The amendments made to the Central Excise and Customs laws in 1991 to end what was perceived by some quarters, including by the government of the day, to be undue enrichment of manufacturers was as peremptory if not as dramatic as the Emergency declared some 16 years earlier. The dilemma in brief was which one is a lesser evil allowing manufacturers to pocket the excise refunds given the fact that excise being an indirect tax, the tax burden would in any case have been passed down the distribution line ultimately to the hapless customers, or retaining the excess in the government treasury itself.
In the end, however, the Government plumped for what initially appeared to be a good via-media ordaining refunds to be credited to consumer welfare fund. It is true that in vast majority of cases giving refund to the manufacturer of an indirect tax whose burden is ultimately shouldered by the customer amounted to undue enrichment of the manufacturer.
Strictly speaking, the refund should have gone to the amorphous customer. Ideal as this regime would have been, it admittedly is fraught with difficulties bordering on impossibilities. For example, it would be idle to expect a customer who has bought a tube of toothpaste to preserve the cash memo and make an application with the excise department to pursue a trivial amount in recovering which he may have to spend several times more. This, assuming the manufacturer winning the refund application is cajoled into making a successful public announcement of his victory directed mainly at his amorphous customers spread across the country. The government of the day thus decided that unless the manufacturer, wholesaler, retailer or consumer comes up with credible evidence that he was the one who was the victim of the excess tax, credit would be given to consumer welfare fund which has practically turned out to be a non-starter what with the corporate sector losing interest in pursuing refund applications faced as they are with the unappetising prospect of fighting for an altruistic cause.
In the event, in stopping unjust enrichment of the manufacturers, the Government has only ended up enriching itself what with the consumer welfare fund idea refusing to take off in a big way. But then the quantum of this enrichment in reverse, as it were, is defying precise quantification with the corporates losing appetite for making refund applications, as at the end of the day, even if they are won, the reward goes elsewhere.
Doubts over fairness
Though the Supreme Court has cast its imprimatur on the new regime ushered in 1991 in the Mafatlal Industries case, doubts have been raised about the innate fairness of the regime by the Kelkar and Parthasarathy Shome Committees. It may be possible to contend that with the rationalisation of classification and valuation, the scope for disputes has become fewer and far between. But a ham-handed law is not in keeping with the spirit of fairness. Manufacturers in the past have turned around and asked what about unjust impoverishment when there is an upward revision of excise which perforce has to be borne by the manufacturer because no customer who has purchased the goods by paying such less duty is going to offer his head on the chopping block. A regime, which was given the quietus alas, has come to cause a lot of disquiet!
S. Murlidharan (The author is a Delhi-based chartered accountant.)