excise duty = the appellants were entitled to refund of Education Cess and Higher Education Cess which was paid along with excise duty once the excise duty itself was exempted from levy.

REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NOS. 2781-2790 OF 2010
M/S. SRD NUTRIENTS PRIVATE LIMITED .....APPELLANT(S)
VERSUS
COMMISSIONER OF CENTRAL EXCISE
GUWAHATI .....RESPONDENT(S)
W I T H
CIVIL APPEAL NO. 812 OF 2013
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J U D G M E N T
A.K. SIKRI, J.
Leave granted in the special leave petitions.
Civil Appeal Nos. 2781-2790 of 2010 & Ors. Page 4 of 27
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 well
as Sikkim, notifications were issued by the Excise Department,
Government of India, exempting goods specified in the First
Schedule to the Central Excise Tariff Act, 1985 (other than those
mentioned in the annexure to these notifications) from payment of
excise duty in respect of the goods manufactured and cleared
from units located in the aforesaid States. The methodology
which was adopted and prescribed in these notifications was that
the manufacturer was initially supposed to pay the excise 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 which was
refundable to him. Insofar as payment of the excise duty after
availing the CENVAT credit and refund thereof subsequently is
Civil Appeal Nos. 2781-2790 of 2010 & Ors. Page 5 of 27
concerned, there is no dispute about the same. We are
concerned with altogether different aspect which is associated
with the aforesaid notification granting exemption from payment
of excise duty.
3) It so happened that vide Finance Act, 2004, the Education Cess
and Higher Education Cess were also imposed, which are
surcharge on the excise duty. These Education Cess 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
along with the excise duty was also liable to be refunded along
with the central excise duty in terms of the exemption
notifications. This is the issue which is common in all these
appeals and the factual background in which the matter has
travelled up to this Court is also almost the same. Therefore, for
the sake of convenience, purpose would be served in tracing the
factual events from Civil Appeal Nos. 2781-2790 of 2010.
Civil Appeal Nos. 2781-2790 of 2010 & Ors. Page 6 of 27
4) The appellant in these appeals is M/s. SRD Nutrients Private
Limited (hereinafter 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 of India to set up a special package for
the North-Eastern States to accelerate industrial development of
the State. As per this package, new industrial units were entitled
to 100% excise duty exemption for a period of 10 years from the
date of commencement of commercial production. Pursuant to
the said Industrial Policy, the Central Government issued
Notification No. 20/2007-Ex. dated April 25, 2007 granting
exemption from duties of excise levied under the Central Excise
Act, 1944 (hereinafter 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
Civil Appeal Nos. 2781-2790 of 2010 & Ors. Page 7 of 27
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 the first three paragraphs of this Notification
would be sufficient, which are as follows:
“NOTIFICATION: 20/2007-C.E. dated 25-Apr-2007
North-East – Exemption to all goods, except as
specified, cleared from Assam, Tripura,
Meghalaya, Mizoram, Manipur, Nagaland,
Arunachal Pradesh or Sikkim from duty paid other
than by utilisation of Cenvat Credit.
In exercise of the powers conferred by sub-section
(1) of section 5A of the Central Excise Act, 1944 (1 of
1944), the Central Government, being satisfied 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 manufacturer of goods other than the
amount of duty paid by utilization of CENVAT credit
under the CENVAT Credit Rules, 2004.
2. In cases where all goods produced by a
manufacturer are eligible for exemption under this
notification, the exemption contained in this notification
shall be available subject to the condition that, the
manufacturer first utilises whole of the CENVAT credit
available to him on the last day of the month under
consideration for payment of duty on goods cleared
during such and pays only the balance amount in
cash.
Civil Appeal Nos. 2781-2790 of 2010 & Ors. Page 8 of 27
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 paid by utilization
of CENVAT credit under the CENVAT
Credit Rules, 2004;
(b) the Assistant Commissioner of Central
Excise or the Deputy Commissioner of
Central Excise, as the case may be, after
such verification, as may be deemed by
utilisation of CENVAT credit under the
CENVAT Credit Rules, 2004, during the
month under consideration to the
manufacturer by the 15th of the next
month.
