IA. K. SIKRI AND ASHOK BHUSHAN, JJ.] versus COMMISSIONER OF CENTRAL EXCISE GUWAHATI
[2017] 11 S.C.R. 43, Supreme Court of India, 2017
Outcome: Appeal(s) allowed (Granted)
Segment: Ratio
{2017] 11 S:C.R.43 
MIS. SRD NUTRIENTS PRIVATE LIMITED 
v. 
COMMISSIONER OF CENTRAL EXCISE GUWAHATI 
(Civil Appeal Nos. 2781-2790 of20 I 0) 
NOVEMBER I 0. 20 l 7 
IA. K. SIKRI AND ASHOK BHUSHAN, JJ.] 
Central Excise Act, 1944: 
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s.5A(/) - Grant of exemption - From excise duty - Of all 
goods cleared from the north-east States - By Notification dated 
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25.4.2007 - Notification provided that assessee would be entitled 
to re/imd of duty paid other than the duzv paid by way of utilization 
of CENVAT credit under CENVAT Credit Rules, 2004 - By Finance 
Act, 2004 Education Cess and Higher Education Cess also imposed 
which are surcharge 011 the excise duty - Education cess and Higher 
D 
Education Cess also levied and collected from the manufacturers 
who had set up th11ir units in north-east areas, alongwith the excise 
duty - Howeve1; while refimding the excise duzv paid, Education 
Cess and Higher Education Cess were not refunded - Whether 
Education Cess or Higher Education Cess were re.fi111dahle with 
r~fimd of excise duty as per the Notification - Held: It is clear.fi'om 
Cin·ular dated August JO, 2004 and Circular dated April 8, 2004 
that Government itself had taken the position that where whole of 
excise du~v is exempted, even the Education and Higher Education 
Cess would not he payable - When there is no excise duty payable, 
there would no Education Cess - Notification 2012007-C.E. dated 
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25 Apr.2007. 
Allowing the appeals, the Court 
HELD: I. It is
clear from two circulars i.e. Circular dated 
August IO, 2004 and Circular dated April 8, 2011 that the 
Government itself has taken the position that where whole of G 
excise duty or service tax is exempted, even the Education Cess 
as well as Secondary and Higher Education Ccss would not be 
payable. These circulars are binding on the Department. f Para 
201157-G] 
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[2017] I l S.C.R. 
2. Even otherwise, 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 
assessecs who are required to pay excise duty have to shell out 
Education Ccss as well. This Education Cess is introduced by 
Sections 91 to, 93 of the Finance (No.2) Act, 2004. A conjoint 
reading of these provisions would amply demonstrate that 
Education Cess as a surcharge, is levied @ 2% on the duties of 
excise which arc payable under the Act. It can, therefore, he 
clearly inferred that when there is no excise duty payable, as it is 
exempted, there would not be any Education Cess as well, 
inasmuch us Education Ccss @ 2% is to he calculated on the 
aggregate of duties of excise. There cannot be any surcharge 
when basic duty itself is Nil. It is also trite that when two views 
arc po.:.iblc, 01ie which favours the asscssecs has to be adopted. 
[Paras 21, 231[58-A-B, D, E; 60-F] 
Collector of Ce/lira/ Excise, Patna v. Tata Engineering 
and Locomotive Co. 1997 (92) ELT 303 (SC) - relied 
on. 
Bharat Box Factory Ltd. v. Commissioner of C. Ex., 
Jamm11 2007 (214) ELT 534 (Tri.-Del.); Cyrus 
E 
S111j(1ctants Pvt. Ltd. v. Commissioner <1. Central Excise, 
Jammu 2()07 (215) ELT 55 (Tri.-Del.); Banswara Svntex 
Ltd. v. Union of India 2007 (216) ELT 16 (Raj.) -
approved. 
Commissioner of Central Excise, Jammu v. Jindal Dnigs
F 
Ltd. 20 II (267) ELT 653 (Tri.-Del.) - disapproved. 
Assistant Commissioner <~(Commercial Taxes (Ass/I.) 
Dharwar v. Dharmendra Trading Company Etc. Etc. 
(1998) 3 SCC 570; Commissioner of Central Excise. 
