Supreme Court of India
IA. K. SIKRI AND ASHOK BHUSHAN, JJ.]versusCOMMISSIONER OF CENTRAL EXCISE GUWAHATI
- Citation
- 2017 INSC 1092
- Decided
- 10 November 2017
- Disposal
- Appeal(s) allowed
- Bench
- A K SIKRI
Holding
If the entire excise duty is exempted, Education Cess and Higher Education Cess, being surcharges on that duty, are also not payable and must be refunded.
Summary
SRD Nutrients Private Ltd, a manufacturer in Assam, claimed refund of Education Cess and Higher Education Cess paid along with excise duty on goods that were exempted from excise duty under Notification 20/2007‑CE dated 25‑Apr‑2007. The lower authorities and CESTAT held that the notification only exempted excise duty, not the cess, and denied refund. The Supreme Court examined the statutory nature of the cess as a surcharge on excise duty under Sections 91‑93 of the Finance (No.2) Act, 2004 and considered two Government circulars (Aug 10 2004 and Apr 8 2011) which state that when the whole excise duty is exempted, the cess is not payable. The Court held that Education Cess and Higher Education Cess, being calculated on the aggregate of excise duties, become nil when excise duty is nil and therefore must be refunded. The appeals were allowed, granting refund of the cess amounts.
Issues considered
- When does an exemption from excise duty under a notification also exempt Education Cess and Higher Education Cess?
- Are Education Cess and Higher Education Cess refundable when the underlying excise duty is fully exempted?
Legislation cited
- Central Excise Act, 1944s. 3(3), s. 5A
- CENVAT Credit Rules, 2004
- Finance Act, 2007s. 140(1)
- Finance (No.2) Act, 2004s. 91, s. 92, s. 93
Subjects
excise duty exemptioneducation cesshigher education cessrefundNorth‑Eastern statesCENVAT creditcircularssurcharge
Judgment
{2017] 11 S:C.R.43
MIS. SRD NUTRIENTS PRIVATE LIMITED A
v.
COMMISSIONER OF CENTRAL EXCISE GUWAHATI
(Civil Appeal Nos. 2781-2790 of20 I0)
NOVEMBER I 0. 20 l 7 B
IA. K. SIKRI AND ASHOK BHUSHAN, JJ.]
Central Excise Act, 1944:
s.5A(/) - Grant of exemption - From excise duty - Of all
goods cleared from the north-east States - By Notification dated C
25.4.2007 - Notification provided that assessee would be entitled
to re/imd of duty paid other than the duzv paid by way of utilization
of CENVAT credit under CENVAT Credit Rules, 2004 - By Finance
Act, 2004 Education Cess and Higher Education Cess also imposed
which are surcharge 011 the excise duty - Education cess and Higher D
Education Cess also levied and collected from the manufacturers
who had set up th11ir units in north-east areas, alongwith the excise
duty - Howeve1; while refimding the excise duzv paid, Education
Cess and Higher Education Cess were not refunded - Whether
Education Cess or Higher Education Cess were re.fi111dahle with
r~fimd of excise duty as per the Notification - Held: It is clear.fi'om E
Cin·ular dated August JO, 2004 and Circular dated April 8, 2004
that Government itself had taken the position that where whole of
excise du~v is exempted, even the Education and Higher Education
Cess would not he payable - When there is no excise duty payable,
there would no Education Cess - Notification 2012007-C.E. dated
25 Apr.2007. F
Allowing the appeals, the Court
HELD: I. It is clear from two circulars i.e. Circular dated
August IO, 2004 and Circular dated April 8, 2011 that the
Government itself has taken the position that where whole of G
excise duty or service tax is exempted, even the Education Cess
as well as Secondary and Higher Education Ccss would not be
payable. These circulars are binding on the Department. fPara
201157-G]
H
43
44 SUPREME COURT REPORTS [2017] I l S.C.R.
A 2. Even otherwise, it is more rational to accept the aforesaid
position as clarified by the Ministry of Finance in the aforesaid
circulars. Education Cess is on excise duty. It means that those
assessecs who are required to pay excise duty have to shell out
Education Ccss as well. This Education Cess is introduced by
Sections 91 to, 93 of the Finance (No.2) Act, 2004. A conjoint
B
reading of these provisions would amply demonstrate that
Education Cess as a surcharge, is levied @ 2% on the duties of
excise which arc payable under the Act. It can, therefore, he
clearly inferred that when there is no excise duty payable, as it is
exempted, there would not be any Education Cess as well,
c inasmuch us Education Ccss @ 2% is to he calculated on the
aggregate of duties of excise. There cannot be any surcharge
when basic duty itself is Nil. It is also trite that when two views
arc po.:.iblc, 01ie which favours the asscssecs has to be adopted.
[Paras 21, 231[58-A-B, D, E; 60-F]
D Collector of Ce/lira/ Excise, Patna v. Tata Engineering
and Locomotive Co. 1997 (92) ELT 303 (SC) - relied
on.
Bharat Box Factory Ltd. v. Commissioner of C. Ex.,
Jamm11 2007 (214) ELT 534 (Tri.-Del.); Cyrus
E S111j(1ctants Pvt. Ltd. v. Commissioner <1. Central Excise,
Jammu 2()07 (215) ELT 55 (Tri.-Del.); Banswara Svntex
Ltd. v. Union of India 2007 (216) ELT 16 (Raj.) -
approved.