Provided that in cases, where the
exemption contained in this notification is
not applicable to some of the goods
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 the month under consideration
and thereafter may adjust the amount of
refund by such amount as may be
necessary in the subsequent refunds
Civil Appeal Nos. 2781-2790 of 2010 & Ors. Page 9 of 27
admissible to the manufacturer.”
6) It may be mentioned at this stage that power to grant exemption
from payment of excise duty is conferred upon the Central
Government vide Section 5A of the Act, which authorises the
Central Government to exempt generally, either absolutely or
subject to such conditions to be fulfilled, before or after removal,
as may be specified 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
or partly.
7) As mentioned above, the Parliament levied Education Cess by
Finance (No.2) Act, 2004. Chapter VI of the said Finance Act
deals with Education Cess. Sections 91 to 93 thereof are
relevant and are reproduced below:
“91. Education Cess. – (1) Without prejudice to the
provisions of sub-section (11) of section 2, there shall
be levied and collected, in accordance with the
provisions of this Chapter as surcharge for purposes
Civil Appeal Nos. 2781-2790 of 2010 & Ors. Page 10 of 27
of the Union, a cess to be called the Education Cess,
to fulfil 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), the Customs Act, 1962 (52 of 1962)
or Chapter V of the Finance Act, 1994 (32 of 1994),
shall have the meanings respectively assigned to
them in those Acts or Chapter, as the case may be.
93. Education Cess on excisable goods. – (1) The
Education Cess levied under section 91, in the case of
goods specified in the First Schedule to the Central
Excise Tariff Act, 1985 (5 of 1986), being goods
manufactured or produced, shall be a duty of excise
(in this section referred to as the Education Cess on
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 to any other duties of excise chargeable on
such goods, under the Central Excise Act, 1944 (1 of
1944) or any other law for the time being in force.
(3) The provisions of the Central Excise Act, 1944 (1 of
1944) and the rules made thereunder, including those
relating to refunds and exemptions from duties and
imposition of penalty shall, as far as may be, apply in
relation to the levy and collection of the Education
Cess on excisable goods as they apply in relation to
the levy and collection of the duties of excise on such
goods under the Central Excise Act, 1944 or the rules,
Civil Appeal Nos. 2781-2790 of 2010 & Ors. Page 11 of 27
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 (CESTAT) by the impugned
judgment. Said order is the subject matter of these appeals.
9) It may be pointed out at the outset that in its brief order, the
Service Tax Appellate Tribunal (hereinafter referred to ‘Tribunal’)
has taken note of two of its earlier judgments which were relied
upon by the appellant. These are :
(i) Bharat Box Factory Ltd. v. Commissioner of C. Ex.,
Jammu1
(ii)Cyrus Surfactants Pvt. Ltd. v. Commissioner of Central
Excise, Jammu2
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.
1 2007 (214) ELT 534 (Tri.-Del.)
2 2007 (215) ELT 55 (Tri.-Del.)
Civil Appeal Nos. 2781-2790 of 2010 & Ors. Page 12 of 27
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.3
. In this judgment which
was also rendered by the Delhi Bench of the Tribunal, a contrary
view has been taken, viz., the Excise Department was under no
obligation to refund the Education Cess and Higher Education
Cess as the notification exempted only the excise duty and,
therefore, it is the excise duty which was to be refunded.
11) The CESTAT, by impugned judgment, has preferred to
follow the view taken by the Tribunal in Jindal Drugs Ltd. case
on the ground that it is later in point of time in which earlier
judgment in Cyrus Surfactants Pvt. Ltd. case has also been
considered.
12) In the aforesaid backdrop, learned counsel for 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
3 2011 (267) ELT 653 (Tri.-Del.)
