TMI Blog2019 (12) TMI 230X X X X Extracts X X X X X X X X Extracts X X X X ..... ion, to an existing tax (namely, basic duty of excise). Once it is seen that these cesses and duties are also excise duties and on that basis are included in the Cenvat credit scheme, as indicated by Rule 3 itself, the fact that these are referred to as cesses or duties looses its significance altogether; it is hardly determinative for construing the expression duty of excise . The substantial question of law is answered in the negative, i.e. in favour of the Assessee and against the Revenue. Whether ten percent (eight percent, under the earlier Rules) of the sale price referred to in clause (b) of Sub-rule (3) of Rule 6 is to be included in the total price of final goods exigible to duty or is it eligible for deduction as a tax from such total price. - Held that:- In Chhata Sugar Co.Ltd. [ 2004 (2) TMI 67 - SUPREME COURT ], the Supreme Court has held that to compute excise duty as a predetermined amount without making permissible deductions for reducing the cum-duty selling price was a fallacy both legally or mathematically. These observations are clearly apposite in the present case. After payment of ten or eight percent amount, as the case may be, which, as we have s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CENTRAL EXCISE APPEAL NO. 119 OF 2007 WITH CENTRAL EXCISE APPEAL NO. 220 OF 2007, CENTRAL EXCISE APPEAL NO. 221 OF 2007, CENTRAL EXCISE APPEAL NO. 202 OF 2007, CENTRAL EXCISE APPEAL NO. 234 OF 2007, 145 OF 2007,225 OF 2008, 120 OF 2007 - - - Dated:- 4-12-2019 - M.S. SANKLECHA S.C. GUPTE, JJ. Mr.Sriram Sridharan, Senior Advocate, with Mr.Prakash Shah i/b. PDS Legal for Appellants in CEXA 119/2007, 120/2007, 145/2007, 202/2007, 234/2007, 225/2008. Ms. P.S. Cardozo for Appellants in CEXA 220/2007, 221/2007. Ms. P.S. Cardozo for Respondents in CEXA 119/2007, 120/2007, 145/2007, 202/2007, 234/2007, 225/2008. JUDGMENT (Per S.C. GUPTE, J.) : These appeals, filed under Section 35G of the Central Excise Act, 1944, challenge an order dated 16th February, 2007 passed by the Customs Excise and Service Tax Appellate Tribunal, West Zone Branch, Mumbai (Tribunal) in appeal. The impugned order, Order No.A/107 to 110/2007/C.1(EB), passed in Appeal Nos.3/2183, 2184, 471, 3118/06 , disposed of four appeals filed by the Assessee herein involving Cenvat credit in respect of inputs used for manufacture of exempted as well as dut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e case CESTAT was correct in holding that amount of 10% is payable by the Appellate under Rule 6(3)(b) of the Cenvat Credit Rules, 2004 on the sale price charge by the Appellant for the tractors without excluding 10% payable in terms of Rule 6(3) (b)? 3. The Revenue s appeals (being Appeal Nos.220 and 221 of 2007) were admitted on the following substantial questions of law:- (a) Whether on true and proper interpretation of Rule 6(1) of Cenvat Credit Rules 2004 the Assessee is not entitled to take Cenvat Credit on the inputs used exclusively for manufacture of Exempted Goods i.e. Tractor w.e.f. 08-072004? (b) Whether the Tribunal is justified in holding that the Assessee is entitled to take Cenvat Credit on all inputs including inputs exclusively used in the manufacture of Exempted Final Product contrary to the provisions of Rule 6(1) of Cenvat Credit Rules 2004? (c) Whether the Notification No.27/2005 CE (NT) dated 16-05-2005 adding Explanation III to Rule 6 (3) only is not applicable to Rule 6(1) of Cenvat Credit Rules, 2004? (d) Whether the Notification No.27/2005-CE (NT) dated 16-05-2005 which clarifies the provisions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pto 9.9.2004) and 10% (from 10.9.2004) of the total price (excluding sales tax and other taxes) of exempted final goods (i.e. tractors) cleared for home consumption. These amounts (8% or 10%, as the case may be) were recovered from its customers by the Assessee in addition to the sale price charged. It was the Department s case that these amounts were payable on the entire amount recovered from the customer, that is to say, not just the net sale price, but the sale price plus 8% / 10% duty. Since they were not so paid, demands were raised on the Assessee. The Department also found that the Assessee had taken credit in respect of some inputs which were exclusively used for the manufacture of exempted goods and issued show cause notices, accordingly, demanding recovery of the credit wrongfully taken. The Commissioner, Central Excise, Mumbai held against the Assessee on all issues. Being aggrieved, the Assessee filed appeals before the tribunal. The tribunal partly allowed the appeals. The Department and the Assessee are aggrieved by different parts of the order, as noted above. Legal Provisions : 6. We are essentially concerned here with the interpretation of vari ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the said First Schedule used in the manufacture of fertilizer; iv. Omitted. v. newsprint, in rolls or sheets, falling within heading No.48.01 of the said First Schedule; vi. final products falling within Chapters 50 to 63 of the said First Schedule; vii. Naptha (RN) and furnace oil falling within Chapter 27 of the said First Schedule used for generation of electricity; viii. goods supplied to defence personnel or for defence projects or to the Ministry of Defence for official purposes, under any of the following notifications of the Government of India in the erstwhile Ministry of Finance (Department of Revenue), namely:- (1) No. 70/92-Central Excise, dated the 17th June, 1992, G.S.R.595 (E), dated the 17th June, 1992; (2) No. 62/95-Central Excise, dated the 16th March, 1995, G.S.R.254 (E), dated the 16th March, 1995; (3) No. 63/95-Central Excise, dated the 16th March, 1995, G.S.R.255 (E), dated the 16th March, 1995; (4) No. 64/95-Central Excise, dated the 16th March, 1995, G.S.R.256 (E), dated the 16th March, 1995, the manufacturer shall pay an amount equivalent to the CENVAT cr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s as follows: exempted goods means goods which are exempt from the whole of the duty of excise leviable thereon, and includes goods which are chargeable to Nil rate of duty; In supercession of the aforesaid rules of 2002, the Central Government framed Cenvat Credit Rules, 2004 (with effect from 10.9.2004). Sub-Rules (1) and (2) of Rule 6 of these Rules are more or less similar to the old Rules, i.e. 2002 Rules (at least for our purposes). Sub-Rule (3) of Rule 6 of 2004 Rules contains material changes and is quoted below: RULE 6. Obligation of manufacturer of dutiable and exempted goods and provider of taxable and exempted services. (3) Notwithstanding anything contained in sub-rules (1) and (2), the manufacturer or the provider of output service, opting not to maintain separate accounts, shall follow either of the following conditions, as applicable to him, namely:- (a) if the exempted goods are - (i) goods falling within heading No.22.04 of the First Schedule to the Excise Tariff act (hereinafter in this rule referred to as the said First Schedule); (ii) Low Sulphur Heavy Stock (LSHS) falling within C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the manufacturer or provider of output service by debiting the CENVAT credit or otherwise. Explanation II.- If the manufacturer or provider of output service fails to pay the said amount, it shall be recovered along with interest in the same manner, as provided in rule 14, for recovery of CENVAT credit wrongly taken. Explanation III For the removal of doubts, it is hereby clarified that the credit shall not be allowed on inputs and inputs services used exclusively for the manufacture of exempted goods or exempted services. (Explanation III was added by notification No.27/2005-C.E. (N.T.) dated 16 May 2005.) Consideration of the questions framed : 7. Re. Question (i):- 7(a) The Assessee claims Cenvat credit of input tax (all duties of excise paid on inputs and described in Rule 3) for payment of auto cess and education cess (which, it submits, are nothing but duties of excise) on the finished tractors. The Department objects to this credit. It claims that tractors are exempt from duty of excise (that is to say, basic duty of excise) and therefore, no Cenvat credit of input tax can be availed of in case o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... referred to in Rule 3(1)(i) and (ii) alone and nowhere else, and such duty of excise does not include other duties or cesses, which are separately referred to in Rule 3(1). 7(c) Ms.Cardozo, learned Counsel for the Department, supports the tribunal s conclusion. She relies on a Division Bench decision of Uttarakhand High Court in the case of Hero Motocorp Ltd. vs. Commissioner of Central Excise 2018 (14) G.S.T.L. 200 (Uttarakhand) to support it. In Hero Motocorp , the appellant before the court was a manufacturer of motor cycles, which were exempt from payment of basic excise duty, but were subject to National Calamity Contingent Duty ( NCCD ), Education cess ( EC ), and Secondary and Higher Education Cess ( SHEC ). The appellant adjusted Cenvat credit of duty paid on inputs against payment of NCCD, EC and SHEC. Uttarakhand High Court observed that NCCD and the cesses were undoubtedly surcharges by way of duties of excise, but they were not levies under the Act; they were levies under the concerned Finance Acts. Since they were part of the basket of levies embraced under Rule 3(1) of Cenvat Credit Rules making up the aggregate Cenvat credit, there was no doubt the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e case of Guruswamy Co. vs. State of Mysore (1967) 1 SCR 548, cess means nothing but tax and must be judged of in the same way as the validity of the tax (here, excise duty) to which it is an increment; and as for the taxing power of the State for its levy, it can be traced only to Entry 84 of Schedule VII to the Constitution, which is tax on manufacture of goods , i.e. excise duty. Besides, as explained in TVS Motor Co.Ltd. vs. Union of India 2015 (323) E.L.T. 57 (Kar.), the phrase duties of excise and duty of excise were used originally in the Act interchangeably, namely, sometimes in plural and sometimes in singular. When the new term Cenvat came to substitute these terms as on 12 May 2000, in order to overcome the difficulty of replacing these words in the entire Act, Section 2A was introduced in the Act with effect from 12 May 2000 by Finance Act, 10/2000, whereunder the expressions duty , duties , duty of excise and duties of excise were to be construed to include a reference to Central Value Added Tax (Cenvat) . As the Supreme Court said in TVS Motor Co.Ltd., this clearly indicated that there could be no distinction between the phrases duty , ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er the Act and not the other duties. It was argued by the assessee before the Supreme Court that the expression duty of excise was one of large amplitude and