{2017] 11 S:C.R.43

MIS. SRD NUTRIENTS PRIVATE LIMITED

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:

s.5A(/) - Grant of exemption - From excise duty - Of all goods cleared from the north-east States - By Notification dated C 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

rfimd of excise duty as per the Notification - Held: It is clear.fi'om Cinular dated August JO, 2004 and Circular dated April 8, 2004 that Government itself had taken the position that where whole of excise duv 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

F 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]

43 H

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

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

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 Naraynan. 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 clared 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

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 entitld 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

mentiond in the Annexure and cleared from a unit located in the States of Assam orTripura or Meghalaya or Mizoram or Manipur or Nagalnd 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

SUPRJEME COURT REPORTS [2017] l t S.C.R.

A payable at the rµtes specified in the Tariff Act, can be exempted. in respect olspecifled goods. wholly or partly.

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 dcfind 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.)

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 lamed 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 divergnt 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

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 submitd 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, onc 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 clcaranccundcr 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 clcaiance 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

Subject : EJducation Cess and Secondar_v and Highr 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,

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

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)

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 ofte 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. Fwthcr, 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."

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 Txtiles Committee (Amendment) Act and rules read with the preamble, aims and objects of the Act was clearly disccrnable, namely, the legislatue 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 Slt 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)