{"id":313948,"date":"2024-02-13T17:00:32","date_gmt":"2024-02-13T11:30:32","guid":{"rendered":"https:\/\/www.scconline.com\/blog\/?p=313948"},"modified":"2024-02-16T15:53:37","modified_gmt":"2024-02-16T10:23:37","slug":"lks-attorneys-exemption-from-cess-controversy-and-analysis","status":"publish","type":"post","link":"https:\/\/www.scconline.com\/blog\/post\/2024\/02\/13\/lks-attorneys-exemption-from-cess-controversy-and-analysis\/","title":{"rendered":"Exemption from Cess-Controversy and Analysis"},"content":{"rendered":"
\n

T<\/span>he term \u201cexemption\u201d in respect of taxation statutes indicates freedom from an obligation which the subject is otherwise liable to discharge.1<\/sup><\/a> In other words, it is a privilege granting an advantage not available to others or freedom from liability, tax or duty.2<\/sup><\/a> Section 25<\/a> of the Customs Act, 1962<\/a> (Act) grants power to the Central Government to exempt, generally, in whole or part of the duty of customs leviable in the interest of public. This is done by way of an exemption notification or order. Section 25(2) of the Act provides that such exemption may be either absolute or conditional.<\/p>\n

\u201cCess\u201d is defined under English law as an assessment of tax as also observed by the Supreme Court.3<\/sup><\/a> Recently, the Supreme Court4<\/sup><\/a>, reiterated that \u201ccess\u201d is a tax levied for some special purpose, which may be levied as an increment to an existing tax. The cess is either an independent levy or is dependent upon the aggregate of duties levied under any particular legislation. The question that arises in such a scenario would be levy of cess in cases where the main duties such as excise duty or customs duty are exempted?<\/p>\n

For the purposes of the present article, the authors are confining the discussion to levy of Education Cess (\u201cEC\u201d), Secondary and Higher Education Cess (\u201cSHEC\u201d), Social Welfare Surcharge (\u201cSWS\u201d) and National Calamity Contingent Duty (\u201cNCCD\u201d) on excisable\/imported goods.<\/p>\n

Levy of EC, SHEC, SWS and NCCD<\/h4>\n

The EC was introduced by Section 91 read with Sections 92, 93 and 94 of the Finance Act, 2004<\/a> at the rate of 2% of the aggregate of duties of excise\/customs which are levied and collected under the provisions of Central Excise Act, 1944<\/a> or Section 12<\/a> of the Customs Act, 1962<\/a>. In a similar fashion, the SHEC was introduced by Section 136 read with Sections 137<\/a>, 138<\/a> and 139<\/a> of the Finance Act, 2007<\/a> at the rate of 1% of the aggregate of duties of excise\/customs which are levied and collected under the provisions of Central Excise Act, 1944<\/a> or Section 12<\/a> of the Customs Act, 1962<\/a>.<\/p>\n

Similarly, the SWS introduced by Section 110<\/a> of the Finance Act, 2018<\/a> at the rate of 10% of the aggregate of duties, taxes and cesses which are levied and collected under Section 12<\/a> of the Customs Act, 1962<\/a>. Unlike the EC and SHEC which are levied on both excisable and imported goods, the SWS is levied only on imported goods. The collection of the above cesses would be dependent upon the aggregate of duties collected on the assessable value of the goods.<\/p>\n

On the other hand, the NCCD, which is in the nature of excise duty, was introduced by Section 134 read with Section 136<\/a> of the Finance Act, 2001<\/a> at the rates specified in the Seventh Schedule. NCCD was levied on the assessable value of the goods and not on the aggregate of the duties which are collected on the assessable value of the goods. NCCD was, therefore, an independent levy.<\/p>\n

Decisions rendered by the Supreme Court and resulting ambiguity<\/h4>\n

With respect to levy and collection of EC and SHEC, the Supreme Court of India, in SRD Nutrients (P) Ltd.<\/span> v. CCE<\/span>5<\/sup><\/a> relied upon Circular No. 345\/2\/2004-TRU (Pt.) dated 10-8-20046<\/sup><\/a>, and Circular No. 134\/3\/211\/ST dated 8-4-20117<\/sup><\/a>, which clarified that no EC would be payable when or whenever service tax is \u201cnil\u201d by virtue of exemption. The Supreme Court pointed out that the circulars are binding on the Department and allowed the refund of EC and SHEC which was paid along with the excise duty, once the excise duty itself was exempted from levy.<\/p>\n

The question as to whether the EC\/SHEC and NCCD will be liable to be paid when the excise duty is exempt came up for consideration before the Supreme Court in Bajaj Auto Ltd.<\/span> v. Union of India<\/span>8<\/sup><\/a>. The Division Bench of the Court held that once the excise duty is exempted, the cesses which are levied as an aggregate of duties of excise duty cannot partake a different character. Thus, EC, SHEC and NCCD would also be entitled to the benefit of the exemption notification, particularly because the exemption notification under consideration9<\/sup><\/a> provided for exemption from whole of duty of excise or additional duty of excise.<\/p>\n