Commissioner of Central Excise, Jammu v. Jindal Dnigs
F Ltd. 20 II (267) ELT 653 (Tri.-Del.) - disapproved.
Assistant Commissioner <~(Commercial Taxes (Ass/I.)
Dharwar v. Dharmendra Trading Company Etc. Etc.
(1998) 3 SCC 570; Commissioner of Central Excise.
Mangalore v. Suzlon wind International 2012-TIOL-
G 1837-CESTAT-BANG; R.S. Joshi, Sales Tax Officer,
G11jarat and Others v. Ajit Mills Limited and Another
AIR 1977 SC 2279 : (1977) 40 STC 497; Biswanath
Hosie1:v Mills Ltd. & Am: v. Union of India & Ors. (2017)
346 ELT 353; Balasore Alluys Ltd. v. CCE, Customs
and Service Tax, BBSR-l (2010-TIOL-1659-CESTAT-
H KOL) - referred to.
M/S. SRD NUTRIENTS PRIVATE LIMITED v. COMMISSIONER 45
OF CENTRAL EXCISE GUWAHATI
Case Law Reference A
2007 (214) ELT 534 (Tri.-Dcl.) approved Para 9
2007 (215) ELT 55 (Trl.-Dcl.) approved Para 9
2011 (267) ELT 653 (Tri.-Del.) disapproved Para 10
(1998) 3 sec 570 referred to Para 12 B
2012-TIOL-1837-CESTAT-BANG referred to Para 13
2007 (216) ELT 16 (Raj.) approved Para 13
AIR 1977 SC 2279 referred to Para 14
(2017) 346 ELT 353 referred to Para 15 c
(20 I O-TIOL-1659-CESTAT-KOL) referred to Para 18
1997 (92) ELT 303 (SC) relied on Para 22
CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 2781-
2790 of2010. D
From the Judgment and Order Nos. A-744-753/KOL/2009 dated
22.12.2009 of Customs, Excise & Service Tax Appellate Tribunal, East
Regional Bench, Kolkata in Ex. Appeal Nos. 565-570/09-Ex., Ex.Appeal
Nos. 606-608/09-Ex. and Ex. Appeal No. 610/09-Ex.
E
WITH
Civil Appeal Nos. 4611, 4596, 2987, 5173, 5175, 8322, 8323-8324,
5927-5929,4597,4598,4599,4600,4601,4602,4603,4604.4605,4606,
4607,4608,4609,4610,5926,6085-6092, 10253-10258, 10245-10252,
8330, 8326, 8331, 8328, 8336, 8335, 8332, 8329 of2010
F
Civil Appeal Nos. 2651-2660, 3735-3750, 5300-5303, 1445-1446,
1443-1444of2011
Civil Appeal Nos. 8178, 7605, 8181, 8180, 8185, 8186, 8179, 7876,
8182, 8504-8509, 720 of2012
Civil Appeal Nos. 812, 3981-3983, 8732-8735, 813, 811, 4321- G
4322, 4292-4319, 4323-4325 of2013
Civil Appeal Nos. 5022-5023 of2014
Civil Appeal Nos. 1730-1731, 2988 of2016
H
46 SUPREME COURT REPORTS [2017] II S.C.R.
A Civil Appeal Nos. 18437, 18438, 18439, 18440, 18441. 18442.
l 8443-18446, OF 2017
Yashank Ii'. Adhyaru, Sr. Adv., H. R. Rao, Ms. Nisha Bagchi,
Arijit Prasad, Ms. Shirin Khajuna, B. K. Prasad, Ms. Pooja Sharma.
Rupinder Sinhrnar. Abhishek Baghal. Jatin Mahajan, Rajcsh Kumar,
B Ms. Poonam Kumari, Kaushal Kishore. R. K. Srivastava, Rahul Krishna,
L. Badri Naray~nan. Aditya Bhattacharya, Victor Das, Ms. Apeksha
Mehta. A. R. Mitdhav Rao, Ms. Pragya Awasthi, Ms .. Zaorah Gu1jar.
M. P. Dcvantha. Pratap Venugopal. Ms. Surckha Raman, Anuj Sanna,
Ms. Niharika, Mis. K. J. John & Co., M. P. Devanath, Vivek Sharma,
Abhishck Anan<ll. Udit Jain. Ms. Ashwini Chandrasekaran, Pravccn
c Kumar, Ramesh Choudhary, A. Samad, B. N. Pal, Ram Krishna, Tariq
Ahmad, R. Santhanan. Anil Kr. Jha, Rakcsh Dahiya, Jay Savla,
Ms. Rcnuka Sahu. Prabhat Chaurasia, Jasdccp Singh Dhillon,
Mohd. lrsl,Jd Hanil; Mukcsh Kumar Maroria, Ms. Anil Katiyar, Ravindra
Keshavrao Adsure, Dr. Kai lash Chand, Arvind Kumar Sharma, Navcen
D Kumar, Pravcen Kumar, Advs. for the appearing parties.
