R.C. Tobacco (P) Ltd. and Ano. v. Union of India & Ano.

#3. The appellant in WA 19/2011 filed WP(C) 4398/2003 challenging Section 1 54 of the Finance Act, 2003. In that writ petition, interim protection was gran ted vide order dated 13.6.2003 restraining the respondents from recovering the r efund of excise duty in terms of Section 154 of the Finance Act, 2003. The said writ petition was transferred to the Apex Court and was dismissed vide order dat ed 19.9.2005, reported in (2005) 7 SCC 725 (R.C.Tobacco (P) Ltd. and Ano. Vs. Un ion of India & Ano.). As a consequence, the impugned demand notice was issued to the appellants. The appellants having returned the principal amount, dispute su rvived qua interest only. It is not clear as to when the appellants returned the amount. We are, thus, concerned only with the question whether no interest was payable on principle being returned irrespective of the date when the same was r eturned. Aggrieved by the demand of interest, the appellants again approached th is Court by way of writ petitions giving rise to these appeals mainly with the c ontention that the appellants having returned the principal amount of refund gra nted to them, they were not liable to pay any interest, particularly when the ap pellants had stay in their favour till the judgment of the Hon’ble Supreme Court .

#4. Learned Single Judge did not accept this contention. It was held that th e appellants were liable to pay interest as per the provisions of the Finance Ac t, 2003. In view of judgment of Hon’ble Supreme Court upholding the statutory pr ovision relating to the said liability in the case of the appellant itself, the contention raised was not open to be gone into. Mere grant of stay, pending cons ideration of issue, did not affect the liability.

#5. We have heard learned counsel for the parties. Learned counsel for the appellants submitted that even if the retrospect 6. ive withdrawal of exemption was upheld, the issue of liability to pay interest a s per the amending statutory provision was an independent issue. Since the taxin g statute was required to be construed strictly and different expressions had be en used under Section 154(4) of the Finance Act, 2003, such as, ’recoverable’ an d ’payable’, the expression ’payable’ being applicable to those who had not paid the amount, the expression recoverable could not include interest. Learned Sing le Judge wrongly held that stay granted to the appellants did not affect their t ax liability.

#7. We are unable to accept this submission. We are clearly of the view that under Section 154(4) liability of the appellants will be same as it would have been but for the exemption. Once exemption was retrospectively withdrawn, which has been duly upheld, the parties are governed by the principle of restitution. The appellants are liable to place the revenue in the same position in which it would have been but for exemption. Same is position qua the plea of stay. An uns uccessful litigant cannot be allowed to enjoy the fruits of interim order. Before we advert to the principle of restitution, it would be appropriat 8. e to reproduce the statutory provision in question i.e. Section 154 of the Finan ce Act, 2003:- (cid:28)154. Amendment of notifications issued under Section 5-A of the Central Excise Act.- (1) The notifications of the Government of India in the Ministry of Finance (Dep artment of Revenue) Nos. G.S.R. 508(E) dated 8-7-1999 and G.S.R. 509(E), dated 8 -7-1999, issued under sub-section (1) of Section 5-A of the Central Excise Act r ead with sub-section (3) of Section 3 of the Additional Duties of Excise (Goods of Special Importance) Act, 1957 (58 of 1957) and sub-section (3) of Section 3 o f the Additional Duties of Excise (Textiles and Textile Articles) Act, 1978 (40 of 1978), by the Central Government shall stand amended and shall be deemed to h ave been amended in the manner as specified against each of them in column (3) o f the Ninth Schedule, on and from the corresponding date specified in column (4) of that Schedule retrospectively, and accordingly, notwithstanding anything con tained in any judgment, decree or order of any court, tribunal or other authorit y, any action taken or anything done or purported to have been taken or done und er the said notifications, shall be deemed to be and always to have been, for al l purposes, as validly and effectively taken or done as if the notifications as amended by this sub-section had been in force at all material times. (2) For the purposes of sub-section (1), the Central Government shall have and s hall be deemed to have the power to amend the notifications referred to in the s aid sub-section with retrospective effect as if the Central Government had the p ower to amend the said notifications under sub-section (1) of Section 5-A of the Central Excise Act read with sub-section (3) of Section 3 of the Additional Dut ies of Excise (Goods of Special Importance) Act, 1957 (58 of 1957) and sub-secti on (3) of Section 3 of the Additional Duties of Excise (Textiles and Textile Art icles) Act, 1978 (40 of 1978), retrospectively at all material times. (3) No suit or other proceedings shall be maintained or continued in any court, tribunal or other authority for any action taken or anything done or omitted to be done, in respect of any goods under the said notifications, and no enforceme nt shall be made by any court, tribunal or other authority of any decree or orde r relating to such action taken or anything done or omitted to be done as if the amendments made by sub-section (1) had been in force at all material times. (4) Recovery shall be made of all amounts of duty or interest or other charges w hich have not been collected or, as the case may be, which have been refunded bu t which would have been collected or, as the case may be, which would have not b een refunded if the provisions of this section had been in force at all material s times, within a period of thirty days from the day on which the Finance Bill, 2003 receives the assent of the President, and in the event of non-payment of du ty or interest or other charges so recoverable, interest at the rate of fifteen per cent per annum shall be payable from the date immediately after the expiry o f the said period of thirty days till the date of payment. Explanation.- For the removal of doubts, it is hereby declared that no act or om ission on the part of any person shall be punishable as an offence which would n ot have been so punishable if the notifications referred to in sub-section (1) h ad not been amended retrospectively by that sub-section. (cid:29) (emphasis added)