Civil Appeal Nos. 2781-2790 of 2010 & Ors. Page 13 of 27
taken in Cyrus Surfactants Pvt. Ltd. needs to be approved. In
this behalf, he argued that reading of the exemption Notification
dated April 25, 2007 would make it clear that there was 100%
exemption granted by the said Notification from levy of excise
duty which was clear from the reading of para 1 thereof. Para 2
of the Notification simply laid down the mechanism as to how the
said exemption was to be applied, with the specification that the
duty was to be paid first after adjusting the CENVAT credit and
thereafter claim for refund was to be made. He further submitted
that Education Cess was 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 of service tax, no Education
Cess would be payable when and wherever service tax is Nil by
virtue of exemption. His plea was that though the aforesaid
Circular was issued in the context of service tax, the principle
accepted therein by the Department would apply in the present
Civil Appeal Nos. 2781-2790 of 2010 & Ors. Page 14 of 27
case also, more so, when Notification dated October 06, 2007
exempting service tax was pari materia. He also pointed out that
under similar circumstances, Income Tax Department has been
refunding the Education Cess. He also 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.4
13) He also relied upon the decision in the case of
Commissioner of Central Excise, Mangalore v. Suzlon wind
International5
rendered by Bangalore Bench of the Tribunal
which had decided the case in favour of the assessee referring to
Circular dated April 04, 2011. Even the Rajasthan High Court has
leaned in favour of the assessee in the case of Banswara
Syntex Ltd. v. Union of India6 holding that since Education Cess
in the form of surcharge is levied and collected, there was no
question of retaining this amount once the excise duty itself got
4 (1998) 3 SCC 570
5 2012-TIOL-1837-CESTAT-BANG
6 2007 (216) ELT 16 (Raj.)
Civil Appeal Nos. 2781-2790 of 2010 & Ors. Page 15 of 27
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 Another7
:
“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 setting colours the sense of the
word. The spirit of the provision lends force to the
construction that “collected” means “collected and kept
as his” by the trader. If the dealer merely gathered the
sum by way of tax and kept it in suspense account
because of dispute about taxability or was ready to
return it if eventually it was not taxable, it was not
collected. “Collected', in an Australian Customs Tariff
Act, was held by Griffith, C.J., not “to include money
deposited under an agreement that if 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 argument was that the exemption
notification exempts only the excise duty. However, duty has to
be paid first and along with that Education Cess and Higher
Education Cess also become payable. He also emphasised the
7 AIR 1977 SC 2279 : (1977) 40 STC 497
Civil Appeal Nos. 2781-2790 of 2010 & Ors. Page 16 of 27
fact that excise duty is payable under the Excise Act, Education
Cess and Higher Education Cess are payable under the Finance
Act, by virtue of Section 11 thereof. Therefore, the mandate and
source of charging Education Cess is altogether different. The
exemption notification which is issued 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 further submission was that even Calcutta High
Court had taken identical view in Biswanath Hosiery Mills Ltd.
& Anr. v. Union of India & Ors.8
.
16) It is clear from the arguments of the counsel for the parties
that divergent views are expressed by the CESTAT as well as
High Courts. Even one Bench of the same Tribunal has differed
from its earlier Division Bench decision. In this scenario, it
becomes important as to how the Department has viewed the
position regarding Education Cess and Higher Education Cess
8 (2017) 346 ELT 353
Civil Appeal Nos. 2781-2790 of 2010 & Ors. Page 17 of 27
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 goods and on
imported goods, as pointed out by the trade and
the field formations-reg.
The undersigned is directed to state that
subsequent to Budget 2004 announcements, a
number of representations/ references have been
received from the trade as well as from the field
formations pertaining to imposition of Education Cess
on excisable goods and on imported goods. The
points raised and the clarifications thereon are as
follows.
Issue No. (1): Whether Education Cess on
excisable goods is leviable on 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.
Issue No. (2): Whether goods that are fully
exempted from excise duty/customs duty or are
cleared without payment of excise duty/customs duty
(such as clearance under bond or fulfillment of certain
Civil Appeal Nos. 2781-2790 of 2010 & Ors. Page 18 of 27
conditions) would be subjected to Cess
Clarification: The Education Cess is leviable at the
rate of two per cent of the aggregate of all duties of
excise/customs (excluding certain duties of customs
like anti dumping duty, safe guard duty etc.), levied
and collected. If goods are fully exempted from
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 cess and secondary and higher education cess-reg.”.