The Judgment of the Court was Jelivered by
A. K. SII(RI, J. I. Leave granted in the special leave petitions.
2. In order to encourage the business community to set up
E manufacturing units in industrially backward areas like the North-Eastern
States, viz. Assam, Jammu & Kashmir, Meghalaya, Tripura, Mizoram,
Manipur. Nagaland, Arunachal Pradesh as well as Sikkim, notifications
were issued by the Excise Department, Government of India, exempting
goods specified in the First Schedule to the Central Excise Tariff Act,
1985 (other than those mentioned in the annexure to these notifications)
F from payment of excise duty in respect of the goods manufactured and
cleared from units located in the aforesaid States. The methodology
which was adopted and prescribed in these notifications was that the
manufacturer was initially supposed to pay the excise duty leviablc on
such goods at the time of clearance as per the Tariff Act and thereafter
G
claim the refund thereof. It was also mentioned in these notifications
that exemption contained therein shall be available subject to the condition
that the manufacturer first utilises whole of the CENVAT credit available
to him on the last date of the month under consideration for payment of
duty of goods cl~ared during such period and was to pay only the balance
amount in cash. It is this balance amount which was refundable to him.
H
MIS. SRD NUTRIENTS PRIVATE LIMITED v. COMMISSIONER 47
OF CENTRAL EXCISE GUWAHATI [A. K. SIKRI, J.]
Insofar as payment of the excise duty after availing the CENVAT credit A
and refund thereof subsequently is concerned. there is no dispute about
the same. We arc concerned with altogether different aspect which is
associated with the aforesaid notification granting exemption from
payment of excise duty.
3. It so happened that vide Finance Act. 2004, the Education Cess B
and Higher Education Cess were also imposed, which arc surcharge on
the excise duty. These Education Ccss and Higher Education Ccss were
also levied and collected from the manufacturers who had set up their
units in the aforesaid areas, along with the excise duty. However, while
refunding the excise duty paid by these manufacturers, the Education
Ccss and the Higher Education Cess that were paid by the manufacturers
c
along therewith were not refunded. The dispute, thus, which arises for
consideration in these appeals is as to whether the Education Cess and
Higher Education Cess which were paid along with the excise duty was
also liable to be refunded along with the central excise duty in terms of
the exemption notifications. This is the issue which is common in all D
these appeals and the factual background in which the matter has travelled
up to this Court is also almost the same. Therefore, for the sake of
convenience, purpose would be served in tracing the factual events from
Civil Appeal Nos. 2781-2790 of20 JO.
4. The appellant in these appeals is Mis. SRO Nutrients Private E
Limited (hereinafter referred to as the 'asscssee'). It is engaged in the
manufacture and clearance of Malted Milk Food (Horlicks) using
sweetened milk powder since April 12, 2008 and has set up its factory in
the State of Assam. This unit is duly registered with the Central Excise
Department.
F
5. Industrial Policy dated April OJ, 2007 for the North-Eastern
States, including the State ofAssam, was announced by the Ministry of
Commerce and Industry (Department oflndustrial Policy and Promotion),
Government of India to set up a special package for the North-Eastern
States to accelerate industrial development of the State. As per this
package, new industrial units were entitled to I 00% excise duty exemption G
for a period of I 0 years from the date of commencement of commercial
production. Pmsuant to the said Industrial Policy, the Central Government
issued Notification No. 20/2007-Ex. dated April 25, 2007 granting
exemption from duties of excise levied under the Central Excise Act,
l 944 (hereinafter referred to as the 'Act') read with Section 3(3) of the H
48 SUPREME COURT REPORTS [2017] I l S.C.R.
A Additional Duties of Excise (Goods of Special Importance) Act, 1957
and Section 3(3) of the Additional Duties of Excise (Textiles & Textile
Articles) Act, 1978 to goods cleared from the notified areas within the
North-Eastern States. The said Notification provided that the assessee
would be entitl~d to refund of duty paid other than the duty paid by way
of utilization ofCENVATcredit under the CENVAT Credit Rules, 2004.
B
Reproduction of the first three paragraphs of this Notification would be
sufiicient, which are as follows:
"NOTIF\!CATION: 20/2007-C.E. dated 25-Apr-2007
North-East - Exemption to all goods, except as specified,
c cleared from Assam, Tripura, Meghalaya, Mizoram,
Manipur, Nagaland, Arunachal Pradesh or Sikkim from duty
paid other than by utilisation of Cenvat Credit.
In exercise of the power-; conferred by sub-section (I) of section
SA of the Central Excise Act, 1944 (I of 1944), the Central
D Government, being satisfied Urnt it is necessary in the public interest
so to do, hereby exempts the goods specified in the First Schedule
to the Central Excise TariffAct, 1985 (5 of 1986) other than those
mention~d in the Annexure and cleared from a unit located in the
States ofAssam orTripura or Meghalaya or Mizoram or Manipur
or Nagal~nd or Arunachal Pradesh or Sikkim, as the case may
E be, from so much of the duty of excise leviable thereon under the
said Act as is equivalent to the amount of duty paid by the
manufacturer of goods other than the amount of duty paid by
utilizat;on ofCENVATcredit under the CENVAT Credit Rules,
2004.
F 2. In cases where all goods produced by a manufacturer are
eligible for exemption under this notification, the exemption
containc\i in this notification shall be available subject to the
condition that. the manufacturer first utilises whole of the CENVAT
credit available to him on the last day of the month under
consideration for payment of duty on goods cleared during such
G
and pays only the balance amount in cash.
