Gauhati High Court Directs Refund Of Cess Paid Under Mistake Of Law By Oil India And ONGC

The Gauhati High Court on 27 August held that the Central Excise Department cannot retain Education Cess (EC) and Secondary & Higher Education Cess (SHEC) paid under a mistake of law merely because the refund claim was filed beyond the prescribed limitation period.

A Division Bench comprising Justices Michael Zothankhuma and Anjan Moni Kalita dismissed appeals filed by the Commissioner of CGST and Central Excise, Dibrugarh, in matters concerning Oil India Limited and Oil and Natural Gas Corporation Limited (ONGC). The judges observed:

“Since the period of limitation begins to run only from the time when the applicant comes to know of the mistake, the application made by the petitioner was well within the prescribed period of limitation.”

Oil India Limited and ONGC, which are engaged in the exploration and production of crude oil, had paid EC and SHEC on the Oil Industry Development Cess due to a mistaken understanding of the applicable law, although such payment was not legally required.

After discovering the mistake, the companies sought refund of the amounts paid. The Department rejected their claims on the ground that the applications had been filed beyond the prescribed one-year period.

The Court noted that it was admitted that the companies had paid the cess due to a mistake. It held that the statutory limitation applicable to refunds of excise duty could not bar the refund of an amount collected without authority of law.

It relied on decisions of the Supreme Court and various High Courts, including the Karnataka, Delhi, Gujarat and Calcutta High Courts, which have held that amounts paid under a mistake of law cannot be retained by the Department merely on the ground of limitation. It noted:

“Section 11B of the Act cannot be a bar to refund the EC and SHEC that has been paid mistakenly by the respondents to the appellant. Further, the mentioning of 11B of the Act by the respondents, on claims for refund, does not bar the making of the refund by the appellant to the respondents, as in fact, section 11B is not attracted, as the cess was collected/accepted by the appellant without any authority of law.”

The Bench further held that the constitutional requirement that no tax can be levied or collected except by authority of law also supported the refund of the amounts mistakenly paid. In the matter concerning Oil India Limited, it observed that the finding that the burden of the cess had not been passed on to consumers had already attained finality. The judges held:

“As the EC and SHEC has been paid on a mistaken notion by the respondents and as the same cannot be collected by the appellant in the absence of any authority of law, the retention of the same does not arise. Accordingly, the appellant would have to refund the EC and SHEC that has been mistakenly paid to the appellant.”

Accordingly, the High Court dismissed both appeals and directed that the EC and SHEC mistakenly paid by Oil India Limited and ONGC be refunded.

For Petitioner: Senior Standing Counsel S. C. Keyal and Kaushik Jain

For Oil India Limited: Senior Counsel A. Sarma

For ONGC: A. K. Ghos