9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2025 (5) TMI 1219 - HC - Central ExciseRecovery of CENVAT Credit with penalty - payment of duty under Sugar Cess Act 1982 can be claimed as Cenvat Credit when the Cenvat Credit Rules does not provide payment of cess under the Sugar Cess Act 1982 as not being eligible under Rule 3 of the said Rules or not - Sugar Cess imposed under the provisions of the Cess Act can assume the characteristic of the Central Excise Duty or not - non-consideration of provisions of sub-section (4) of Section 3 of the Cess Act which is for the purpose of levy and collection of cess relating to Sugar - cess paid under a different statutory provisions which is not related or connected with the duties payable under the Central Excise Act can qualify as a credit component under the Cenvat Excise Act and as such since the Sugar Cess does not qualify the eligibility criteria fixed in the said Rules or not. HELD THAT - The Hon ble Court after taking note of the above submissions proceeded to first take up for consideration the question as to whether the cess paid under the Act is a fee or tax. After elaborate discussions and after referring to several decisions of the Hon ble Supreme Court in Shree Renuka Sugars Ltd. 2019 (2) TMI 1242 - SC ORDER including the Constitutional Bench of the Hon ble Supreme Court it was held that the traditional view that there must be actual quid pro quo for fee has undergone a sea change in the recent years. The tax recovered by a public authority invariably goes into the Consolidated Fund which ultimately is utilized for public purposes; whereas a cess levied by way of fee is not intended to be and does not become a part of the Consolidated Fund. Thereafter the Court took into consideration Article 266 ad 270 of the Constitution of India and with the following reasoning it was held that the sugar cess paid under the Act is tax and to be precise it is duty of excise and not fee. The other contention which was raised by the revenue in Shree Renuka Sugars Ltd. which is also argued before us is that to be eligible for Cenvat credit it is necessary that the Act should have been mentioned in Rule 3 of the Cenvat Credit Rules. This issue was answered by the Court after taking into consideration Section 3 of the Central Excise Act 1944 which is the charging section and the other provisions of the Act and the Cenvat Credit Rules and it was held that excise duty is leviable under the Central Excise Act and also the Sugar Cess Act 1982 - Ultimately the Court held that Section 3 of the Act provides for levy and collection as a cess for the purpose of Sugar Development Fund Act 1982 a duty of excise on all sugar produced by any sugar factory in India and therefore the cess leviable and collected is at the stage of production of sugar in the sugar factory. Because it is a tax on production it is described as a duty of excise. Conclusion - i) The sugar cess levied under the Sugar Cess Act 1982 is a duty of excise and not a fee as its proceeds are credited to the Consolidated Fund of India and utilized for public purposes negating the traditional quid pro quo characteristic of fees. ii) The cess paid under the Sugar Cess Act is eligible for CENVAT credit under the CENVAT Credit Rules 2004 and the assessee is entitled to refund claims arising therefrom. The appeal filed by the revenue is dismissed and the substantial questions of law are answered against the revenue.
The core legal questions considered by the Court in this appeal filed by the revenue under Section 35G of the Central Excise Act, 1944, challenging the Tribunal's order, are as follows:
i) Whether payment of duty under the Sugar Cess Act, 1982 can be claimed as CENVAT credit given that the CENVAT Credit Rules, 2004 do not explicitly provide for payment of cess under the Sugar Cess Act as eligible under Rule 3 of those Rules. ii) Whether the Tribunal erred in its interpretation of the Sugar Cess Act, 1982 vis-`a-vis the Central Excise Act, 1944, particularly whether the sugar cess imposed under the Cess Act can be characterized as Central Excise Duty. iii) Whether the Tribunal failed to consider that sub-section (4) of Section 3 of the Sugar Cess Act, 1982, which relates to levy and collection of cess, implies that cess paid under a different statutory provision, unconnected with duties payable under the Central Excise Act, cannot qualify as a credit component under the CENVAT Credit Rules. The Court's analysis proceeded by first acknowledging the precedent set by the Division Bench of the Karnataka High Court in Shree Renuka Sugars Ltd., which dealt with identical issues and whose decision was binding as the appeal to the Supreme Court was disposed of as not pressed. Regarding the first issue, the Court examined whether the sugar cess under the Sugar Cess Act, 1982 qualifies as a duty of excise eligible for CENVAT credit under the CENVAT Credit Rules, 2004. The revenue contended that since the CENVAT Credit Rules do not explicitly list the Sugar Cess Act cess as eligible under Rule 3(1), such cess payments cannot be claimed as credit. The assessee argued that the cess is a duty of excise on sugar produced, levied in addition to the Central Excise duty, and that Section 2A of the Central Excise Act, 1944, incorporates such cess within the ambit of excise duty for CENVAT purposes. The Court then addressed the nature of the sugar cess-whether it is a fee or a tax. It relied on constitutional provisions, notably Articles 266 and 270, and authoritative Supreme Court precedents, including