3. The exemption contained in this notification shall be given
effect to in the following manner, namely:-
( a) the manufacturer shall submit a statement of the duty paid
H otl]er than the amount of duty paid by utilisation of CENVAT
MIS. SRD NUTRIENTS PRNATE LIMITED v. COMMISSIONER 49
OF CENTRAL EXCISE GUWAHATI [A. K. SIKRI, J.]
credit under the CENVAT credit Rules. 2004, to the A
Assistant Commissioner or the Deputy Commissioner of
Central Excise, as the case may be. by the 7"' of the next
month in which the duty has been paid other than the amount
of duty paid by utilization of CENVAT credit under the
CENVAT Credit Rules, 2004;
B
(b) the Assistant Conunissioncr ofCcntrn 1 Excise or the Deputy
Commissioner of Central Excise, as the case may be, after
such verification, as may be deemed by utilisation of
CENVAT credit under the CENVAT Credit Rules, 2004,
during the month under consideration to the manufacturer
by the 15"' of the next month. c
Provided that in cases, where the C)'.lcmption contained
in this notification is not applicable to some of the goods
produced by a manufacturer, such refund stall not exceed
the amount of duty paid Jess the amount of the CENVAT
credit availed of, in respect of the duty paid on the inputs D
used in or in relation to the manufacture of goods cleared
under this notification;
(c) if there is likely to be any delay in the verification, Assistant
Commissioner of Central Excise or the Deputy
Comrniss'oner of Central Excise, as the case may be, shall E
refund the amount on provisional basis by the 15" of the
next month to the month under consideration and thereafter
may adjust the amount of refund by such amount as may
be necessary in the subsequent refunds admissible to the
manufacturer.·· F
6. lt may be mentioned at this stage that power to grant exemption
from payment of excise duty is conferred upon the Central Government
vide Section 5Aofthe Act, which authorises the Central Government to
exempt generally, either absolutely or subject to suet conditions to be
fulfilled, before or after removal, as may be specified in the notification,
G
excisable goods of any specified description from the whole or any part
of duty of excise lcviable there, if the Central Government is satisfied
that it is necessary, in public interest, so to do. The notifications in question
have been issued in exercise of the said power conferred by sub-section
( 1) of Sestion 5A of the Act. Thus, the central excise duty, which is
H
50 SUPRJEME COURT REPORTS [2017] l t S.C.R.
A payable at the rµtes specified in the Tariff Act, can be exempted. in
respect olspecifled goods. wholly or partly.
7. As mentioned abuvc. the Parliament levied Education Cess by
Finance (No.2) Act. 2004. Chapter VI of the said Finance Act deals
with Education Ccss. Sections 9 l tu 93 thereof arc relevant and arc
B reproduced below:
"91. Edu,cation Ccss. - ( l) Without prejudice to the provisions
of sub-sedtion ( 11) of section 2, there snail be levied and collected,
in aceordimcc with the provisions of this Chapter as surcharge
for purposes of the Union. a ccss to be called the Education Cess,
c to fulfil thµ commitment of the Government to provide and finance
universalisd quality basic education.
(2) The Central Government may. after due appropriation made
by Parliament by law in this behalf, utilise, such sums of money of
the Educaiion Ccss levied under sub-section ( 11) of section 2 and
D this Chapter for the purposes specified in sub-section (I), as it
may consider necessary.
92. Definition. - The words and expressions used in this Chapter
and dcfin~d in the Central Excise Act, I 944(1of1944), the Customs
Act, 1962 (52 of 1962) or Chapter V of the Finance Act. 1994 (32
E of 1994 ), shall have the meanings respectively assigned to them
in those Acts or Chapter, as the case may be.
93. Education Ccss on cxcisal.Jle goods. - (I) The Education
Ccss levied under section 91. in the case of goods specified in the
First Schedule to the Central Excise TariffAct, 1985 (5of1986),
being goods manufactured or produced. shall be a duty of excise
F
(in this ~ection referred to as the Education Cess on excisable
goods). at the rate of two per cent, calculated on the aggregate of
all duties of excise (including special duty of excise or any other
duty of excise but excluding Education Cess on excisable goods)
which are levied and collected by the Central Government in the
G Ministry ofFinancc (Department ofRevenuc ), under the provisions
of the Central Excise Act. 1944 (I of 1944) or under any other
law for tl;!e time being in force.
(2) The Education Cess on excisable goods shall be in addition to
any other duties of excise chargeable on such goods, under the
H
MIS. SRD NUTRIENTS PRIVATE LIMITED v. COMMISSIONER 51
OF CENTRAL EXCISE GUWAHATl LA. K. SIKRI, J.]
Central Excise Act, 1944 ( 1 of 1944) or any other law for the time A
being in force.
(3) The provisions of the Central Excise Act, 1944 (1 of 1944)
and the rules made thereunder, including those relating to refunds
and exemptions from duties and imposition of penalty shall, as far
as may be, apply in relation to the levy and collection of the B
Education Cess on excisable goods as they apply in relation to the
levy and collection of the duties of excise on such goods under
the Central Excise Act, J 944 or the rules, as the case may be."
8. As the assessee was denied refund of the Education Cess and
Higher Education Ccss, he challenged the order of the Assessing Officer
by filing appeal before the Commissioner of Central Excise and Customs
c
(Appeals), Guwahati ..However, these appeals were dismissed by the
Commissioner and the order of the Commissioner has been upheld by
the Customs Excise & Service Tax Appellate Tribunal (CESTAT) by
the impugned judgment. Said order is the subject matter of these appeals.