We would like to reproduce this Circular in its entirety:
“Education Cess and Secondary and Higher
Education Cess also exempted when notifications
exempt whole of Service tax
Circular No. 134/3/2011-S.T., dated 8-4-2011
F.No. 354/42/2011-Tru
Government of India
Ministry of Finance (Department of Revenue)
Central Board of Excise & Customs, New Delhi
Subject : Education Cess and Secondary and Higher
Education Cess – Reg.
Representations have been 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'
stands.exempted. Apparently the doubt arises in the
Civil Appeal Nos. 2781-2790 of 2010 & Ors. Page 19 of 27
context of Tribunal's Order in the matter of MIs.
Balasore Alloys Ltd. Vs CCE, Customs and Service
Tax, BBSR-I (2010-TIOL-16S9-CESTAT-KOL) =
2010(20)W.T.R. 506 (Tribunal).
2. The issue has been examined. Though Tribunal's
Order referred above is in favor of revenue, it is
inconsistent with the policy intention of the
Government to exempt education cess in addition to
service tax, where 'whole of service tax' stands
exempted. According to section 95(1) of Finance
(No.2) Act, 2004 and section 140(1) of Finance Act,
2007, Education Cess and Secondary and Higher
Education Cess are leviable and collected 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
principle, where education cess has been refunded to
exporters along with service tax, by virtue of
exemption notifications where 'whole of service tax' is
exempt, the same need not be recovered.
4. Field formations may be instructed accordingly.
5. Please acknowledge the receipt ofthis circular:
Hindi version to follow.
18) No doubt, it clarified the position in relation to the exemption
from payment of service tax that was given vide Notification No.
41/2007-SCT dated August 06, 2007. 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
Civil Appeal Nos. 2781-2790 of 2010 & Ors. Page 20 of 27
08, 2011 refers to the judgment of the Tribunal in Balasore Alloys
Ltd. v. CCE, Customs and Service Tax, BBSR-I9 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.
Notwithstanding the same, the Circular mentions that the said
order of the Tribunal is in consistent with the policy intention of
the Government to exempt Education Cess in addition to service
tax, ‘whole on service tax’ stands exempted.
19) During arguments, when these circulars were referred to
and relied upon by the learned counsel for the assessees, Mr.
Adhyaru had asked for some time to seek instructions from the
Department in this behalf. In order to give him a chance to seek
the clarification, 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
9 (2010-TIOL-1659-CESTAT-KOL)
Civil Appeal Nos. 2781-2790 of 2010 & Ors. Page 21 of 27
manufacturing units in the North Eastern Region to give effect to
the North Eastern Industrial Promotion Policy 1997 (NEIPP 97).
There are no provisions for any refund/exemption of service tax.
It is further stated that in respect of income tax, exemption is
granted under Section 80IC of the Income Tax Act. When we
confronted the learned senior counsel with the fact that it does
not give specific answer to the query raised, the learned senior
counsel took further time to file written submissions by October
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 accept the aforesaid position as clarified by the Ministry of
Finance in the aforesaid circulars. Education Cess is on excise
duty. It means that those assessees who are required to pay
excise duty have to shell out Education Cess as well. This
Civil Appeal Nos. 2781-2790 of 2010 & Ors. Page 22 of 27
Education Cess is introduced by Sections 91 to 93 of the Finance
(No.2) Act, 2004. As per Section 91 thereof, Education Cess is
the surcharge which the assessee is to pay. Section 93 makes it
clear that this Education Cess is payable on ‘excisable goods’ i.e.
