M/S. Unicorn Industries v. Union of India & Others
ARUN MISHRA, J.
1. Leave granted.
2. The question involved in the appeals is with respect to the levy
of education cess, higher education cess, and Natio nal Calamity
Contingent Duty (NCCD) on it. The appeals arise out of com mon
judgment. The High Court has held that duties in question are not part
of the exemption notification. The writ petitions have been dismissed.
Hence, the appeals have been preferred.
3. The Government of India in order to promote indu strial
development in the North Eastern Region, announced vide O ffice
Memorandum dated 24.12.1997, specific fiscal incentives including total
exemption from tax to the new industrial units and substantial expansion
of existing unit in the North Eastern Region for a period of 10 years
from the date of commencement of production. Government of Sikkim
vide Notification dated 17.2.2003, notified new industrial policy whereby
all fiscal incentives available to the industries in the North Eastern
Region would be available to the units set up in the State of Sikkim.
4. The Central Government issued a Notification dated 9.9.2003,
granting exemption from payment of duty of excise for goods specified
in the notification and cleared from a unit located in the Industrial Growth
Centre or other specified areas within the State of Sikk im. Under the
notification, a manufacturer of specified goods was requir ed to pay
excise duty on the goods cleared from its unit. The manufacturer has
to first utilize the Cenvat Credit for discharging duty liab ility on final
M/S. UNICORN INDUSTRIES v. UNION OF INDIA & OTHERS
products, and the remaining amount of duties had to be paid throug h
Personal Ledger Account (PLA) or Current Account, i.e., in cash. Thus,
the exemption scheme was to discharge the liability on the final product
and then claim or avail the refund or re-credit of the duties paid in cash.
5. The Unicorn Industries established a unit in 200 6 for
manufacturing “Indian Mouth Freshener” an excisable co mmodity
covered under Chapter 21 of the First Schedule of Central Excise Tariff
Act, 1985. It was registered under the Central Excise Act. In June
2006, the appellant had started manufacturing its product.
6. The appellant has submitted that following excise duties were
recovered under diverse names/nomenclature and rates on Indian
Mouth Freshener manufactured and cleared by the appellant:
a. Basic Excise Duty @ 37.5 % ad valorem ;
b. National Calamity Contingent Duty (NCCD) @ 23% ad
Valorem (under Section 136 of the Finance Act, 2001);
c. Additional Excise Duty (Pan Masala & Tobacco
Products) @ 5.5% ad valorem (under Section 85 of the
Finance Act, 2005); and
d. Education Cess @ 2% ad valorem (under Section 91
of the Finance Act, 2004) aggregating to 68% ad
valorem .
7. As per Notification No.71/2003-CE dated 9.9.2003 , the
appellant was entitled to refund of the abovesaid duties of excise. The
respondents extended benefits and used to grant refund to the appellant
as per the abovementioned notification. The Excise Authoriti es used
to issue a certificate of re-utilization of excise duty fo r the particular
month. The appellant used to re-credit the amount of excise duty .
8. The Deputy Commissioner of Central Excise issued a show
cause notice dated 2.1.2007, requiring the appellant to repay the amount
of NCCD for the period July, 2006 to December, 2006, on the ground
that exemption was not permissible under the notification for the units
located in the State of Sikkim. The appellant filed a writ petition before
the High Court for quashing the abovementioned communication dated
2.1.2007. The High Court disposed of the same with liberty to show
cause to the said communication. The appellant filed its reply. On
4.7.2007, the Commissioner, Central Excise issued show cause notice,
1019
it was submitted that grounds phrased in the respon se were
unsustainable. The appellant was asked to show cause why amount
should not be recovered under Section 11-A of the Central Excise Act
along with the interest and penalty.
