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M/s. SRD Nutrients Private Limited Versus Commissioner of Central Excise Guwahati

2017 (11) TMI 655 - SUPREME COURT OF INDIA

Refund claim - EC/SHEC - Area Based Exemption - industrially backward area - 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? - Divergent views. - Held that: - Government itself has taken the position that where whole of excise duty or service tax is exempted, even the Education Cess as well as Secondary and Higher Education Cess would not .....

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Act, 1985. Further, this Education Cess is to be levied @ 2% and calculated on the aggregate of all duties of excise which are 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 .....

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ic duty itself is Nil. - When two views are possible, one which favours the assessees has to be adopted - there were divergent views in case laws cited, the one which favors the assessee has been followed - reliance placed in the two judgments given in Bharat Box Factory Ltd. [2007 (6) TMI 524 - CESTAT, NEW DELHI] and Cyrus Surfactants Pvt. Ltd. [2007 (6) TMI 325 - CESTAT, NEW DELHI] held that Education Cess and Higher Education Cess would also refundable along with excise duty. - The ap .....

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han JJ. CIVIL APPEAL NO. 5175 OF 2010, CIVIL APPEAL NO. 2988 OF 2016, CIVIL APPEAL NOS. 3981-3983 OF 2013, CIVIL APPEAL NOS. 2651-2660 OF 2011, CIVIL APPEAL NO. 8322 OF 2010, CIVIL APPEAL NOS. 8323-8324 OF 2010, CIVIL APPEAL NOS. 5927-5929 OF 2010, CIVIL APPEAL NOS. 3735-3750 OF 2011, CIVIL APPEAL NOS. 5022-5023 OF 2014, CIVIL APPEAL NO. 4597 OF 2010, CIVIL APPEAL NO. 4598 OF 2010, CIVIL APPEAL NO. 4599 OF 2010, CIVIL APPEAL NO. 4600 OF 2010, CIVIL APPEAL NO. 4601 OF 2010, CIVIL APPEAL NO. 4602 .....

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134 OF 2012), CIVIL APPEAL NO. 18439 OF 2017, (ARISING OUT OF SLP (C) NO. 21896 OF 2012), CIVIL APPEAL NO. 18440 OF 2017, (ARISING OUT OF SLP (C) NO. 22201 OF 2012), CIVIL APPEAL NO. 18441 OF 2017, (ARISING OUT OF SLP (C) NO. 21563 OF 2012), CIVIL APPEAL NO. 18442 OF 2017, (ARISING OUT OF SLP (C) NO. 26133 OF 2012), CIVIL APPEAL NOS. 8732-8735 OF 2013, CIVIL APPEAL NOS. 10253-10258 OF 2010, CIVIL APPEAL NOS. 10245-10252 OF 2010, CIVIL APPEAL NO. 8330 OF 2010, CIVIL APPEAL NO. 8326 OF 2010, CIVIL .....

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L NO. 8182 OF 2012, CIVIL APPEAL NOS. 8504-8509 OF 2012, CIVIL APPEAL NOS. 1445-1446 OF 2011, CIVIL APPEAL NOS. 1443-1444 OF 2011, CIVIL APPEAL NO. 720 OF 2012, CIVIL APPEAL NO. 18443-18446 OF 2017, (ARISING OUT OF SLP (C) NOS. 35647-35650 OF 2011), CIVIL APPEAL NO.4321-4322 OF 2013, CIVIL APPEAL NO.4292-4319 OF 2013 AND CIVIL APPEAL NO.4323-4325 OF 2013 For the Parties : Mr. Rakesh Dahiya, AOR, Mr. Mohd. Irshad Hanif, AOR, Mr. Pratap Venugopal, Adv., Ms. Surekha Raman, Adv., Mr. Anuj Sarma, Adv .....

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Mehta, Adv., Mr. Yogendra Aldak, Adv., Mr. M. P. Devanath, AOR, Mr. Anil Dutt, Adv., Mr. Praveen Kumar, AOR, Mr. Jay Savla, AOR, Ms. Renuka Sahu, Adv. And Mr. Mukesh Kumar Maroria, AOR JUDGMENT A.K. SIKRI, J. Leave granted in the special leave petitions. 2) In order to encourage the business community to set up manufacturing units in industrially backward areas like the North-Eastern States, viz. Assam, Jammu & Kashmir, Meghalaya, Tripura, Mizoram, Manipur, Nagaland, Arunachal Pradesh as wel .....