9. It may be pointed out at the outset that in its brief order, the D
Service Tax Appellate Tribunal (hereinafter referred to 'Tribunal') has
taken note of two of its earlier judgments which were relied upon by the
appellant. These arc :
(i) Bltar11t Box Factory Ltd, v. Co111111issionerofC. Ex., J1111111111 1
(ii)l)'r11s S111facta11ts Pvt. Ltd. v. Commissioner of Ce11tr11l E
E::..·c.:ise, Jf111111111 2
In both these decisions, the Delhi Bench of the Tribunal had opined
thai the Education ccss and Higher Education Ccss were also refundable
along with the excise duty.
F
I 0. The Revenue, on the other hand, had relied upon another
judgment of Tribunal in the case of Co1•1111issio11er of Central Excise,
Jammu v. Jindal Drugs Lttl. 1• In this judgment which was also
rendered by the Delhi Bench of the Tribunal, a contrary view has been
tak~'ll. viz., the Excise Department was under no obligation to refund the
Education Cess and Higher Education Cess as the notification exempted G
only the excise duty and, therefore, it is the excise duty which was to be
refunded.
'2007 (214) ELT 534 (Tri.-Dcl.)
. '2007 (215) ELT 55 (Tri.-Del.)
., 2011 (267) ELT 653 (Tri.-Dcl.)
H
52 SUPREME COURT REPORTS [2017] I I S.C.R.
A I I. The CESTAT. by impugned judgment, has preferred to follow
the view taken by the Tribunal in Jindal Drugs Ltd. case on the ground
that it is later iJil point of time in which earlier judgment in Cyrus
Surfactants Pvt. Ltd. case has also been considered.
12. In the aforesaid backdrop, lcamcd counsel for the appellant
B was vehement i~ his criticism of the view taken by the Tribunal. His
first submission was that in case the Division Bench of the Tribunal in
Jindal Drugs Ltd. decided to differ from the view taken by earlier
Division Bench in Cyrus Surfactants Pvt. Ltd., an appropriate course
of action was to refer the matter to the larger Bench. That apart,
submitted .be l~amed counsel, the view taken in Cyrus Surfactants
c Pvt. Ltd. needs to be approved. In this behalf, he argued that reading of
the exemption Notification dated April 25, 2007 would make it clear that
there was I 00%exemption granted by the said Notification from levy of
excise duty which was clear from the reading of para I thereof. Para 2
of the Notificati'on simply laid down the mechanism as to how the said
D exemption was to be applied, with the specification that the duty was to
be paid first after adjusting the CENVAT credit and thereafter claim for
refund was to be made. He further submitted that Education Cess was
levied @ 2% on the excise duty. When the levy of excise duty itself
was exempted, the Education Cess also got exempted thereby. He also
submitted that !Education Cess is in the nature of surcharge and in the
E
absence of the primary tax (i.e. Excise), the question of payment of any
surcharge thereupon would not arise. He also referred to Circular No.
I 34/3/211 /ST dated April 08, 2011 issued by the Excise Department amply
clarifying that since the Education Cess is levied and collected as
percentage of service tax, no Education Cess would be payable when
F and wherever service tax is Nil by virtue of exemption. His plea was
that though the aforesaid Circular was issued in the context of service
tax, the principlic accepted therein by the Department would apply in the
present case also, more so, when 'Notification dated October 06, 2007
exempting service tax was pari materia. He also pointed out that
under similar circumstances, Income Tax Department has been refunding
G the Education Cess. He also argued that in the scenario where there
are two diverg~nt views and two possible interpretations, one that is in
favour of the assessee should be followed. In support of his aforesaid
arguments, apart from relying upon the reasoning given by the Tribunal
in Cyrus Surfl1ctants Pvt. Ltd., he referred to the judgment of this
H
MIS. SRD NUTRIENTS PRIVATE LIMITED v. COMMISSIONER 53
OF CENTRAL EXCISE GUWAHATI [A. K. SIKRI, J.]
Court Assistant Commissioner of Commercial Taxes (Asstt.) A
Dltarovar v. Dltarmendra Trading Company Etc. Etc.'
I 3. He also relied upon the decision in the case of Co111111issioner
of Central Excise, Mangalore v. Suzlon wind International' rendered
by Bangalore Bench of the Tribunal which had decided the case in favour
of the assessee referring to Circular dated April 04, 20 l I. Even the B
Rajasthan High Court has leaned in favour of the assessee in the case
of Btmswara Syntex Ltd. v. Union of 111dia 6 holding that since
Education Cess in the form of surcharge is levied and collected, there
was no question of retaining this amount once the excise duty itself got
exempted.
c
14. He also read out the following passage from the judgment of
this Court in R.S. Joshi, Sales Tax Officer, Gujarat and Others v.
Ajit Mills Limited tmd Another':
"34. Section 37(1) uses the expressions, in relation to forfeiture,
"any sum collected by the person ... shall be forfeited'. What D
does "collected" mean here? Words cannot be construed
effectively without reference to their context. The setting colours
the sense of the word. The spirit of the provision lends force to
the construction tlrnt "collected'' means "collected and kept as
his" by the trader. If the dealer merely gathered the sum by way
of tax and kept it in suspense account because of dispute about E
taxability or was ready to return it if eventually it was not taxable,
it was not collected. "Collected', in an Australian Customs Tariff
Act, was held by Griffith, C.J., not "to include money deposited
under an agreement that if it was not legally payable it will be
returned': (Words & Phrases, p.274). We therefore semanticise F
"collected" not to cover amounts gathered ten ta ti vely to be given
back if found non-cxigible from the dealer."
