MILLS LTD. AND ANR.
v.
ASSTT. COLLECTOR OF CENTRAL EXCISE DIVISION
LUDHIAN'A AND ORS.

FEBRUARY 4, 1994
B
[YOGESHWAR DAYAL AND S.P. BHARUCHA, JJ.]

Central Excises and Salt Act, 1944: Section llB-Excise duty-Refund
of-Furnishing of Bank Guaranto.e on Court's order towards disputed Excise
•
c duty-Whether amounts to payment of Excise duty-Meaning and intent of
Section J JB-Applicability of the provision.

Pursuant to interim orders passed by this Court in the appeals filed
by the appellants against a decision of CEGAT, regarding the classification
of toilet soap for the purposes of excise duty, 50% of the excise duty was
D paid by the appellants to the excise authorities and bank guarantees were
furnished for the balance 50%. Though the appeals were allowed by this ~

Court, the question of the refund of the money deposited by the appellants
was left to be dealt with by the authorities concerned in accordance with
law.
E
' On their failure to get a positive response to their refund applica-
tion, the appellants filed a writ petition before the High Court seeking its
expeditious disposal. The High Court issued a direction to the excise
authorities to dispose of the claim of the appellants for 'refund/release of -4._
F bank guarantees' within one month, and also directed the appellants to
have the bank guarantees extended till the final disposal of the claim for
refund. Against this order, a s'pecial leave petition was filed, and the appeal
was allowed by this Court and the Respondents No. 1 and 2 were directed
to refund the monies recovered by them in the meantime from the Bank
upon encashment of the bank guarantees. Against this, the present review
G petition was filed in this Court.

On behalf of the respondents 1 and 2 in the appeal, it was submitted -~

that the provisions of Section llB of the Central Excises and Salt Act, 1944
were attracted to the bank guarantees in question; that the bank guaran-
H tees, furnished under the interim orders of this Court as a condition of
650
OSWAL AGRO MILLS v. ASSTI. COLLECTOR OF CENfRAL EXCISE DIV. 651

stay of recovery of excise duty from the appellants, should be deemed to A
·be equivalent to monies deposited in Court; and, therefore, it was for the
appellants to establish before the excise authorities that they had not
passed on the incidence thereof to their customers; and that, since the
appellants had failed to establish this, the excise authorities were entitled
to encash the bank guarantees and retain the amounts thereof.
B
Disposing of the matters, this Court

·-" HELD: 1. Section llB of the Central Excises and Salt Act, 1944
applies when an assessee claims refund of excise duty. A claim for refund
is a claim for repayment. It presupposes that the amount of the excise duty C
"bas been paid over to the excise authorities. [655-B]

2.1. The bank guarantee is security for the Revenue that, in the event
the Revenue succeeds, its dues will be recoverable, being backed by the
guarantee of a bank. In the event, however unlikely, of the bank refusing
to honour its guarantee it would be necessary for the Revenue or, where D
the bank guarantee is in favour of the principal administrative officer of
the Court, that officer tD file a suit against the bank for the amount due
upon the bank guarantee. The amount of the disputed tax or duty that is
secured by a bank guarantee cannot, therefore, be held to be paid to the
Revenue. There is no question of its refund, and Section llB is not
attracted. (655-F-H] E
2.2. In the instant case, the bank guarantees given by the appellants
were not properly the subject matter of the writ petition bl.fore the High
Conn and the High Court was in error in dir~cting the appellants to renew
the same. The 1st and 2nd respondents should forthwith re-pay to the
Bank the amount collected upon the bank guarantees. [656-A, B] F
Union of India v. Jain Spinners Ltd., (1992) 61 E.L.T. 321 S.C.,
distinguished.

CIVIL APPELLATE JURISDICTION: J.A. No. 3of1993.
G
IN

Civil Appeal No. 7236 of 1993.

From the Judgment and Order dated 18.10.1993 of the Punjab and
Haryana High Court in C.W.P. No. 10379 of 1993. H
652 SUPREME COURT REPORTS . [1994] 1 S.C.R. ·

A AND

Review Petition No. 17 in CA No. 7236/1993.

Harish N. Salve, Rajiv Dutta and Vipin Nari for the Appellants.

B D.S. Mahra for the Respondents.

A.K. Ganguli, V.K. Verma and V.J. Francis for the Respondent/
(U.0.1.).