in the absence of restrictive or limitative words indicating that it was intended to refer to only duty of excise leviable under the Act, it must be held to cover all duties of excise - whether leviable under the Act or any other enactment. The assessee contrasted the subject notifications with other notifications issued under the Act which specifically confined the exemption granted thereunder to duty of excise leviable under the Act unlike the subject notifications. The court did not find much substance in this submission. The court was of the view that it was not uncommon to find that the legislature, sometimes, with a view to making its intention clear beyond doubt, uses language ex abundanti coutela though it may not be strictly necessary, but, even without it, the same intention could be spelt out as a matter of judicial construction. The court observed that this would be more so in the case of subordinate legislation made by the executive. Though the officer drafting a particular piece of subordinate legislation in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ight be prevailing then. The court repelled the assessee s argument that sub-section (4) of Section 32 of the Finance Act, 1979 - there being an identical provision in each Finance Act levying special duty of excise - which provided that the provisions of the Act and the Rules made thereunder, including those relating to refunds and exemptions from duty, shall, as far as may be, apply in relation to levy and collection of such special duty of excise as they apply in relation to levy and collection of the duty of excise under the Act. The court observed that undoubtedly, by reason of Sub-section (4) of Section 32 of the Finance Act and similar provisions in other Finance Acts, Rule 8(1) would become applicable, empowering the Central Government to grant exemption from payment of special duty of excise, but whenever the Central Government exercised such power, it would be doing so under Rule 8(1) read with Subsection (4) of Section 32 or other similar provision. The reference to the source of power in such a case would not be just to Rule 8(1), since it did not of its own force and on its own language apply to granting exemption in respect of special duty of excise; the reference wou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y, when the case of Hero Motocorp was carried in appeal by the assessee, the Supreme Court allowed the appeal, though that was on the ground that NCCD, as held by the Supreme Court in Bajaj Auto Limited vs. Union of India 2019(5) SCALE 325, was in the nature of excise duty and the assessee was, accordingly, entitled to the benefit of the exemption notification. The decision in Bajaj Auto Ltd. was, in turn, based on the case of SRD Nutrients Pvt. Ltd. vs. Commissioner of C.Excise, Guwahati 2017 (335) E.L.T. 481 (S.C.). In that case, the Supreme Court had held that Education cess being a surcharge on excise duty, payable as a percentage of value of central excise duty, i.e. basic excise duty, would partake the character of that very excise duty and was, accordingly, exempt under the notification applicable to units in NorthEastern States, under which the assessee in that case was claiming exemption from excise duty.) 7(h) In view of the above, the substantial question of law is answered in the negative, i.e. in favour of the Assessee and against the Revenue. 8 Re.Question No. (ii) :- 8(a) That brings us to the second of the three issues note ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f dutiable goods. In these cases, the exaction of eight or ten percent, as the case may be, is compulsory and not voluntary. It is immaterial that the purpose of introducing this exaction is for facilitating credit which is otherwise unavailable. Whatever be the purpose, if and to the extent the exaction is compulsory (in cases covered by the provision) and is under a statute, it is nothing but tax . And if it is so, it is liable to be deducted from the assessable price for the purpose of computing excise duty, namely, in the present case, auto cess and education cess, which are payable even on exempted goods in our case. 8(c) The cases cited by Mr.Sridharan do support his cause. In Kisan Sahkari Chinni Mills Ltd. 2001 (132) E.L.T. 523 (S.C.), the Supreme Court was considering whether administrative charges leviable under Section 8(4) of the Uttar Pradesh Sheera Niyantaran Adhiniyam, 1964 on the molasses sold or supplied by an occupier of a sugar factory, which charges were capable of being recovered by the occupier from persons to whom molasses are sold or supplied, were other taxes within the meaning of Section 4(4)(d)(ii) of Central Excise Act, 1944. The Court he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... early apposite in the present case. After payment of ten or eight percent amount, as the case may be, which, as we have seen above, is noting but tax, the assessable value can be derived from such cum-duty price only after making permissible deductions, that is to say, deduction inter alia of the tax component, namely, ten or eight percent of the amount, as the case may be, of the selling price of the goods. 8(d) For the above reasons, this question is answered in the negative, i.e. in favour of the Assessee and against the Revenue. 