I 5. Rebutting the aforesaid arguments of the appellants, Mr.
Yashank P. Adhyaru, learned senior counsel appearing for the Revenue
commended this Court to approve the view taken by the Tribunal in
G
Jindal Drugs Ltd. case which has been accepted by the High Court as
well. His argument was that the exemption notification exempts only
'(t998J 3 sec s10
'2012-T!OL-1837-CESTAT-BANG
0
2007(216)ELT 16(Raj.)
'AIR l 977 SC 2279 : (l 977) 40 STC 497 H
54 SUPREME COURT REPORTS (2017] I l S.C.R.
A the excise duty. However. duty has to be paid first and along wnh that
Education Cess and Higher Education Cess also become payable. He
also emphasised the fact that excise duty is payable under the Excise
Act. Education Ccss and Higher Education Ccss arc payable under the
Finance Act, by virtue of Section I I thereof. Therefore. the mandate
and source of charging Education Cess is altogether different. The
B
excmpt10n notification which is issued under Section SA of the Excise
Act could exempt only the excise duty payable under the said statute
and not Education Cess which is payable under a different statute. He
fu11her submit~d that since the duty is to be paid first. education ccss
also becomes payable. When it comes to refund of the excise duty in
c terms of Notification dated April 25, 2007, it is only excise that would be
refunded and nut the cess. He also argued that circular dated April 08.
2011 was not binding on the Court. His further submission was that
even Calcutta High Cour, had taken identical view in Bi.1wu1wl11 Hosiery
Mills Ltd. & Am: v. U11io11 of llldia & Ors, 8.
D 16. It is clear from the arguments of the counsel for the parties
thm divergent views arc expressed by the CESTAT as well as High
Com1s. Even one Bench of the same Tribunal has differed from its
earlier Division Bench decision. In this scenario. it becomes important
as to how the Department has viewed the position regarding Education
Cess and Higher Education Cess which is payable as surcharge on the
E excise duty, on~c the excise duty is exempted. Two Circulars arc relevant
in this behalf, one is Circular dated August l 0. 2004 which clarifies that
Education Ccss is part of excise. In this Circular. certain clarifications
are given by the Ministry of Finance (Department of Revenue),
Government oflndia and relevant portion thereof reads as under:
F "Subject: Issues relating to imposition of Education Cess
on excisable goods and on imported goods, as pointed out
by the trade and the field formations-reg.
The undersigned is directed to state that subsequent to Budget
2004 announcements. a number of representations/ references
G have been received from the trade as well as from the field
formations pertaining to imposition of Education Ccss on excisable
goods and on imported goods. The points raised and the
clarifications thereon arc as follows.
'(c017) 346 ELT 353
H
M/S. SRD NUTRIENTS PRIVATE LIMITED v. COMMISSIONER 55
OF CENTRAL EXCISE GUWAHATI [A. K. SIKRI. J.]
Issue No. (I): Whether Education Cess on excisable goods A
is leviable on goods manufactured prior to imposition of Cess but
cleared after imposition of such ccss?
Clarification: Education Ccss on Excisable goods is a new
levy. In similar cases, it has been held by the Supreme Court that
if a levy is not there at the time the goods are manufactured or B
produced in India, it cannot be levied at the stage of removal of
the said goods. Thus, Education Cess is not lcviable on excisable
goods manufactured prior to imposition of cess but cleared after
imposition of such cess.
Issue No. (2): Whether goods that arc fully exempted from c
excise duty/customs duty or are cleared without payment of excise
duty/customs duty (such as clcarancc·undcr bond or fulfillment of
certain conditions) wou)d be subjected to Cess
Clarification: The Education Ccss is lcviablc at the rate of
two per cent of the aggregate of all duties of excise/customs D
(excluding certain duties of customs like anti dumping duty, safe
guard duty etc.), levied and collected. If goods arc fully
exempted from excise duty or customs duty, are chargeable to
NIL duty or arc cleared without payment of duty under specified
procedure such as clcai·ance under bond, there is no collection of
duty. Thus, no education ccss would be leviable on such clearances. E
In this regard, letter D.O. No. 605/54/2004-DBK, dated 21" July,
2004 issued by Member (Customs) may also be rnferred to."
17. Other Circular is dated April 08, 2011 issued by the Central
Board of Excise and Customs, New Delhi on the subject "education
cess and secondary and higher education cess-reg.". We would like to F
reproduce this Circular in its entirety:
"Education Cess and Secondary and Higher Education Ccss
also exempted when notifications exempt whole of Service
tax
Circular No. 134/3/2011-S.T., dated 8-4-2011 G
F.No. 354/42/2011-Tru
Government of India
Ministry of Finance (Department of Revenue)
Central Board of Excise & Customs, New Delhi
H
56 SUPREME COURT REPORTS [2017] II S.C.R.
A Subject : EJducation Cess and Secondar_v and High~r
Education Cess - Reg.
· ReprcsentMions have been received from the field formations,
seeking clarification regarding the applicability of service tax
exemption to Education Cess (refers to both Education Ccss
B leviable undenFinance (No.2) Act, 2004 and Secondary and Higher
Education Ccss lcviabk under Finance Act, 2007), under
notifications where 'whole of service tax' stands.exempted.