The following Order of the Court was delivered :
c 1. This is a review petition filed by respondents 1 and 2 in S.L.P. (C)
No. 18175/1993. By our order dated 26th November, 1993, we granted
special leave and, having heard the appeal, we allowed it and directed
respondents 1 and 2 to refund the monies recovered by them from the State
D Bank of Patia1a upon certain bank guarantees.

2. The appellants had fi1ed an earlier appeal in this Court against a
decision of CEGAT regarding the classification of toilet soap for the
purposes of excise duty. Interim orders were passed in the appeal whereby
stay of recovery of excise duty pursuant to the impugned order of CEGAT
E was granted on condition that 50% thereof was paid by the appellants to
the excise authorities within 3 months and for the balance 50% the appel-
lants furnished bank guarantees. The appeal was, ultimately, allowed. This
Court then stated that it "did not propose to go into the question of the
refund as it is matter to be dealt with by the authorities concerned in
F accordance with law. The appellants shall have to apply for refund and the
authorities shall be required to deal with it in accordance with the law. It
is for the authorities, therefore, to decide the question as per law".

3. Accordingly, on 14th May, 1993 the appellants wrote to the 1st
respondent and requested him "to refund the amount and the bank guaran-
G tees deposited from time to time under Supreme Court of India's interim
orders during the p;.,ndency of the above-referred appeals". Since, in their
view, the. refund application was not being dealt with, the appellants filed
a writ petition on 27th August, 1993 before the High Court of Punjab and
Haryana seeking its expeditious qisposal. On 18th October, 1993 the High
H Court issued a direction to the excise authorities to dispose of the claim of
OSWALAGROMILLS v. ASSIT. COLLECTOROFCENI'RALEXCISEDIV. 653

"'- the appellants for "refund/release of bank guarantees" within one month. A
The High Court directed the appellants to have the bank guarantees
extended till the final disposal of the claim for refund. Against this order
of the High Court the special leave petition afore-mentioned was filed, on
which leave to appeal was granted and the appeal was allowed by the order
of which review is now sought. B

4. The excise authorities passed an order on 15th November 1993
holding that the amount deposited by the appellants in court and
withdrawn by the excise authorities and the amounts covered by the bank
guarantees furnished by the appellants pursuant to the interim orders of C
this Court were not r~fundable to the appellants having regard to the
provisions of section llB of the Central Excises and Salt Act, 1944. The
bank guarantees not having been renewed, the 1st respondent then issued
upon the bank a demand, pursuant to which the bank guarantees were
encashed on 17th November, 1993. By our order of 26th November, 1993,
allowing the civil appeal as afore-stated, we held that the direction issued D
by the High Court in regard to the extension of the bank guarantees was
bad because the bank gt2Mantees were not the subject matter of the
application for refund pending before the excise authorities. Once this
court had decided the earlier appeal against the excise authorities they did
not have the power to get the bank guarantees encashed. Accordingly, we E
directed the excise authorities to repay the amounts collected upan the
bank guarantees to the bank. ·

5. Section llB of the Act provides that "a person claiming refund of
any duty of excise may make an application for refund of such duty to the F
Assistant Collector of Central Excise before the expiry of six months from
the relevant date and in such form as may be prescribed and the applica-
tion shall be accompanied by such documentary or other evidence as the
applicant may furnish to establish that the amount of duty of excise in
relation to which such refund is claimed was collected from or paid by him G
and the incidence of such duty had not been passed on by him to any other
person".

6. Mr. A.K. Ganguli, learned counsel for respondents 1 and 2 sub-
mitted that the provisions of section llB were attracted to the bank H
654 SUPREME COURT REPORTS [1994] 1 S.C.R.

A guarantees in question; that the bank guarantees, furnished under the
interim orders of this Court as a condition of stay of recovery of excise dut.Y
from the appellants, should be deemed to be equivalent to monies
deposited in Court; that, therefore, it was for the appellants to establish
before the excise authorities that they had not passed on the incidence
the.reof to their customers; and that, since the appellants had failed to
B establish this, the excise authorities were entitled to encash the bank
guarantees and retain the amounts thereof.