#9. Considering the validity of the above provision, the Hon’ble Supreme Cou rt held that withdrawal of exemption from the date of the notification itself wa s within the competence of the Parliament and the same not liable to be quashed on the ground of being unreasonable. In para 50, it was observed:- (cid:28)50. Furthermore having upheld the constitutional validity of Section 154 it wou ld be a pyrrhic victory for the Union of India if they could not in fact recover the tax. It is not a fit case where the legislation has merely withdrawn the ex emptions. The consequences of the withdrawal have been statutorily provided for including the recovery of the excise duties refunded or not paid. The effective period of such imposition is about eight months. The State has been deprived of revenue without any corresponding benefit. It may be that the retrospective oper ation may operate harshly in some cases, but that would not by itself invalidate the demand. (See Epari Chinna Krishna Moorthy v. State of Orissa, (1964) 7 SCR 185: AIR 1964 SC 1581). It needs to be emphasised that in effect the retrospecti ve operation extended over a very short period and principles of equity must giv e way to express statutory provision. As was said in Story on Equity (3rd Eng. E dn. 1920) p. 34: (cid:28)Where a rule, either of the common or the statute law, is direct, and governs t he case with all its circumstances, or the particular point, a court of equity i s as much bound by it as a court of law, and can as little justify a departure f rom it. (cid:29) (emphasis added) It was thus observed that even if the provision of retrospective operati 10. on operated harshly, it was not enough to invalidate the demand as the State had been deprived of the revenue without any corresponding benefit. It was further held that the State was entitled to recover the same as per Section 154 of the F inance Act, 2003.

#11. The provision of Section 154(4) of the Finance Act clearly shows that th e amount to be recovered includes the duty, interest and other things which woul d have been collected but for the exemption. In view of deeming provision, Secti on 154 of the Finance Act, 2003 had to be deemed to be operative from the date o f exemption itself. Once it is so, the amount wrongly refunded will have to be r ecovered back as per the statutory provision of Central Excise Act, 1944. (cid:28)Duty or interest or other charges recoverable (cid:29) refer to the amount liable to be recov ered which was not liable to be refunded as per the statutory provisions applica ble. The second part of Section 154(4) providing for interest being (cid:28)payable (cid:29) at the rate of fifteen per cent per annum after one month from the date of assent of the President to the Finance Bill, 2003, is restricted to the applicability t o the period after thirty days from the date of assent of the President upto pay ment.We are also unable to hold that liability of the appellants was in any mann er wiped out on account of stay. Stay order is in aid of final order and after d ismissal of writ petition, order of stay cannot be held to have wiped out liabil ity of the appellants.