Apparently t!ie doubt arises in the context of Tribunal's Order in
the matter of Mis. Balasore Alloys Ltd. Vs CCE, Customs and
Service Tax. BBSR-I (2010-TIOL-!6S9-CESTAT-KOL) =
c 20 I 0(20)W.T.;R. 506 (Tribunal).
2. The issue has been examined. Though Tribunal's Order
n:fcrrcd above is in favor of revenue, it is inconsistent with the
policy intention of the Government to e'xempt cduc;1tion ccss in
addition to service tax, where 'whole of service tax' stands
D cxcmptcd.Aq;ording to section 95(1) ofFinance (No.2)Act. 2004
and section 140( I) of Finance Act, 2007, Education Cess and
Secondary and Higher Education Cess arc leviable and collected
as service tax, and when whole of service tax is exempt, the
same applies to education cess as well. Since Education Cess is
E levied and collected as percentage of Page I of 2 service tax,
when and whprcvcr service tax is NIL by virtue of exemption,
Education Cess would also be NIL.
3. This being the principle, field formations are directed not to
initiate proceedings to recover the education cess, where 'whole
F of service tax' stands exempted under the notification. Extending
the same principle, where education ccss has been refunded to
exporters along with service tax, by virtue of exemption notifications
where 'whole of service tax' is exempt, the same need not be
recovered.
G
4. Field formations may be instructed accordingly.
5. Please acknowledge the receipt ofthis circular: Hindi version
to follow.
18. No doubt, it clarified the position in relation to the exemption
from payment of service tax that was given vide Notification No. 41/
H
MIS. SRD NUTRIENTS PRIVATE LIMITED v. COMMISSIONER 57
OF CENTRAL EXCISE GUWAHATI (A. K. SIKRI, J.]
2007-ST dated October 06, 2007. We have gone through that Notification A
as well, which is inpari materia with Notification dated April 25, 2007.
What is important is that this Circular dated April 08, 20 I I refors to the
judgment of the Tribunal iri Balasore Alloys Ltd. v. CCE, Customs and
Service Tax, BBSR-1' which was a decision rendered in favour of the
Revenue as it was held therein that the Education Cess and Higher B
Education Cess would not be refunded while giving back the exempted
service tax. Notwithstanding the same, the Circular mentions that the
said order of the Tribunal is inconsistent with the policy intention of the
Government to exempt Education Cess in addition to service tax, 'whole
on service tax' stands exempted.
19. During arguments, when these circulars were referred to and c
relied upon by the learned counsel for the assessees, Mr. Adhyaru had
asked for some time to seek instructions from the Dcpa1tment in this
behalf. In order to give him a chance to seek the clarification, matter
was directed to be listed for direction on October I 0, 2017. On that day,
Mr. A<lhyaru produced the copy oflcttcr dated October 4, 2017 addressed D
by the Office of the Commissioner of Central Goods & Services Tax to
The Commissioner, Directorate of Legal Affairs, Central Board ofExcise
& Customs. In this communication, it is simply stated that refund of
central excise duty has been provided by exemption Notification dated
July 8, 1999 and dated April 25, 2007 to the manufacturing ul)its in the
North Eastern Region to give effect to the North Eastern Industrial E
Promotion Policy 1997 (NEIPP 97). There are no provisions for any
refuncVexcmption of service tax. It is further stated that in respect of
income tax, exemption is granted under Section 80IC of the Income Tax
Act. When we confronted the learned senior counsel with the fact that
it does not give specific answer to the query raised, the learned senior f
counsel took further time to file written submissions by October 23, 2017 ..
However, till date, no such written submissions are filed nor any
clarification provided.
20. One aspect that clearly emerges from the reading of these
two circulars is that the Government itself has taken the position that G
where whole of excise duty or service tax is exempted; even the Education
Ccss as well as Secondary and Higher Education Ccss would not be
payable. These circulars are binding on the Department.
' (20 I O-TIOL-1659-CESTAT-KOL)
H
58 SUPREME COURT REPORTS [2017 J 11 S.C.R.
A 21. Even otherwise, we arc of the opinion that it is more ranonal
to accept the aforesaid position as clanfied by the Ministry ot Finance in
the aforesaid circulars. Education Cess is on excise dllty. It means that
those assessces who arc required to pay excise duty have to shell out
Education Cess as well. This Education Ccss is introduced by Sections
91 to 93 oft~e Finance (No.2)Act, 2004. As per Section 91 thereoL
B
Education Cdss is the surcharge which the assessee is to pay. Section
93 makes it clear that this Education Cess is payable on ·excisable goocls"
i.e. in respect of goods specified in the first Schedule to the Central
Excise Tariff Act, 1985. Fw·thcr, this Education Cess is tu be levied(<~
2% and calculated on the aggregate of all duties of excise which arc
c levied and collected by the Central Government under the provisions of
Central Excise Act, 1944 or under any other law for the time being in
force. Sub-section (3) of Section 93 provides that the provisions of the
Central Excise Act, 1944 and the rules made thereunder, including those
related to refunds and duties etc. shall as far as may be applied in relation
to levy and collection of Education Cess on excisable goods. A conjoint
D
reading of these provisions would amply demonstrate that Education
Cess as a surcharge, is levied @ 2% on the duties of excise which arc
payable under· the Act. It can, therefore. be clearly inferred that when
there is no cx¢ise duty payable, as it is exempted, there would not be any
Education Ccss as well. inasmuch as Education Ccss (aj 2% is to be
E calculnted on the aggregate of duties of excise. There cannot be any
surcharge wh"'n basic duty itself is Nil.