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 related to refunds
and duties etc. shall as far as may be applied in relation to levy
and collection of Education Cess on excisable goods. A conjoint
reading of these provisions would amply demonstrate that
Education Cess as a surcharge, is levied @ 2% on the duties of
excise which are payable under the Act. It can, therefore, be
clearly inferred that when there is no excise duty payable, as it is
exempted, there would not be any Education Cess as well,
inasmuch as Education Cess @ 2% is to be calculated on the
aggregate of duties of excise. There cannot be any surcharge
when basic duty itself is Nil.
Civil Appeal Nos. 2781-2790 of 2010 & Ors. Page 23 of 27
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 discipline warranted reference of the
matter to the Larger Bench which it did not do. In the impugned
judgment, while preferring to follow the view taken in Jindal
Drugs Ltd., the Tribunal has not given any reasons for adopting
this course of action. The Rajasthan High Court in the case of
Banswara Syntex Ltd. while holding that surcharge taken in the
form of Education Cess shall also be refundable has given the
following reasons in support of the said view:
“15. The very fact that the surcharge 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 along with the tax will bear the
same character of respective taxes to which surcharge
was appended and was to be governed by the
respective enactments under which Education Cess in
the form of surcharge is levied & collected.
Civil Appeal Nos. 2781-2790 of 2010 & Ors. Page 24 of 27
16. Apparently, when at the time of collection,
surcharge has taken the character of parent levy,
whatever may be the object behind it, it becomes
subject to the provision relating to the Excise Duty
applicable to it in the manner of collecting the same
obligation of the 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 payable on excisable goods and shall be
a Duty of Excise, it became a special Duty of Excise
by way of Education Cess chargeable and collected
under Finance Act, 2004 and fell within the ambit of
clause (3) of Explanation appended to Notification
dated 26/6/2001. Consequently, rebate became
available on collection of surcharge on Excise Duty
under Finance Act, 2004 in terms of existing
Notification dated 26/6/2001 immediately. Later
Notification including the Education Cess in
enumerative definition 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
Excise, Patna v. Tata Engineering and Locomotive Co.10
In
10 1997 (92) ELT 303 (SC)
Civil Appeal Nos. 2781-2790 of 2010 & Ors. Page 25 of 27
that case, issue pertained to valuation of cess which was levied
@ 1/8 per cent of ad valorem ‘value’ of the central excise duty.
The Court held that the calculation of 1/8 per cent ad valorem of
the motor vehicle for the purposes of the levy and collection of the
automobile cess must be made that was being calculated since
automobile cess was to be levied and calculated as if it was
excise duty. As a fortiorari, the Education Cess and Higher
Education Cess levied @ 2% of the excise duty would partake the
character of excise duty itself.
Insofar as judgment of Calcutta High Court in Biswanath
Hosiery Mills Ltd. case is concerned, we find that the same
would have no bearing in the present case. In the said case,
cess was payable under Section 5A of the Textiles Committee
Act, 1963. After going through the provisions of Textiles
Committee Act, 1963 and the Textile’s Committee (Cess) Rules,
1975, the High Court found that as per the scheme of Textiles
Committee Act and the rules framed therein, levy of cess was
independent of excise under the Act which was a complete code
containing all the provisions relating to levy, collection, exemption
and application of cess. Therefore, even the legislative
intendment underlying Textiles Committee (Amendment) Act and
rules read with the preamble, aims and objects of the Act was
Civil Appeal Nos. 2781-2790 of 2010 & Ors. Page 26 of 27
clearly discernable, namely, the legislature intended to levy the
cess under the Act independent of and in addition to the excise
duty which was payable under the Central Excise and Salt Act,
1944.
23) It is also trite that when two views are possible, one which
favours the assessees has to be adopted.
24) For the aforesaid reasons, we allow these appeals and hold
that the appellants were entitled to refund of Education Cess and
Higher Education Cess which was paid along with excise duty
once the excise duty itself was exempted from levy. There shall,
however, be no order as to cost.
.............................................J.
(A.K. SIKRI)
.............................................J.
(ASHOK BHUSHAN)
NEW DELHI;
NOVEMBER 10, 2017
Civil Appeal Nos. 2781-2790 of 2010 & Ors. Page 27 of 27