#12. Coming now to the principle of restitution which fully applies in the pr esent case in respect of stay or retaining of amount in accordance with exemptio n provision which was retrospectively withdrawn, we may refer to the discussion in South Easten Coalfields Ltd. v. State of M.P., (2003) 8 SCC 648. Therein, it was observed: (cid:28)26. In our opinion, the principle of restitution takes care of this submission . The word (cid:28)restitution (cid:29) in its etymological sense means restoring to a party on the modification, variation or reversal of a decree or order, what has been los t to him in execution of decree or order of the court or in direct consequence o f a decree or order (see Zafar Khan v. Board of Revenue, U.P.,1984 Supp SCC 505: AIR 1985 SC 39) In law, the term (cid:28)restitution (cid:29) is used in three senses: (i) retu rn or restoration of some specific thing to its rightful owner or status; (ii) c ompensation for benefits derived from a wrong done to another; and (iii) compens ation or reparation for the loss caused to another. (See Black’s Law Dictionary, 7th Edn., p. 1315). The Law of Contracts by John D. Calamari & Joseph M. Perill o has been quoted by Black to say that (cid:28)restitution (cid:29) is an ambiguous term, somet imes referring to the disgorging of something which has been taken and at times referring to compensation for injury done: (cid:28)Often, the result under either meaning of the term would be the same. & Unjust impoverishment as well as unjust enrichment is a ground for restitution. If the defendant is guilty of a non-tortious misrepresentation, the measure of recovery is not rigid but, as in other cases of restitution, such factors as relative fa ult, the agreed-upon risks, and the fairness of alternative risk allocations not agreed upon and not attributable to the fault of either party need to be weighe d. (cid:29) The principle of restitution has been statutorily recognized in Section 144 of t he Code of Civil Procedure, 1908. Section 144 CPC speaks not only of a decree be ing varied, reversed, set aside or modified but also includes an order on a par with a decree. The scope of the provision is wide enough so as to include therei n almost all the kinds of variation, reversal, setting aside or modification of a decree or order. The interim order passed by the court merges into a final dec ision. The validity of an interim order, passed in favour of a party, stands rev ersed in the event of a final decision going against the party successful at the interim stage. Unless otherwise ordered by the court, the successful party at t he end would be justified with all expediency in demanding compensation and bein g placed in the same situation in which it would have been if the interim order would not have been passed against it. The successful party can demand (a) the d elivery of benefit earned by the opposite party under the interim order of the c ourt, or (b) to make restitution for what it has lost; and it is the duty of the court to do so unless it feels that in the facts and on the circumstances of th e case, the restitution far from meeting the ends of justice, would rather defea t the same. Undoing the effect of an interim order by resorting to principles of restitution is an obligation of the party, who has gained by the interim order of the court, so as to wipe out the effect of the interim order passed which, in view of the reasoning adopted by the court at the stage of final decision, the court earlier would not or ought not to have passed. There is nothing wrong in a n effort being made to restore the parties to the same position in which they wo uld have been if the interim order would not have existed.

#27. Section 144 CPC is not the fountain source of restitution, it is rather a st atutory recognition of a pre-existing rule of justice, equity and fair play. Tha t is why it is often held that even away from Section 144 the court has inherent jurisdiction to order restitution so as to do complete justice between the part ies. In Jai Berham v. Kedar Nath Marwari, (1922) 49 IA 351:AIR 1922 PC 269, Thei r Lordships of the Privy Council said: (AIR p. 271) (cid:28)It is the duty of the court under Section 144 of the Civil Procedure Code to ’p lace the parties in the position which they would have occupied, but for such de cree or such part thereof as has been varied or reversed’. Nor indeed does this duty or jurisdiction arise merely under the said section. It is inherent in the general jurisdiction of the court to act rightly and fairly according to the cir cumstances towards all parties involved. (cid:29) Cairns, L.C. said in Rodger v. Comptoir D’Escompte de Paris, (1871) 3 PC 465: (E R p. 125) (cid:28)[O]ne of the first and highest duties of all courts is to take care that the ac t of the court does no injury to any of the suitors, and when the expression, ’t he act of the court’ is used, it does not mean merely the act of the primary cou rt, or of any intermediate court of appeal, but the act of the court as a whole, from the lowest court which entertains jurisdiction over the matter up to the h ighest court which finally disposes of the case. (cid:29) This is also on the principle that a wrong order should not be perpetuated by ke eping it alive and respecting it (A. Arunagiri Nadar v. S.P. Rathinasami,(1971) 1 MLJ 220). In the exercise of such inherent power the courts have applied the p rinciples of restitution to myriad situations not strictly falling within the te rms of Section 144.