Mangalore v. Suzlon wind International 2012-TIOL-
G 
1837-CESTAT-BANG; R.S. Joshi, Sales Tax Officer, 
G11jarat and Others v. Ajit Mills Limited and Another 
AIR 1977 SC 2279 : (1977) 40 STC 497; Biswanath 
Hosie1:v Mills Ltd. & Am: v. Union of India & Ors. (2017) 
346 ELT 353; Balasore Alluys Ltd. v. CCE, Customs 
and Service Tax, BBSR-l (2010-TIOL-1659-CESTAT-
H 
KOL) - referred to.
M/S. SRD NUTRIENTS PRIVATE LIMITED v. COMMISSIONER 
45 
OF CENTRAL EXCISE GUWAHATI 
Case Law Reference 
2007 (214) ELT 534 (Tri.-Dcl.) 
approved 
Para 9 
2007 (215) ELT 55 (Trl.-Dcl.) 
approved 
Para 9 
2011 (267) ELT 653 (Tri.-Del.) 
disapproved 
Para 10 
(1998) 3 sec 570 
referred to 
Para 12 
2012-TIOL-1837-CESTAT-BANG 
referred to 
Para 13 
2007 (216) ELT 16 (Raj.) 
approved 
Para 13 
AIR 1977 SC 2279 
referred to 
Para 14 
(2017) 346 ELT 353 
referred to 
Para 15 
(20 I O-TIOL-1659-CESTAT-KOL) 
referred to 
Para 18 
1997 (92) ELT 303 (SC) 
relied on 
Para 22 
CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 2781-
2790 of2010. 
From the Judgment and Order Nos. A-744-753/KOL/2009 dated 
22.12.2009 of Customs, Excise & Service Tax Appellate Tribunal, East 
Regional Bench, Kolkata in Ex. Appeal Nos. 565-570/09-Ex., Ex.Appeal 
Nos. 606-608/09-Ex. and Ex. Appeal No. 610/09-Ex. 
WITH 
Civil Appeal Nos. 4611, 4596, 2987, 5173, 5175, 8322, 8323-8324, 
5927-5929,4597,4598,4599,4600,4601,4602,4603,4604.4605,4606, 
4607,4608,4609,4610,5926,6085-6092, 10253-10258, 10245-10252, 
8330, 8326, 8331, 8328, 8336, 8335, 8332, 8329 of2010 
Civil Appeal Nos. 2651-2660, 3735-3750, 5300-5303, 1445-1446, 
1443-1444of2011 
Civil Appeal Nos. 8178, 7605, 8181, 8180, 8185, 8186, 8179, 7876, 
8182, 8504-8509, 720 of2012 
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Civil Appeal Nos. 812, 3981-3983, 8732-8735, 813, 811, 4321-
G 
4322, 4292-4319, 4323-4325 of2013 
Civil Appeal Nos. 5022-5023 of2014 
Civil Appeal Nos. 1730-1731,
2988 of2016 
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SUPREME COURT REPORTS 
[2017] II S.C.R. 
Civil Appeal Nos. 18437, 18438, 18439, 18440, 18441. 18442. 
l 8443-18446, OF 2017 
Yashank Ii'. Adhyaru, Sr. Adv., H. R. Rao, Ms. Nisha Bagchi, 
Arijit Prasad, Ms. Shirin Khajuna, B. K. Prasad, Ms. Pooja Sharma. 
Rupinder Sinhrnar. Abhishek Baghal. Jatin Mahajan, Rajcsh Kumar, 
Ms. Poonam Kumari, Kaushal Kishore. R. K. Srivastava, Rahul Krishna, 
L. Badri Naray~nan. Aditya Bhattacharya, Victor Das, Ms. Apeksha 
Mehta. A. R. Mitdhav Rao, Ms. Pragya Awasthi, Ms .. Zaorah Gu1jar. 
M. P. Dcvantha. Pratap Venugopal. Ms. Surckha Raman, Anuj Sanna, 
Ms. Niharika, Mis. K. J. John & Co., M. P. Devanath, Vivek Sharma, 
Abhishck Anan<ll. Udit Jain. Ms. Ashwini Chandrasekaran, Pravccn 
Kumar, Ramesh Choudhary, A. Samad, B. N. Pal, Ram Krishna, Tariq 
Ahmad, R. Santhanan. Anil Kr. Jha, Rakcsh Dahiya, Jay Savla, 
Ms. Rcnuka Sahu. Prabhat Chaurasia, Jasdccp Singh Dhillon, 
Mohd. lrsl,Jd Hanil; Mukcsh Kumar Maroria, Ms. Anil Katiyar, Ravindra 
Keshavrao Adsure, Dr. Kai lash Chand, Arvind Kumar Sharma, Navcen 
Kumar, Pravcen Kumar, Advs. for the appearing parties. 