At this juncture, it is pertinent to note that the dispute before the Court in Bajaj Auto case<\/span>10<\/sup><\/a> pertained to levy of EC, SHEC and NCCD. While the manner of calculation\/computation of EC and SHEC is on the aggregate of duties of excise\/customs, the NCCD is payable at the rates specified in the schedule. It appears that the inherent difference in manner of calculation of EC\/SHEC and NCCD was not particularly pointed out to the court, thus, a straitjacket formula was applied for all the cesses viz. EC\/SHEC and NCCD.<\/p>\n

The issue pertaining to levy of EC\/SHEC and NCCD was again considered by the Supreme Court in Unicorn Industries<\/span> v. Union of India<\/span>11<\/sup><\/a>, wherein a three-Judge Bench of the Supreme Court after relying upon the decision of Union of India<\/span> v. Modi Rubber Ltd.<\/span>12<\/sup><\/a>, held that the exemption notification cannot be said to grant exemption to EC\/SHEC and NCCD, as there is no reference to the notifications under which EC\/SHEC and NCCD were levied. While observing so, the Court also held that the decision passed by Division Bench in SRD Nutrients case<\/span>13<\/sup><\/a> and Bajaj Auto Ltd. case<\/span>14<\/sup><\/a> was per incuriam, as it failed to consider a previous binding precedent of the Supreme Court in Modi Rubber Ltd. case<\/span>15<\/sup><\/a>.<\/p>\n

Clarification issued by CBIC for SWS<\/h4>\n

With respect to levy of SWS, vide Circular No. 03\/2022-Cus. dated 1-2-202216<\/sup><\/a>, CBIC clarified that as SWS is levied and collected as a duty of customs at the rate of 10% on the aggregate of customs duties, hence, SWS would be \u201cnil\u201d in cases where the aggregate of the customs duties (which forms the base for computation of SWS) is zero even though SWS has not been exempted.<\/p>\n

A recent decision in Emami Agrotech Ltd.<\/span> v. Commr. of Customs (Port), Kolkata<\/span>17<\/sup><\/a>, discussed the applicability of SWS in case where the assessee had availed the benefit of exemption from payment of customs duty MEIS Scheme under Notification No. 24\/2015-Cus. and SEIS Scheme under Notification No. 25\/2015-Cus. dated 8-4-2015. The Tribunal, after relying upon the judgment of the Bombay High Court in La Tim Metal & Industries Ltd.<\/span> v. Union of India<\/span>18<\/sup><\/a> held that since the basic customs duty is \u201cnil\u201d, SWS being computed at the rate of 10 per cent of BCD shall also be \u201cnil\u201d.<\/p>\n

While differentiating the judgment in Unicorn Industries case<\/span>19<\/sup><\/a>, the Tribunal observed that the issue therein pertained to refund of specified duties under the notification from liability of cesses which are not specifically included in the exemption notification and not the question as to non-leviability of the cesses in absence of collection mechanism.<\/p>\n

Analysis<\/h4>\n

After going through the three decisions passed by the Supreme Court with respect to levy of EC\/SHEC, SWS and NCCD, it appears that the judgments rendered in SRD Nutrients case<\/span>20<\/sup><\/a>, Bajaj Auto case<\/span>21<\/sup><\/a> and Unicorn Industries case<\/span>22<\/sup><\/a> dealt with different issues. While the issue in SRD Nutrients case<\/span>23<\/sup><\/a> confined to levy of EC and SHEC which is levied on aggregate of duty of excise\/customs, the judgment in Bajaj Auto case<\/span>24<\/sup><\/a> discussed levy of all the three cesses viz. EC\/SHEC and NCCD and Unicorn Industries case<\/span>25<\/sup><\/a> discussed exemption from NCCD in the absence of specific notification exempting the same.<\/p>\n

With due respect, it appears that the inherent difference in manner of computation of EC\/SHEC and NCCD was not particularly pointed out to the court in Bajaj Auto case<\/span>26<\/sup><\/a> and Unicorn Industries case<\/span>27<\/sup><\/a>. Thus, a straitjacket formula was applied in respect of EC\/SHEC and NCCD, without considering the language of the provision levying EC\/SHEC and NCCD, resulting into plight for the assesses. As earlier indicated, EC\/SHEC is levied on aggregate of duties of excise\/customs, while NCCD is levied on the value of the excisable\/imported goods.<\/p>\n

In cases where the cess is on the aggregate of the duties of excise\/customs and the main duty is exempt, the computation of cess would also be nil. With due respect, the authors are of the opinion that Supreme Court in Bajaj Auto case<\/span>28<\/sup><\/a> and Unicorn Industries case<\/span>29<\/sup><\/a> may have reached a different conclusion had the manner of levy and collection\/computation of EC\/SHEC and NCCD was pointed out before the Court. Although the judgment in La Tim Metal case<\/span>30<\/sup><\/a> did give a sigh of relief to the assesses as it observed that in cases where the BCD was \u201c0\u201d, SWS shall be nil, however, there remains ambiguity when it comes to payment of EC\/SHEC when the BCD is exempt.<\/p>\n