#28. That no one shall suffer by an act of the court is not a rule confined to an erroneous act of the court; the (cid:28)act of the court (cid:29) embraces within its sweep al l such acts as to which the court may form an opinion in any legal proceedings t hat the court would not have so acted had it been correctly apprised of the fact s and the law. The factor attracting applicability of restitution is not the act of the court being wrongful or a mistake or error committed by the court; the t est is whether on account of an act of the party persuading the court to pass an order held at the end as not sustainable, has resulted in one party gaining an advantage which it would not have otherwise earned, or the other party has suffe red an impoverishment which it would not have suffered but for the order of the court and the act of such party. The quantum of restitution, depending on the fa cts and circumstances of a given case, may take into consideration not only what the party excluded would have made but also what the party under obligation has or might reasonably have made. There is nothing wrong in the parties demanding being placed in the same position in which they would have been had the court no t intervened by its interim order when at the end of the proceedings the court p ronounces its judicial verdict which does not match with and countenance its own interim verdict. Whenever called upon to adjudicate, the court would act in con junction with what is real and substantial justice. The injury, if any, caused b y the act of the court shall be undone and the gain which the party would have e arned unless it was interdicted by the order of the court would be restored to o r conferred on the party by suitably commanding the party liable to do so. Any o pinion to the contrary would lead to unjust if not disastrous consequences. Liti gation may turn into a fruitful industry. Though litigation is not gambling yet there is an element of chance in every litigation. Unscrupulous litigants may fe el encouraged to approach the courts, persuading the court to pass interlocutory orders favourable to them by making out a prima facie case when the issues are yet to be heard and determined on merits and if the concept of restitution is ex cluded from application to interim orders, then the litigant would stand to gain by swallowing the benefits yielding out of the interim order even though the ba ttle has been lost at the end. This cannot be countenanced. We are, therefore, o f the opinion that the successful party finally held entitled to a relief assess able in terms of money at the end of the litigation, is entitled to be compensat ed by award of interest at a suitable reasonable rate for the period for which t he interim order of the court withholding the release of money had remained in o peration.

#29. Once the doctrine of restitution is attracted, the interest is often a norma l relief given in restitution. Such interest is not controlled by the provisions of the Interest Act of 1839 or 1978.

#30. So far as the appeal filed by the State of Madhya Pradesh seeking substituti on of rate of interest by 24% per annum in place of 12% per annum as awarded by the High Court is concerned, we are not inclined to grant that relief in exercis e of our discretionary jurisdiction under Article 136 of the Constitution, espec ially in view of the opinion formed by the High Court in the impugned decision. The litigation has lasted for a long period of time. Multiple commercial transac tions have taken place and much time has been lost in between. The commercial ra tes of interest (including bank rates) have undergone substantial variations and for quite some time the bank rate of interest has been below 12%. The High Cour t has, therefore, rightly (and reasonably) opined that upholding entitlement to the payment of interest at the rate of 24% per annum would be excessive and it w ould meet the ends of justice if the rate of interest is reduced from 24% per an num to 12% per annum on the facts and in the circumstances of the case. We are n ot inclined to interfere with that view of the High Court but make it clear that this concession is confined to the facts of this case and to the parties herein and shall not be construed as a precedent for overriding Rule 64-A of the Miner al Concession Rules, 1960. It is also clarified that the payment of dues should be cleared within six weeks from today (if not already cleared) to get the benef it of reduced rate of interest of 12%; failing the payment in six weeks from tod ay the liability to pay interest @ 24% per annum shall stand. (cid:29)

#13. aken by learned Single Judge. The appeals are dismissed. In view of above, we do not find any ground to interfere with the view t