The Judgment of the Court was Jelivered by 
A. K. SII(RI, J. I. 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 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 leviablc 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 cl~ared during such period and was to pay only the balance 
amount in cash. It is this balance amount which was refundable to him.
MIS. SRD NUTRIENTS PRIVATE LIMITED v. COMMISSIONER 
OF CENTRAL EXCISE GUWAHATI [A. K. SIKRI, J.] 
Insofar as payment of the excise duty after availing the CENVAT credit 
and refund thereof subsequently is concerned. there is no dispute about 
the same. We arc 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 arc surcharge on 
the excise duty. These Education Ccss and Higher Education Ccss 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 
Ccss 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 of20 JO. 
4. The appellant in these appeals is Mis. SRO Nutrients Private 
Limited (hereinafter referred to as the 'asscssee'). 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 OJ, 2007 for the North-Eastern 
States, including the State of Assam, was announced by the Ministry of 
Commerce and Industry (Department oflndustrial 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 I 00% excise duty exemption 
for a period of I 0 years from the date of commencement of commercial 
production. Pmsuant 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, 
l 944 (hereinafter referred to as the 'Act') read with Section 3(3) of the 
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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 entitl~d to refund of duty paid other than the duty paid by way 
of utilization ofCENVATcredit under the CENVAT Credit Rules, 2004. 
Reproduction of the first three paragraphs of this Notification would be 
sufiicient, which are as follows: 
"NOTIF\!CATION: 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 power-; conferred by sub-section (I) of section 
SA of the Central Excise Act, 1944 (I of 1944), the Central 
Government, being satisfied Urnt 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 
mention~d in the Annexure and cleared from a unit located in the 
States of Assam orTripura or Meghalaya or Mizoram or Manipur 
or Nagal~nd 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 
utilizat;on ofCENVATcredit 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 
containc\i 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. 
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 
otl]er than the amount of duty paid by utilisation of CENVAT
MIS. SRD NUTRIENTS PRNATE LIMITED v. COMMISSIONER 
OF CENTRAL EXCISE GUWAHATI [A. K. SIKRI, J.] 
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 7"' 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 Conunissioncr ofCcntrn1 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 15"' of the next month. 
Provided that in cases, where the C)'.lcmption contained 
in this notification is not applicable to some of the goods 
produced by a manufacturer, such refund stall not exceed 
the amount of duty paid Jess 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 
Comrniss'oner of Central Excise, as the case may be, shall 
refund the amount on provisional basis by the 15" 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
admissible to the 
manufacturer.·· 
6. lt may be mentioned at this stage that power to grant exemption 
from payment of excise duty is conferred upon the Central Government 
vide Section 5Aofthe Act, which authorises the Central Government to 
exempt generally, either absolutely or subject to suet 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 lcviable 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 Sestion 5A of the Act. Thus, the central excise duty, which is 
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payable at the rµtes specified in the Tariff Act, can be exempted. in 
respect olspecifled goods. wholly or partly. 
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7. As mentioned abuvc. the Parliament levied Education Cess by 
Finance (No.2) Act. 2004. Chapter VI of the said Finance Act deals 
with Education Ccss. Sections 9 l tu 93 thereof arc relevant and arc 
reproduced below: 
"91. Edu,cation Ccss. - ( l) Without prejudice to the provisions 
of sub-sedtion ( 11) of section 2, there snail be levied and collected, 
in aceordimcc with the provisions of this Chapter as surcharge 
for purposes of the Union. a ccss to be called the Education Cess, 
to fulfil thµ 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 Educaiion Ccss levied under sub-section ( 11) of section 2 and 
this Chapter for the purposes specified in sub-section (I), as it 
may consider necessary. 