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duty leviable on such goods at the time of clearance as per the Tariff Act and thereafter 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 cleared during such period and was to pay only the balance amount in cash. It is this balance amount .....

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ess and Higher Education Cess 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 Cess and the Higher Education Cess that were paid by the manufacturers 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 al .....

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ereinafter referred to as the assessee ). 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. 5) Industrial Policy dated April 01, 2007 for the North-Eastern States, including the State of Assam, was announced by the Ministry of Commerce and Industry (Department of Industrial Policy and Promotion), Government .....

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referred to as the Act ) read with Section 3(3) of the 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 entitled to refund of duty paid other than the duty paid by way utilization of CENVAT credit under the CENVAT Credit Rules, 2004. Reproduction of th .....

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that it is necessary in the public interest so to do, hereby exempts the goods specified in the First Schedule to the Central Excise Tariff Act, 1985 (5 of 1986) other than those mentioned in the Annexure and cleared from a unit located in the States of Assam or Tripura or Meghalaya or Mizoram or Manipur or Nagaland or Arunachal Pradesh or Sikkim, as the case may 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 manufac .....

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ays 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 other than the amount of duty paid by utilisation of CENVAT credit under the CENVAT credit Rules, 2004, to the Assistant Commissioner or the Deputy Commissioner of Central Excise, as the case may be, by the 7th of the next month in which the duty has been paid other than the amount of duty pa .....

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produced by a manufacturer, such refund shall not exceed the amount of duty paid less the amount of the CENVAT credit availed of, in respect of the duty paid on the inputs 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 Commissioner of Central Excise, as the case may be, shall refund the amount on provisional basis by the 15th of the next month to .....

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fied in the notification, excisable goods of any specified description from the whole or any part of duty of excise leviable 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 Section 5A of the Act. Thus, the central excise duty, which is payable at the rates specified in the Tariff Act, can be exempted, in respect of specified goods, wholly .....

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the 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 Education Cess levied under sub-section (11) of section 2 and this Chapter for the purposes specified in sub-section (1), as it may consider necessary. 92. Definition. - The words and expressions used in this Chapter and defined in the Central Excise Act, 1944 (1 of 1944), .....

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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 Ministry of Finance (Department of Revenue), under the provisions of the Central Excise Act, 1944 (1 of 1944) or under any other law for the time being in force. (2) The Education Cess on excisable goods shall be in addition t .....

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e duties of excise on such goods under the Central Excise Act, 1944 or the rules, as the case may be. 8) As the assessee was denied refund of the Education Cess and Higher Education Cess, he challenged the order of the Assessing Officer by filing appeal before the Commissioner of Central Excise and Customs (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 (CES .....

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(Tri.-Del.) In both these decisions, the Delhi Bench of the Tribunal had opined that the Education cess and Higher Education Cess were also refundable along with the excise duty. 10) The Revenue, on the other hand, had relied upon another judgment of Tribunal in the case of Commissioner of Central Excise, Jammu v. Jindal Drugs Ltd. 2011 (267) ELT 653 (Tri.-Del.). In this judgment which was also rendered by the Delhi Bench of the Tribunal, a contrary view has been taken, viz., the Excise Departme .....

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r the appellant was vehement in 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 the learned counsel, the view taken in Cyrus Surfactants Pvt. Ltd. needs to be approved. In this behalf, he argued that reading of .....

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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 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. 134/3/211/ST dated April 08, 2011 issued by the Excise Department amply clarifying that since the Education Cess is levied and collected as percentage .....

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so argued that in the scenario where there are two divergent 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 Surfactants Pvt. Ltd., he referred to the judgment of this Court Assistant Commissioner of Commercial Taxes (Asstt.) Dharwar v. Dharmendra Trading Company Etc. Etc. (1998) 3 SCC 570. 13) He also relied upon the decision in the case o .....

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ining this amount once the excise duty itself got exempted. 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 and Another AIR 1977 SC 2279 : (1977) 40 STC 497 : 34. Section 37(1) uses the expressions, in relation to forfeiture, any sum collected by the person . . . shall be forfeited'. What does collected mean here? Words cannot be construed effectively without reference to their context. The .....

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f it was not legally payable it will be returned' : (Words & Phrases, p.274). We therefore semanticise collected not to cover amounts gathered tentatively to be given back if found non-exigible from the dealer. 15) 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 Jindal Drugs Ltd. case which has been accepted by the High Court as well. His argumen .....

