Entity exempt from excise duty not liable to pay NCCD, Education Cess and Secondary & Higher Education Cess – Supreme Court
ABCAUS Case Law Citation:
ABCAUS 2847 (2019) (03) SC
Important Case Laws Cited/relied upon by the parties
SRD Nutrients Pvt. Ltd. v. Commissioner of Central Excise, Guwahati
Banswara Syntex Ltd. v. Union of India 2007 SCC OnLine Raj 365 216 ELT 16
Novopan India Ltd., Hyderabad v. CCE and Customs, Hyderabad
SRD Nutrients Pvt. Ltd
The appeal filed by the assessee raised a legal question of the liability towards National Calamity Contingent Duty (NCCD), Education Cess and Secondary & Higher Education Cess of a manufacturing establishment, which is exempted from payment of Central Excise Duty (CENVAT) under the Central Excise Act, 1944 (1944 Act).
The NCCD was imposed under Section 136 of the Finance Act, 2001, in the nature of a duty of excise, in addition to any other duties of excise chargeable under the 1944 Act. Whereas, Sections 91 & 93 of the Finance Act, 2004 introduced the Education Cess as a duty of excise calculated on the aggregate of all duties of excise. Sections 136 & 138 of the Finance Act of 2007 similarly imposed Secondary & Higher Education Cess, on the same pattern as the Education Cess.
The appellant, a limited company was exempted from, inter alia, CENVAT, by virtue of its manufactured products falling under the Second Schedule of the Central Excise Tariff Act, 1985.
The appellant was apparently paying an automobile cess, but the NCCD, Education Cess and Secondary & Higher Education Cess were not being paid.
The dispute pertaining to the liability of the appellant to pay the above said unpaid three cesses arose on account of an audit conducted.
An audit objection report was prepared on account of the failure of the appellant to pay the aforementioned three cesses, and consequent queries were raised by the Superintendent (Audit), Central Excise on the appellant.
These notices were responded to, by the appellant. This was followed by a show cause notice demanding the cesses on account of the fact that they had not been specifically exempted. The Department took a legal stand that the exemption notification had to be construed strictly and that there had been wilful suppression of facts.
The appellant filed a writ petition under Article 226 of the Constitution of India, before the High Court assailing the show cause notice. However, the writ petition was dismissed. The appeal preferred before the Division Bench was also dismissed.
The matter travelled to the Hon’ble Supreme Court.
The Hon’ble Supreme Court observed that in a similar case, the Court held that since these cesses are a surcharge levied and collected on the total value of the excise duty, and the excise duty itself is exempted, there cannot be any question of any recovery of these cesses, as the substratum does not exist. Not only this, the Department vide Circular dated 10.8.2004 clarified the position that if goods are fully exempted from excise duty or customs duty or 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 view of the above, the only issue that survived for consideration was the NCCD. The Department contended that while the two cesses discussed aforesaid were in the nature of levy on the excise duty payable, the NCCD is levied on the product itself, as per Section 136 of the Finance Act, 2001.
The Hon’ble Supreme Court observed that there could not be any dispute over the principle that exemption notifications, like the one in question must be read in a manner that give them a liberal interpretation, provided that no violence is done to the language employed.
The question to be decided thus was whether, even though the NCCD is in the nature of an excise duty, its incidence being on the product, rather than on the value of the excise duty, that itself would make any difference to the applicability of the NCCD to excise exempt units.
The Hon’ble Supreme Court sticking to its earlier judgment explained that the rationale is that while there may be surcharges under different financial enactments to provide the Government with revenue for specified purposes, the same have been notified as leviable in the nature of a particular kind of duty. In the case of NCCD, it is in the nature of an excise duty. It has to bear the same character as those respective taxes to which the surcharge is appended. NCCD will not cease to be an excise duty, but is the same as an excise duty, even if it is levied on the product.
Thus, the Hon’ble Supreme Court opined out that when NCCD, at the time of collection, takes the character of a duty on the product, whatever may be the rationale behind it, it is also subject to the provisions relating to excise duty, applicable to it in the manner of collection as well as the obligation of the taxpayer to discharge the duty. Once the excise duty is exempted, NCCD, levied as an excise duty cannot partake a different character and, thus, would be entitled to the benefit of the exemption notification.
Further, the Hon’ble Supreme Court noted that the exemption notification also stated that the exemption is from the whole of the duty of excise or additional duty of excise. The exemption itself was for a period of ten years from the date of commercial production of the unit.
Accordingly, the impugned order was aside and the show cause notice was quashed while holding that the appellant was not liable to pay NCCD, Education Cess and Secondary & Higher Education Cess.