92. Definition. - The words and expressions used in this Chapter 
and dcfin~d in the Central Excise Act, I 944(1of1944), 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 Ccss on cxcisal.Jle goods. - (I) The Education 
Ccss levied under section 91. in the case of
goods specified in the 
First Schedule to the Central Excise Tariff Act, 1985 (5of1986), 
being goods manufactured or produced. shall be a duty of excise 
(in this ~ection 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 ofFinancc (Department ofRevenuc ), under the provisions 
of the Central Excise Act. 1944 (I of 1944) or under any other 
law for tl;!e 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
MIS. SRD NUTRIENTS PRIVATE LIMITED v. COMMISSIONER 
OF CENTRAL EXCISE GUWAHATl LA. K. SIKRI, J.] 
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, J 944 or the rules, as the case may be." 
8. As the assessee was denied refund of the Education Cess and 
Higher Education Ccss, 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 arc : 
(i) Bltar11t Box Factory Ltd, v. Co111111issionerofC. Ex., J1111111111 1 
(ii)l)'r11s S111facta11ts Pvt. Ltd. v. Commissioner
of Ce11tr11l 
E::..·c.:ise, Jf1111111112 
In both these decisions, the Delhi Bench of the Tribunal had opined 
thai the Education ccss and Higher Education Ccss were also refundable 
along with the excise duty. 
I 0. The Revenue, on the other hand, had relied upon another 
judgment of Tribunal in the case of Co1•1111issio11er of Central Excise, 
Jammu v. Jindal Drugs Lttl.1• In this judgment which was also 
rendered by the Delhi Bench of the Tribunal, a contrary view has been 
tak~'ll. 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. 
'2007 (214) ELT 534 (Tri.-Dcl.) 
. '2007 (215) ELT 55 (Tri.-Del.) 
., 2011 (267) ELT 653 (Tri.-Dcl.) 
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I I. 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 iJil point of time in which earlier judgment in Cyrus 
Surfactants Pvt. Ltd. case has also been considered. 
12. In the aforesaid backdrop, lcamcd counsel for the appellant 
was vehement i~ 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 .be l~amed counsel, the view 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 I 00%exemption granted by the said Notification from levy of 
excise duty which was clear from the reading of para I thereof. Para 2 
of the Notificati'on 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. 
I 34/3/211 /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 principlic accepted therein by the Department would apply in the 
present 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 diverg~nt 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 Surfl1ctants Pvt. Ltd., he referred to the judgment of this
MIS. SRD NUTRIENTS PRIVATE LIMITED v. COMMISSIONER 
OF CENTRAL EXCISE GUWAHATI [A. K. SIKRI, J.] 
Court Assistant Commissioner of Commercial Taxes (Asstt.) 
Dltarovar v. Dltarmendra Trading Company Etc. Etc.' 
I 3. He also relied upon the decision in the case of Co111111issioner 
of Central Excise, Mangalore v. Suzlon wind International' rendered 
by Bangalore Bench of the Tribunal which had decided the case in favour 
of the assessee referring to Circular dated April 04, 20 l I. Even the 
Rajasthan High Court has leaned in favour of the assessee in the case 
of Btmswara Syntex Ltd. v. Union of 111dia6 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 
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 tmd Another': 
"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 tlrnt "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 ten ta ti vely to be given 
back if found non-cxigible from the dealer." 
I 5. 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 
'(t998J 3 sec s10 
'2012-T!OL-1837-CESTAT-BANG 
0 2007(216)ELT 16(Raj.) 
'AIR l 977 SC 2279 : (l 977) 40 STC 497 
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the excise duty. However. duty has to be paid first and along wnh that 
Education Cess and Higher Education Cess also become payable. He 
also emphasised the fact that excise duty is payable under the Excise 
Act. Education Ccss and Higher Education Ccss arc payable under the 
Finance Act, by virtue of Section I I thereof. Therefore. the mandate 
and source of charging Education Cess is altogether different. The 
excmpt10n notification which is issued under Section SA 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 
fu11her submit~d that since the duty is to be paid first. education ccss 
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 nut 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 Cour, had taken identical view in Bi.1wu1wl11 Hosiery 
Mills Ltd. & Am: v. U11io11 of llldia & Ors, 8. 