9. Notification No.71/2003-CE came to be amended on 25.4.2007
by Notification No.21/2007, excluding Pan Masala falling under Chapter
XXI of the Tariff from the purview of the notificat ion. Thus, the
exemption on Pan Masala came to an end vide Notification No.21/2007
dated 25.4.2007, which was challenged by way of separate Writ Petition
No.22 of 2007. The High Court vide judgment and order dated 11.5.2012
allowed the Writ Petition (C) No.22 of 2007 and held that the appellant
was entitled to exemption from payment of excise duty on manufacture
of Pan Masala for ten years from the date of commen cement of
commercial production, i.e., 27.6.2006.
10. The appellant submitted that 14 separate claims were filed
for refund of additional excise duty and education cess on the g round
these levies are also duties of excise, for which exempt ion had been
granted for ten years. The appellant filed Writ Petition (C) No.24 of
2007 before the High Court of Sikkim at Gangtok for quashing
Notification No.71/2003-CE, confining the exemption to “under any of
the said Acts” mentioned in paragraph 1 of the notification. The prayer
was made for a declaration that the exemption notif ication was
applicable to NCCD, additional excise duty (Pan Masala) and education
cess and the Notification No.71/2003-CE was repugnant to the Industrial
Policy decision declared by Union of India (respondent no.1) and State
of Sikkim (respondent no.4). The appellant claimed that exci se duty
exemption would include all levy in nature of excise duty, levi ed and
collected on goods manufactured in India.
11. Vide Notifications dated 27.3.2008 and 10.6.2008, the benefit
of Cenvat Credit was withdrawn. The appellant chall enged the
notification through Writ Petition (C) No.11 of 2008. The High Court
was pleased to allow the said petition vide judgment and orde r dated
15.11.2010.
12. Akshay Ispat and Ferro Alloys Private Limited, the
manufacturer of Ferro Silicon, an excisable commodity, has filed other
appeal. It had obtained permanent registration under the Central Excise
Rules 2002 on 11.3.2004. The Government of India introduced education
cess under Chapter VI of Section 91 of the Finance Act , 2004. The
M/S. UNICORN INDUSTRIES v. UNION OF INDIA & OTHERS
[ARUN MISHRA, J.]
appellant did not claim the benefit of the education cess for the period
August 2004 to March 2006. After that, it started taking the re -credit
of the education cess w.e.f. 1.4.2006. On 12.9.2006, the Superintendent,
Central Excise, sent a communication directing the appellant to pay the
education cess with interest and penalty for August, 2006. The appellant
submitted its reply. After that, show cause notice dated 31.10.2006,
was issued to the appellant regarding default in payment of e ducation
cess for August, 2006 and September, 2006 and proceedi ngs were
initiated for infringement under Section 91(3) of the Finance Act, 2004.
The appellant sent a reply; however, on 6.12.2006, another show cause
notice was issued. The appellant after that claimed on 19.12.2006
repayment of education cess for the period August, 2004 to March,
2006. In March 2007, the Government of India introduced secondary
and higher education cess under Section 126 of the Finance Act, 2007.
Section 128(1) of the Finance Act, 2007 indicated how the said cess
was to be calculated. The respondents demanded by issuance of further
notice education cess and secondary and higher education cess. T he
appellant filed a writ application in the High Court. By the impug ned
judgment, the same has been dismissed. The High Court dismis sed
the Writ Petition (C) No.24 of 2007, and another concerning NC CD
and education cess, secondary and higher education cess and held that
they were not included under exemption Notification No.71/2003-CE
and the appellant had illegally availed the benefits of the exemption in
respect to it. Aggrieved by the dismissal of the writ pe titions, the
appeals have been preferred.