Constitutional Bench rulings, to clarify that the traditional requirement of a quid pro quo for a fee has evolved. The Court noted that taxes collected by public authorities go into the Consolidated Fund and are used for public purposes, whereas fees are generally not credited to the Consolidated Fund. Specifically, Section 4 of the Sugar Cess Act explicitly provides that proceeds of the duty of excise under Section 3 are credited to the Consolidated Fund of India. Sub-section (2) of Section 3 mandates that after appropriation by Parliament, the amount is credited to the Sugar Development Fund. This statutory scheme establishes that the cess collected is a tax, not a fee, as there is no direct quid pro quo between the cess paid and services rendered. The Court held: "Therefore, there is no quid pro quo between the cess levied and collected and the services rendered for such payment. On the contrary, the proceeds are credited to the Consolidated Fund of India which is meant to be utilized for all public purposes... the cess imposed under the Act is a duty of excise or a tax. The contention that it is a fee and the assessee is not entitled to Cenvat credit has no substance. Therefore, the sugar cess paid under the Act is tax, and to be precise it is Duty of Excise and not fee." On the second issue, the Court considered the contention that the Sugar Cess Act cess cannot assume the character of Central Excise Duty. The Court observed that excise duty is leviable under both the Central Excise Act, 1944 and the Sugar Cess Act, 1982. It referred to provisions relating to additional customs duty (countervailing duty) which is calculated based on excise duty leviable on like articles produced in India. The Court emphasized that the cess is levied at the stage of production of sugar in sugar factories, making it a tax on production and hence a duty of excise. In addressing the argument that the cess must be specifically mentioned in Rule 3 of the CENVAT Credit Rules to qualify for credit, the Court examined the charging provisions under Section 3 of the Central Excise Act, 1944, and the interplay with the Sugar Cess Act. It held that since the cess is a duty of excise levied under the Sugar Cess Act, it falls within the ambit of excise duties eligible for CENVAT credit, notwithstanding its absence from the explicit list in Rule 3(1). The Court reasoned that the CENVAT Credit Rules are subordinate legislation and must be construed in harmony with the charging provisions of the parent statute. The Court also considered the revenue's contention based on sub-section (4) of Section 3 of the Sugar Cess Act, which relates to the purpose of levy and collection of cess for the Sugar Development Fund. It rejected the argument that the cess being levied under a different statute and for a different purpose disqualifies it from being treated as excise duty for CENVAT credit. The Court held that the statutory scheme clearly treats the cess as a duty of excise, and its proceeds are credited to the Consolidated Fund, thus qualifying it as a tax and duty of excise. In conclusion, the Court affirmed the Tribunal's decision which had allowed the assessee's appeal and granted consequential relief, including refund claims. The Court dismissed the revenue's appeal and answered the substantial questions of law against the revenue. Significant holdings include the following core principles: 1. The sugar cess levied under the Sugar Cess Act, 1982, is a duty of excise and not a fee, as its proceeds are credited to the Consolidated Fund of India and utilized for public purposes, negating the traditional quid pro quo characteristic of fees. 2. The cess, being a duty of excise levied on the production of sugar, is leviable under the Central Excise Act, 1944 as well as the Sugar Cess Act, 1982, and qualifies as excise duty for the purposes of CENVAT credit. 3. The absence of explicit mention of the Sugar Cess Act cess in Rule 3(1) of the CENVAT Credit Rules does not preclude the assessee from claiming credit, as the charging provisions of the parent statute govern the levy and credit eligibility. 4. The cess paid under the Sugar Cess Act is eligible for CENVAT credit under the CENVAT Credit Rules, 2004, and the assessee is entitled to refund claims arising therefrom. The Court's reasoning, particularly in paragraph 27, is preserved verbatim for its crucial legal import: "In the instant case, Section 4 of the Act explicitly provides that the proceeds of the duty of excise levied under Section 3 shall be credited to the Consolidated Fund of India. Sub-section (2) of Section 3 of the Sugar Development Fund Act. 1982, provides that the amount so credited, shall after due appropriation made by Parliament by law be credited to the Sugar Development Fund. Thus the cess collected under the Act invariably goes to the Consolidated Fund, which ultimately is utilized for all public purposes. Therefore, there is no quid pro quo between the cess levied and collected and the services rendered for such payment. On the contrary, the proceeds are credited to the Consolidated Fund of India which is meant to be utilized for all public purposes, may be including the purpose contemplated under the Sugar Development Fund Act, 1982. In the light of the aforesaid statutory provisions, the cess imposed under the Act is a duty of excise or a tax. The contention that it is a fee and the assessee is not entitled to Cenvat credit has no substance. Therefore, the sugar cess paid under the Act is tax, and to be precise it is Duty of Excise and not fee."
|