16. It is clear from the arguments of the counsel for the parties 
thm divergent views arc expressed by the CESTAT as well as High 
Com1s. 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 which is payable as surcharge on the 
excise duty, on~c the excise duty is exempted. Two Circulars arc relevant 
in this behalf, one is Circular dated August l 0. 2004 which clarifies that 
Education Ccss is part of excise. In this Circular. certain clarifications 
are given by the Ministry of Finance (Department of Revenue), 
Government oflndia 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 Ccss on excisable 
goods and on imported goods. The points raised and the 
clarifications thereon arc as follows. 
'(c017) 346 ELT 353
M/S. SRD NUTRIENTS PRIVATE LIMITED v. COMMISSIONER 
55 
OF CENTRAL EXCISE GUWAHATI [A. K. SIKRI. J.] 
Issue No. (I): Whether Education Cess on excisable goods 
A 
is leviable on goods manufactured prior to imposition of Cess but 
cleared after imposition of such ccss? 
Clarification: Education Ccss 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 
B 
produced in India, it cannot be levied at the stage of removal of 
the said goods. Thus, Education Cess is not lcviable on excisable 
goods manufactured prior to imposition of cess but cleared after 
imposition of such cess. 
Issue No. (2): Whether goods that arc fully exempted from c 
excise duty/customs duty or are cleared without payment of excise 
duty/customs duty (such as clcarancc·undcr bond or fulfillment of 
certain conditions) wou)d be subjected to Cess 
Clarification: The Education Ccss is lcviablc at the rate of 
two per cent of the aggregate of all duties of excise/customs 
D 
(excluding certain duties of customs like anti dumping duty, safe 
guard duty etc.), levied and collected. If goods arc fully 
exempted from excise duty or customs duty, are chargeable to 
NIL duty or arc cleared without payment of duty under specified 
procedure such as clcai·ance under bond, there is no collection of 
duty. Thus, no education ccss would be leviable on such clearances. 
E 
In this regard, letter D.O. No.
605/54/2004-DBK, dated 21" July, 
2004 issued by Member (Customs) may also be rnferred 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 
F 
reproduce this Circular in its entirety: 
"Education Cess and Secondary and Higher Education Ccss 
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 
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SUPREME COURT REPORTS 
[2017] II S.C.R. 
Subject : EJducation Cess and Secondar_v and High~r 
Education Cess - Reg. 
· ReprcsentMions have been received from the field formations, 
seeking clarification regarding the applicability of service tax 
exemption to Education Cess (refers to both Education Ccss 
leviable undenFinance (No.2) Act, 2004 and Secondary and Higher 
Education Ccss lcviabk under Finance Act, 2007), under 
notifications where 'whole of service tax' stands.exempted. 
Apparently t!ie 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 (2010-TIOL-!6S9-CESTAT-KOL) = 
20 I 0(20)W.T.;R. 506 (Tribunal). 
2. The issue has been examined. Though Tribunal's Order 
n:fcrrcd above is in favor of revenue, it is inconsistent with the 
policy intention of the Government to e'xempt cduc;1tion ccss in 
addition to service tax, where 'whole of service tax' stands 
cxcmptcd.Aq;ording to section 95(1) ofFinance (No.2)Act. 2004 
and section 140( I) of Finance Act, 2007, Education Cess and 
Secondary and Higher Education Cess arc 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 I of 2 service tax, 
when and whprcvcr service tax is NIL by virtue of exemption, 
Education 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 ccss 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/
MIS. SRD NUTRIENTS PRIVATE LIMITED v. COMMISSIONER 
57 
OF CENTRAL EXCISE GUWAHATI (A. K. SIKRI, J.] 
2007-ST dated October 06, 2007. We have gone through that Notification 
A 
as well, which is inpari materia with Notification dated April 25, 2007. 
What is important is that this Circular dated April 08, 20 I I refors to the 
judgment of the Tribunal iri Balasore Alloys Ltd. v. CCE, Customs and 
Service Tax, BBSR-1' which was a decision rendered in favour of the 
Revenue as it was held therein that the Education Cess and Higher 
B 
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 inconsistent 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 Dcpa1tment in this 
behalf. In order to give him a chance to seek the clarification, matter 
was directed to be listed for direction on October I 0, 2017. On that day, 
c 
Mr. A<lhyaru produced the copy oflcttcr dated October 4, 2017 addressed 
D 
by the Office of the Commissioner of Central Goods & Services Tax to 
The Commissioner, Directorate of Legal Affairs, Central Board ofExcise 
& 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 manufacturing ul)its in the 
North Eastern Region to give effect to the North Eastern Industrial 
Promotion Policy 1997 (NEIPP 97). There are no provisions for any 
refuncVexcmption 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 
E 
it does not give specific answer to the query raised, the learned senior 
f 
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 
G 
where whole of excise duty or service tax is exempted; even the Education 
Ccss as well as Secondary and Higher Education Ccss would not be 
payable. These circulars are binding on the Department. 