22. lt is rightly pointed out by the learned counsel for the appellants
that the CESTAT in the earlier two judgments given in Bl1<1mt Box
Factory Ltd. µnd Cyrus S11rfacta11ts Pvt. Ltd. held that Education Cess
and Higher Education Cess would also be refundable along with excise
F
duty and in view thereof, another cu-ordinate Bench ofCESTAT could
not take a contrary view in Jindal Drugs Ltd. Judicial discipline
warranted reflerencc of the matter to the Larger Bench which it did not
do. In the impugnedjudgmcnt. while prderring to follow the view taken
in Jindal Drugs Ltd.. the Tribunal has not given any reasons for adopting
G this course ofoction. The Rajasthan High Court in the case of B111mvura
Sy11t11x Ltd. while holding that surcharge taken in the form of Education
Ccss shall also be rdundable has given the following reasons in support
of the said view:
"15. The very fact that the surcharge is collected as part of levy
H under three different enactments goes to show that scheme of
MIS. SRD NUTRIENTS PRIVATE LIMITED v. COMMISSIONER 59
OF CENTRAL EXCISE GUWAHATI [A. K. SIKRI, J.]
levy of Education Cess was by way of collecting special funds A
for the purpose of Government project towards providing and
financing universalised quality of basic education by enhancing
the burden of Central Excise Duty, Customs Duty, and Service
Tax by way of charging surcharge to be collected for the purpose
of Union. But, it was made clear that in respect of all the three
B
taxes, the surcharge collected along with the tax will bear the
same character of respective taxes to which surcharge was
appended and was to be governed by the rcspccti ve enactments
under which Education Cess in the form of surcharge is levied &
collected.
16. Apparently, when at the time of collection, surcharge has taken c
the character of parent levy, whatever may be the object behind
it, it becomes subject to the provision relating to the Excise Duty
applicable to it in the manner of collecting the same obligation of
the tax payer in respect of its discfoirge as well as exemption
concession by way of rebate attached with such levies. This aspect D
has been made clear by combined reading of sub-sections ( 1), (2)
& (3) of Section 93.
xxx xxx xxx
18. The Explanation appended to Notification dated 26.6.200 I
included within the ambit of Excise Duty any special Excise Duty E
collected under any Finance Act when under Finance Act, 2004 it
was ordained that Education Ccss to be collected as surcharge
on Excise Duty payable on excisable goods and shall be a Duty of
Excise, it became a special Duty of Excise by way of Education
Cess chargeable and collected under Finance Act, 2004 and fell F
within the ambit of clause (3) of Explanation appended. to
Notification dated 26/6/2001. Consequently, rebate became
.available on coJJcction of surcharge on Excise Duty under Finance
Act, 2004 in terms of existing Notification dated 26/6/2001
immediately. Later Notification including the Education Ccss in
enumerntive definition in the circumstances was only clarificatory G
and by way of abandoned caution, but not a new rebate in relation
to Excise Duty or any part thereof as statutorily pronounced as
well as specified Excise Duty levied and collected under the
Finance Act."
H
60 SUPREME COURT REPORTS [20 l 7] 11 S.C.R.
A We are in agreement with the aforesaid reasons accorded by th~
Rajasthan High Court. since it is in consonance with the legal pnnciple
enunciated by this Court. For this purpose. we may refer to the Judgment
in the case of Collector of Central E.~cise, Patna v. Tata Engineering
and Locomotive Co. 10 In that case, issue pertained to valuation of cess
which was lervied@ 1/8 per cent of ad valorem 'value' of the central
B
excise duty. The Court held that the calculation of 1/8 per cent ad
valorem of the motor vehicle for the purposes of the levy and collection
of the automobile cess must be made that was being calculated since
automobile cess was to be levied and calculated as if it was excise duty.
As a fortiorarl, the Education Cess and Higher Education Ccss levied@
c 2% of the excise duty would partake the character of excise duty itself.
Insofar as judgment of Calcutta High Court in Biswanatlt Hosiery
Mill.~ Ltd. case is concerned, we find that the same would have no
bearing in the present case. In the said case, ccss was payable under
Section 5A of the Textiles Committee Act, 1963. After going through
D the provisions of Textiles Committee Act, 1963 and the Textile's
Committee (Cess) Rules, 1975, the High Court found that as per the
scheme of Textiles Committee Act and the rules framed therein. levy of
cess was independent of excise under the Act which was a complete
code containing all the provisions relating to levy, collection, exemption
and application of cess. Therefore, even the legislative intendment
E underlying T~xtiles Committee (Amendment) Act and rules read with
the preamble, aims and objects of the Act was clearly disccrnable, namely,
the legislatu~e intended to levy the cess under the Act independent of
and in addition to the excise duty which was payable under the Central
. Excise and S~lt Act, 1944.
F 23. It is also trite that when two views are possible, one which
favours the asscssces has to be adopted.
24. For the aforesaid reasons, we allow these appeals and hold
that the appellants were entitled to refund of Education Cess and Higher
Education Cess which was paid along with excise duty once the excise
G duty itself was exempted from levy. There shall, however, be no order
as to cost.
Kalpana K. Tripathy Appeals allowed.
" 1997 (92) ELT 303 (SC)
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