7. Mr. Ganguli relied upon the judgment of this Court in Union of
India v. Jain Spinners Ltd., (1992) 61 E.L.T. 321 S.C. This was a case in
C which the High Court had, on a writ petition filed·by the assessee, granted
interim stay of collection of a demand of excise duty on condition that the
assessee deposited in court stated sums and for further cleaiances gave
bank guarantees for the amounts of the disputed duty. By a subsequent
order the excise authorities were permitted to withdraw the amounts
D depsited by the assessee in court. The writ petition filed by the assessee
scucceeded, and it applied to the High Court for refund of the amounts
which had been deposited by it and which had been withdrawn by the
excise authorities. The High Court allowed the application. The excise
authorities filed an appe_al in this .Court ag!liflst th~ High Court's order.
E This Court held that under the provisions of the Act a duty was cast upon
the Assistant Collector of Excise to consider the question. It could not be
disputed that the amount which was deposited by the assessee in the High
Court and was withdrawn by the excise authorities was towards the exci<;e
duty which was assessed. The provisions of section llB were attracted and A ..
the assessee was not entitled to take advantage of the order by which the
F deposit had been made unless it succeeded in showing to the statutory
authorities that it had not passed on the whole or any part of the duty in
quest.ion to others. This Court said that if the contentions advanced by
counsel for the assessee were accepted it would defeat the amended
provisions of the Act. It would then be open to assessees to obtain orders
G from the courts, as had happened in the case before it, and, instead of
paying the assessed amount of duty to the authorities, deposit it in court
and raise the plea that what it had deposited in court was not duty and the
assessee was entitled to get a refund, either directly from the court or, if
it had been withdrawn, from the authorities, notwithstat)ding that it had
H passed on the duty to others.
)
OSWAL AGRO MILLS v. ASSIT. COLLECTOR OF CENfRAL EXCISE DIV. 655

8. The judgment in the case of Jain Spinners applies to a case where A
excise duty has been deposited in court purrnant to an interim order and
has been withdrawn by the excise authorities. In such a case, clearly, the
assessee had to make an application for refund and to such a case,
therefore, the provisions of section llB squarely apply.
B
- 9. Section llB applies when an assessee claims refund of excise duty.
A claim for refund is a claim for repayment. It presupposes that the amount
of the excise duty has been paid over to the excise authorities. It is then
that the excise authorities would be required to repay or refund the excise
duty.
c
10. The question, therefore, is whether it can be said that the fur-
nishing of a bank guarantee for all or part of the disputed excise duty
pursuant to an order of the court is equivalent to payment of the amount
of the excise duty. In our view, the answer is in the negative. For the
purposes of securing the Revenue in the event of the Revenue succeeding D
in proceedings before a Court, the Court, as a condition of staying the
demand for the disputed tax or duty, imposes a condition that the assessee
shall provide a bank guarantee for the full amount of such tax or duty or
part thereof. The bank guarantee is required to be given either in favour
of the principal administrative officer of the Court or in favour of the
concerned Revenue authority. In the event that the Revenue fails in the E
proceedings before the Court the question of payment of the tax of duty,
the amount of which is covered by the bank guarantee, does not arise and,
ordinarily, the Court, at the conclusion of its order, directs that the bank
guarantee shall stand discharged. Where the Revenue succeeds the amount
of the tax or duty becomes payable by the assessee to the Revenue and it F
is open to the Revenue to invoke the bank guarantee and demand payment
thereon. The bank guarantee is security for the Revenue, that in the event
the Revenue succeeds its dues will be recoverable, being backed by the
guarantee of a bank. In the event, however unlikely, of the bank refusing
to honour its guarantee it would be necessary for the Revenue or, where
the bank guarantee is in favour of the principal administrative officer of G
the Court, that officer to file a suit against the bank for the amount due
upon the bank guarantee. The amount of the disputed tax or duty that is
secured by a bank guarantee cannot, therefore, be held to be paid to the
Revenue, There is no question of its refund, and Section llB is not
attracted. H
656 SUPREME COURT REPORTS (1994) 1 S.C.R.

A 11. We find, therefore, no merit in the review petition. We reiterate
our finding that the bank guarantees given by the appellants were not
properly the subject matter of the writ petition before the High Court and
the High Court was in error indirecting the appellants to renew the same.
We reiterate our direction to the 1st and 2nd respondents forthwith to
re-pay to the State Bank of Patiala, Overaseas Branch, Millar Gang,
B Ludhiana, the amount of Rs. 1,18,00,000 collected upon the bank guaran-
tees within two weeks.

12. The review petition is dismissed. The 1st and 2nd respondents
shall pay to the appellants costs quantified in the sum of Rs. 5,000.
c This order will also dispose of IA. No. 3 in the appeal.

N.P.V. Petitions disposed of.