' (20 I O-TIOL-1659-CESTAT-KOL) 
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21. Even otherwise, we arc of the opinion that it is more ranonal 
to accept the aforesaid position as clanfied by the Ministry ot Finance in 
the aforesaid circulars. Education Cess is on excise dllty. It means that 
those assessces who arc required to pay excise duty have to shell out 
Education Cess as well. This Education Ccss is introduced by Sections 
91 to 93 oft~e Finance (No.2)Act, 2004. As per Section 91 thereoL 
Education Cdss is the surcharge which the assessee is to pay. Section 
93 makes it clear that this Education Cess is payable on ·excisable goocls" 
i.e. in respect of goods specified in the first Schedule to the Central 
Excise Tariff Act, 1985. Fw·thcr, this Education Cess is tu be levied(<~ 
2% and calculated on the aggregate of all duties of excise which arc 
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 arc 
payable under· the Act. It can, therefore. be clearly
inferred that when 
there is no cx¢ise duty payable, as it is exempted, there would not be any 
Education Ccss as well. inasmuch as Education Ccss (aj 2% is to be 
calculnted on the aggregate of duties of excise. There cannot be any 
surcharge wh"'n basic duty itself is Nil. 
22. lt is rightly pointed out by the learned counsel for the appellants 
that the CESTAT in the earlier two judgments given in Bl1<1mt Box 
Factory Ltd. µnd Cyrus S11rfacta11ts Pvt. Ltd. held that Education Cess 
and Higher Education Cess would also be refundable along with excise 
duty and in view thereof, another cu-ordinate Bench ofCESTAT could 
not take a contrary view in Jindal Drugs Ltd. Judicial discipline 
warranted reflerencc of the matter to the Larger Bench which it did not 
do. In the impugnedjudgmcnt. while prderring to follow the view taken 
in Jindal Drugs Ltd .. the Tribunal has not given any reasons for adopting 
this course ofoction. The Rajasthan High Court in the case of B111mvura 
Sy11t11x Ltd. while holding that surcharge taken in the form of Education 
Ccss shall also be rdundable 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
MIS. SRD NUTRIENTS PRIVATE LIMITED v. COMMISSIONER 
OF CENTRAL EXCISE GUWAHATI [A. K. SIKRI, J.] 
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 rcspccti ve enactments 
under which Education Cess in the form of surcharge is levied & 
collected. 
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 discfoirge 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 26.6.200 I 
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 Ccss 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 coJJcction of surcharge on Excise Duty under Finance 
Act, 2004 in terms of existing Notification dated 26/6/2001 
immediately. Later Notification including the Education Ccss in 
enumerntive 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." 
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We are in agreement with the aforesaid reasons accorded by th~ 
Rajasthan High Court. since it is in consonance with the legal pnnciple 
enunciated by this Court. For this purpose. we may refer to the Judgment 
in the case of Collector of Central E.~cise, Patna v. Tata Engineering 
and Locomotive Co. 10 In that case, issue pertained to valuation of cess 
which was lervied@ 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 fortiorarl, the Education Cess and Higher Education Ccss levied@ 
2% of the excise duty would partake the character of excise duty itself. 
Insofar as judgment of Calcutta High Court in Biswanatlt Hosiery 
Mill.~ Ltd. case is concerned, we find that the same would have no 
bearing in the present case. In the said case, ccss 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 T~xtiles Committee (Amendment) Act and rules read with 
the preamble, aims and objects of the Act was clearly disccrnable, namely, 
the legislatu~e 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 S~lt Act, 1944. 
23. It is also trite that when two views are possible, one which 
favours the asscssces 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. 
Kalpana K. Tripathy 
Appeals allowed. 
" 1997 (92) ELT 303 (SC)