EXPLANATORY NOTIFICATIONS.

[Mr. M. GOVINDARAJAN]

                        A law on a particular subject will not cover all aspects of the subject.  If any change is to be made the particular act is to be amended.   Since the amendment will taken time the provisions of law gives powers to the respective Governments to issue notifications in the Official Gazette on the subject on which power is given.  In tax laws issuance of notifications are common.  A notification may be amended subsequently or superseded by another notification.   Clarificatory notifications, explanatory notifications are also issued.

                        A notification is the act of notifying, or giving notice; the act of making known; especially, the act of giving official notice or information to the public or to individuals, corporations, companies or societies, by words, by writing or by other means.  Thus a notification is issued to give some information on the subject matter.

                        The stakeholders are to watch the issue of such notifications to avail the benefits, if any, notified in these notifications.  It is settled law that in order to claim benefit of a Notification, a party must strictly comply with the terms of notification.   If on wording of the Notification the benefit is not available then by stretching the words of the notification or by adding words to the Notification benefit cannot be conferred. 

                        The issue to be discussed in this article is whether the explanatory notification is prospective or retrospective to the date of original notification with reference to decided case law.

                        In ‘Loyal Textile Mills Limited V. Joint Secretary, Ministry of Finance (D.R.’ – 2012 (280) ELT 8 (Mad) the petitioner is engaged in manufacture of cotton yarn and polyester cotton yarn falling under Chapter heading 52 of Central Excise Tariff Act, 1985.   The petitioner pays the Central Excise duty with respect to clearances effected for domestic requirements, as also for export.  The petitioner is entitled to rebate for all the duties and excise goods on the exported goods.

                        Education Cess was levied as duty of excise with effect from 09.07.2004 as per provisions of clause 81, 83 and 84 of the Provisional Collection of Taxes Act, 1931.  Since the petitioner also paid education cess with effect from 09.07.2004 the petitioner is eligible for refund of education cess besides excise duty.  The benefit for rebate of the whole of the duty paid on all excisable goods falling under the First Schedule to the Central Excise Tariff Act, exported to any country was under Notification dated 26.06.2001 which was later adopted.  The Notification, imposing central excise and education cess with effect from 09.06.2004 was by way of partial modification superseding the notification in force.

                        On 06.09.2004 the Government issued explanation to Notification No. 90/2004.  The explanation issued under this notice is read as under-

“Explanation I – ‘duty’ for the purpose of this notification means, duties of excise collected under the following enactments, namely:

• The Central Excise Act, 1944;
• The Additional Duties of Excise (Goods of Special Importance) Act, 1957;
• The Additional Duties of Excise (Textiles and Textile Articles) Act, 1978;
• The National Calamity Contingent Duty leviable under Section 136 of the Finance Act, 2001 as amended by Section 169 of the Finance Act 2003 and further amended by Section 3 of the Finance Act, 2004;
• Special excise duty collected under a Finance Act;
• Additional duty of excise as levied under Section 157 of the Finance Act, 2003;
• Educational Cess on excisable goods as levied under clause 81 read with clause 83 of the Finance (No.2) Bill, 2004;

The petitioner claimed refund on education cess paid as part of excise duty.  The claim was rejected by the Assistant Commissioner of Central Excise.  The petitioner preferred an appeal against the order of Assistant Commissioner before the Commissioner of Central Excise (Appeals)  The Commissioner (Appeals) upheld the findings of the Assistant Commissioner.

                        Aggrieved against the order of the Commissioner (Appeals), the petitioner filed a revision petition before the Government vide Section 35EE of the Central Excise Act, 1944.  The revision petition was dismissed by the Government.  The revision petitioner held as – On a careful consideration of the Notification No. 40/2001-CE (NT),dated 20.06.2001, as amended, Government, finds that the Notification permits rebate of whole of the duty paid on all excisable goods falling under the First Schedule to the Central Excise Tariff Act, 1985 and explanation I further clarified duties which can be rebated.  It is admitted fact that education cess is not mentioned in the Explanation I to Notification mentioned above.   A plain reading of the explanation I of the Notification No.41/2001-CE (NT), dated 26.6.2001as amended reveals that it is of restrictive nature and under Notification such duties can be rebated which have been mentioned in the above said explanation of the Notification.  The provisions of the said Notification regarding duties to be rebated are very clear and there is no ambiguity which requires any clarification.  Similarly perusal of the Notification No. 19/2004-CE (NT), dated 6.9.2004 and in supersession of the Ministry of Finance, Department of Revenue Notification No. 40/2001-CE (NT), dated 26.06.2001 also reveals that there is nothing in the Notification to show that the provisions of the Notifications have been given retrospective effect.

                        The petitioner challenged the order in revision petition before the High Court in the present writ petition.  The petitioner contended the following:

• The education cess is a part of central excise and was also paid as such;  The petitioner was entitled to the refund of central excise, inclusive of education cess;
• In any case, if there was any doubt regarding interpretation of the notification that stood clarified by way of explanation;
• The petitioner had complied with the terms of notification;

The High Court found that there is no dispute that the notification did cover the case of the petitioner.   The only question was as to whether the explanation given to the notification can be treated to be an independent notification or the notification already issued, and thus, operative from the date of original notification.  The High Court held that the customs authorities are not right in rejecting the claim of refund of education cess by treating the explanatory notification to be prospective.   The High Court further held that the explanatory notifications are in the nature of judgment of courts, which only interpret the existing rights.  The explanatory notification is thus to be treated as part and parcel of the notification, which is clarified, by explanatory notification, there if operative from the date of original notification, as in absence of clarificatory notification, the original notification is required to be read as explained in the subsequent explanatory notification.  The explanatory notification, being part of original notification, therefore has to apply from the date of original notification and does not operate with prospective effect, as it does not give any substantive right independently.