In some cases, the tribunals have given a wider interpretation to the 2022 Circular issued by CBIC for SWS by extending the same principle to EC and SHEC, even in cases where the duty has been paid through MEIS\/SEIS scrips. However, until the larger Bench of the Supreme Court decides the review application in SRD Nutrients (P) Ltd.<\/span> v. CCE<\/span>31<\/sup><\/a>, it is advisable that the Government steps in and resolves the uncertainty by way of suitable retrospective legislation to the effect that the exemption from EC\/SHEC will be available in cases where it is to be computed on aggregate of duties of excise\/customs and the duty is exempt.<\/p>\n<\/div>\n

\n

\u2020Associate Partner, Lakshmikumaran & Sridharan Attorneys<\/span><\/strong><\/p>\n

\u2020\u2020Principal Associate, Lakshmikumaran & Sridharan Attorneys<\/span><\/strong><\/p>\n

\u2020\u2020\u2020Associate, Lakshmikumaran & Sridharan Attorneys<\/span><\/strong><\/p>\n

1.<\/a> State of Rajasthan<\/span> v. J.K. Udaipur Udyog Ltd.<\/span>, (2004) 7 SCC 673<\/a>.<\/p>\n

2.<\/a> Black\u2019s Law Dictionary<\/span>, 8th Edn.<\/p>\n

3.<\/a> Sarojini Tea Co. (P) Ltd.<\/span> v. Collector of Dibrugarh<\/span>, (1992) 2 SCC 156<\/a>.<\/p>\n

4.<\/a> Union of India<\/span> v. Mohit Minerals (P) Ltd.<\/span>, (2022) 10 SCC 700<\/a>)<\/p>\n

5.<\/a> (2018) 1 SCC 105<\/a>.<\/p>\n

6.<\/a> Letter F. No. 354\/2\/2004-TRU (Pt.) dated 10-8-2004 \u2014 Issue relating to imposition of education cess on excisable goods and on imported goods, as pointed out by the trade and the field formations.<\/p>\n

7.<\/a> F. No. 354\/42\/2011-TRU dated 8-4-2011 \u2014 Education cess and secondary and higher education cess also exempted when notifications exempt whole of service tax<\/p>\n

8.<\/a> (2019) 19 SCC 801<\/a>.<\/p>\n

9.<\/a> Notification No. 50\/2003-CE dated 10-6-2003.<\/p>\n

10.<\/a> (2019) 19 SCC 801<\/a>.<\/p>\n

11.<\/a> (2020) 3 SCC 492<\/a>.<\/p>\n

12.<\/a> (1986) 4 SCC 66.<\/p>\n

13.<\/a> (2018) 1 SCC 105<\/a>.<\/p>\n

14.<\/a> (2019) 19 SCC 801<\/a>.<\/p>\n

15.<\/a> (1986) 4 SCC 66<\/a>.<\/p>\n

16.<\/a> F. No. CBIC-190354\/262\/2021-TRU Section CBEC dated 1-02-2022<\/p>\n

17.<\/a> Emami Agrotech Ltd.<\/span> v. Commr. of Customs<\/span>, Customs Appeal No. 76086 of 2021<\/p>\n

18.<\/a> Writ Petition No. 12183 of 2022<\/p>\n

19.<\/a> (2020) 3 SCC 492<\/a>.<\/p>\n

20.<\/a> (2018) 1 SCC 105<\/a>.<\/p>\n

21.<\/a> (2019) 19 SCC 801<\/a>.<\/p>\n

22.<\/a> (2020) 3 SCC 492<\/a>.<\/p>\n

23.<\/a> (2018) 1 SCC 105<\/a>.<\/p>\n

24.<\/a> (2019) 19 SCC 801<\/a>.<\/p>\n

25.<\/a> (2020) 3 SCC 492<\/a>.<\/p>\n

26.<\/a> (2019) 19 SCC 801<\/a>.<\/p>\n

27.<\/a> (2020) 3 SCC 492<\/a>.<\/p>\n

28.<\/a> (2019) 19 SCC 801<\/a>.<\/p>\n

29.<\/a> (2020) 3 SCC 492<\/a>.<\/p>\n

30.<\/a> Writ Petition No. 12183 of 2022<\/p>\n

31.<\/a> (2022) 11 SCC 441<\/a>.<\/p>\n","protected":false},"excerpt":{"rendered":"

By Manish Jain\u2020, Ambarish Pandey\u2020\u2020 and Shruti Khanna\u2020\u2020\u2020
\nCite as: 2024 SCC OnLine Blog Exp 15<\/p>\n","protected":false},"author":8808,"featured_media":313950,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[20271,54388],"tags":[65322,12111,44561,46260,64980,65325,65323,65324],"class_list":["post-313948","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-experts_corner","category-lakshmikumaran-sridharan","tag-cess-controversy","tag-customs-act","tag-education-cess","tag-experts-corner","tag-lks-attorneys","tag-national-calamity-contingent-duty","tag-secondary-and-higher-education-cess","tag-social-welfare-surcharge"],"yoast_head":"\nExemption from Cess-Controversy and Analysis | SCC Blog<\/title>\n<meta name=\"description\" content=\"LKS Attorneys analysed exemption from Cess Controversy\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, 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