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under Section 5A 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 further submitted that since the duty is to be paid first, education cess also becomes payable. When it comes to refund of the excise duty in terms of Notification dated April 25, 2007, it is only excise that would be refunded and not the cess. He also argued that circular dated April 08, 2011 was not binding on the Court. His .....

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ucation Cess and Higher Education Cess which is payable as surcharge on the excise duty, once the excise duty is exempted. Two Circulars are relevant in this behalf, one is Circular dated August 10, 2004 which clarifies that Education Cess is part of excise. In this Circular, certain clarifications are given by the Ministry of Finance (Department of Revenue), Government of India and relevant portion thereof reads as under: Subject: Issues relating to imposition of Education Cess on excisable goo .....

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goods manufactured prior to imposition of Cess but cleared after imposition of such cess? Clarification: Education Cess 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 produced in India, it cannot be levied at the stage of removal of the said goods. Thus, Education Cess is not leviable on excisable goods manufactured prior to imposition of cess but cleared after imposition of such cess .....

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excise duty or customs duty, are chargeable to NIL duty or are cleared without payment of duty under specified procedure such as clearance under bond, there is no collection of duty. Thus, no education cess would be leviable on such clearances. In this regard, letter D.O. No. 605/54/2004-DBK, dated 21st July, 2004 issued by Member (Customs) may also be referred to. 17) Other Circular is dated April 08, 2011 issued by the Central Board of Excise and Customs, New Delhi on the subject education ce .....

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n received from the field formations, seeking clarification regarding the applicability of service tax exemption to Education Cess (refers to both Education Cess leviable under Finance (No.2) Act, 2004 and Secondary and Higher Education Cess leviable under Finance Act, 2007), under notifications where 'whole of service tax' standsmpted. Apparently the 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 (20 .....

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cted as service tax, and when whole of service tax is exempt, the same applies to education cess as well. Since Education Cess is levied and collected as percentage of Page 1 of 2 service tax, when and wherever service tax is NIL by virtue of exemption, Educ uon 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 of service tax' stands exempted under the notification. Extending the same .....

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We have gone through that Notification as well, which is pari material with Notification dated April 25, 2007. What is important is that this Circular dated April 08, 2011 refers to the judgment of the Tribunal in Balasore Alloys Ltd. v. CCE, Customs and Service Tax, BBSR-I (2010-TIOL-1659-CESTAT-KOL) which was a decision rendered in favour of the Revenue as it was held therein that the Education Cess and Higher Education Cess would not be refunded while giving back the exempted service tax. No .....

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, matter was directed to be listed for direction on October 10, 2017. On that day, Mr. Adhyaru produced the copy of letter dated October 4, 2017 addressed by the Office of the Commissioner of Central Goods & Services Tax to The Commissioner, Directorate of Legal Affairs, Central Board of Excise & 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 manufacturin .....

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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 where whole of excise duty or service tax is exempted, even the Education Cess as well as Secondary and Higher Education Cess would not be payable. These circulars are binding on the Department. 21) Even otherwise, we are of the opinion that it is more rational to a .....

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. in respect of goods specified in the first Schedule to the Central Excise Tariff Act, 1985. Further, this Education Cess is to be levied @ 2% and calculated on the aggregate of all duties of excise which are 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 rela .....

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lated on the aggregate of duties of excise. There cannot be any surcharge when basic duty itself is Nil. 22) It is rightly pointed out by the learned counsel for the appellants that the CESTAT in the earlier two judgments given in Bharat Box Factory Ltd. and Cyrus Surfactants Pvt. Ltd. held that Education Cess and Higher Education Cess would also refundable along with excise duty and in view thereof, another co-ordinate Bench of CESTAT could not take a contrary view in Jindal Drugs Ltd. Judicial .....

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is collected as part of levy under three different enactments goes to show that scheme of levy of Education Cess was by way of collecting special funds 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 taxes, the surcharge collected .....

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he tax payer in respect of its discharge as well as exemption concession by way of rebate attached with such levies. This aspect 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 26.6.2001 included within the ambit of Excise Duty any special Excise Duty collected under any Finance Act when under Finance Act, 2004 it was ordained that Education Cess to be collected as surcharge on Excise Duty pa .....

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on in the circumstances was only clarificatory 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. We are in agreement with the aforesaid reasons accorded by the Rajasthan High Court, since it is in consonance with the legal principle enunciated by this Court. For this purpose, we may refer to the judgment in the case of Collector of Central Exci .....

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