9 Re. Question (iii):- 9(a) Coming now to the last issue, arising in the Revenue s appeal, namely, Cenvat credit in respect of non-common inputs used in the manufacture of exempted goods, it is important to note that it is not in dispute that with effect from 16 May 2005, when Explanation III was added to Rule 6(3)(b) of Cenvat Credit Rules, 2004 by Notification 27/2005, such credit cannot be availed of. The Explanation makes it abundantly clear that no credit shall be allowed on inputs or input services used exclusively for the manufacture of exempted goods or exempted services. What is argued by the Assessee is that this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The presumption against retrospective operation is not applicable to declaratory statutes. As stated in CRAIES and approved by the Supreme Court: For modern purposes a declaratory Act may be defined as an Act to remove doubts existing as to the common law, or the meaning or effect of any statute. Such Acts are usually held to be retrospective. The usual reason for passing a declaratory Act is to set aside what Parliament deems to have been a judicial error, whether in the statement of the common law or in the interpretation of statutes. Usually, if not invariably, such an Act contains a Preamble, and also the word declared as well as the word enacted . But the use of the words 'it is declared' is not conclusive that the Act is declaratory for these words may, at times, be used to introduced new rules of law and the Act in the latter case will only be amending the law and will not necessarily be retrospective. In determining, therefore, the nature of the Act, regard must be had to the substance rather than to the form. If a new Act is 'to explain' an earlier Act, it would be without object unless construed retrospective. An explanatory Act is generally passe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x-I, Ahmedabad vs. Gold Coin Health Food Pvt.Ltd. 2008 (110) SCALE 492, the Supreme Court considered whether Explanation 4 to Section 271(1)(c) of the Income Tax Act was clarificatory or substantive. The Court found that Section 271 of the Act provided for penalizing the assessee for concealment of particulars of income or furnishing of inaccurate particulars of such income. By Explanation 4, introduced subsequently in Section 271, it was clarified that penalty under that Section can be levied even if no tax was payable on the total income assessed. The Supreme Court, whilst construing the Explanation, considered the definition of income in Section 2(24) of the Act. That was an inclusive definition and also included losses, i.e. negative profits. The Supreme Court had earlier held in Commissioner of Income Tax (Central) Delhi vs. Harprasad Co.P.Ltd. 1975 (99) ITR 118 whilst considering the charging provisions of the Act that the expression income should be construed so as to include losses inasmuch as losses represent negative profit or minus income. Having regard to these aspects, the Court in Gold Coin Health Food held that the Explanation was intended to make the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... here inputs are used for manufacture of dutiable as well as exempted goods, the manufacturer may take credit on that quantity of inputs which is intended for use in the manufacture of dutiable goods. This is, however, subject to a condition that the manufacturer maintains separate accounts for receipt, consumption and inventory of input meant for use in the manufacture of dutiable goods and quantity of input meant for use in the manufacture of exempted goods. Sub-rule (3) is an exception both to sub-rule (1) and (2). It provides for an eventuality where a manufacturer does not opt for maintenance of separate accounts. There are two options available to such manufacturer. If the exempted goods are covered by the list of specified goods in clause (a) of Sub-rule (3), the manufacturer may pay an amount equivalent to the Cenvat credit attributable to inputs used in the manufacture of such goods at the time of their clearance from the factory; or if they are other goods, the manufacturer may pay an amount equal to ten percent (eight percent, under the 2002 Rules) of the total price of the exempted goods charged by the manufacturer for sale of such goods at the time of their clearance fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , Cenvat credit could be availed of even in respect of inputs used exclusively for the manufacture of exempted goods; and this position has been changed by the rule-maker by inserting Explanation III providing for non-availability of credit on inputs used exclusively for the manufacture of exempted goods. 9(h) The argument seems attractive, but, on a closer scrutiny, does not hold good. In the first place, there is nothing in law to suggest that the rule of construction for ascertaining the nature of an amendment - whether clarificatory or altering the law - is different for fiscal statues (bearing on a fiscal liability) as opposed to others (not involving any fiscal liability). The principle is the same. Where the amendment clears a doubt or an ambiguity and makes explicit what is already implicit in the pre-amended statute, it is clarificatory or declaratory. On the other hand, where it introduces a change in the pre-existing law, namely, an element which was not there earlier, even latently, it is altering the earlier law. The former is usually applied retrospectively and the latter prospectively. Secondly, merely because Sub-rule (3) opens with the words Notwithstandi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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