13. Learned counsel appearing on behalf of the appe llant
submitted that NCCD, education cess, and secondary and higher
education cess form part of the excise duty. Hence, the de cision of
the High Court is bad in law. Reliance has been pl aced on SRD
Nutrients Private Limited v. Commissioner of Centra l Excise,
Guwahati, (2018) 1 SCC 105 and the decision of this Court in Bajaj
Auto Limited v. Union of India & others , 2019 SCC OnLine SC 421,
decided on 27.3.2019. It is submitted that the educatio n cess was
introduced by Sections 91 and 93 of the Finance Act, 2004 and higher
education cess by the Finance Act, 2007 and the NCCD was imp osed
under Section 136 of the Finance Act, 2001. The imposition is in th e
nature of a duty of excise and in addition to any other duty of excis e
chargeable under the Central Excise Act, 1944 (‘the Act of 1944’). It
is further provided that the provisions of the Act of 1944 and R ules
1021
made thereunder relating to refunds and exemptions from duties a nd
imposition of penalty, shall, as far as may be, apply with respect to the
abovementioned duties in question. Reliance has also been placed on
circulars dated 10.8.2004 and 8.4.2011, issued by Central Board of
Excise and Customs, on the subject of education cess and seconda ry
and higher education cess.
14. Learned counsel appearing on behalf of respondents has
submitted that the decision of the High Court is appropriate and no case
for interference is made out. The benefit of exemption grant ed, w.e.f.
9.9.2003 from payment of excise duty was withdrawn vide notification
dated 25.4.2007. Tobacco and Tobacco products including cigarettes,
cigars and gutkha , were excluded from the benefit of exemption of
the excise duty. The notification dated 25.4.2007 was set aside by the
High Court. The decision of the High Court has been reversed by this
Court in Union of India v. Unicorn Industries (Civil Appeal No. 7432
of 2019), decided on 19.9.2019. Apart from that, when exemptio n
notifications were issued, the NCCD, education cess and secondar y
and higher education cess were not even imposed, as such, it could
not be said that they were covered under the exemption noti fication.
The duty described above had been imposed by separate leg islation,
which was not covered under the exemption notification. It was a n
additional duty imposed in the nature of excise duty. They were n ot
covered under the exemption notification. As such, the High Court has
rightly dismissed the writ application filed by the appell ants. Hence,
no case for interference is made out.
15. It is not disputed that the Government of India took a policy
decision, Ministry of Industry, Department of Industrial P olicy and
Promotion vide Office Memorandum dated 24.12.1997, concerning new
industrial policy and concessions in the North-Eastern regi on. The
decision was taken for converting the Growth Centres and IIDCs into
total tax-free zones for the next ten years. All industria l activities in
these zones would be free from income tax and excise duty for te n
years from the commencement of production.
16. The benefit of the said notification was extended to the State
of Sikkim vide notification dated 17.2.2003. Following benefits were
extended to the new and the existing industrial units:
“i) New industrial units and existing industrial units on their
substantial expansion as defined, set up in Growth Center,
M/S. UNICORN INDUSTRIES v. UNION OF INDIA & OTHERS
[ARUN MISHRA, J.]
Industrial Infrastructure Development Centers (IIDCs) and other
locations like Industrial Estates, Export Processing Zones, Food
Parks, IT Parks, etc., as notified by the Central Government ar e
entitled to 100% (hundred percent) income tax and excise duty
exemption for a period of 10 years from the date of
commencement of commercial production. Thrust Sect or
Industries as mentioned in Annexure-II are entitled to simi lar
concessions in the entire State of Sikkim without a rea
restrictions.”
17. The Government decided to exempt 100 per cent income tax
and excise duty for ten years. In accordance with the polic y decision
the Notification No.71/2003 was issued on 9.9.2003 by the Central
Government in exercise of powers conferred by Section 5A (1) of the
Act of 1944 read with Section 3(3) of the Additional Duties of Exci se
(Goods of Special Importance) Act, 1957 (‘the Act of 1957’) and
Section 3(3) of the Additional Duties of Excise (Textiles an d Textiles
Articles) Act, 1978 (‘the Act of 1978’), exempted goods speci fied in
the First Schedule and the Second Schedule to the Central Excise Tariff
Act, 1985, other than goods specified in Annexure I in the St ate of
Sikkim. The exemption from payment of so much of excise duty o r
additional duty of excise, as the case may be, leviable ther eon under
any of the said Act. The relevant portion is extracted her eunder:
“Notification No.71/2003 – Central Excise
In exercise of the powers conferred by sub-section (1) of section
5A of the Central Excise Act, 1944 (1 of 1944), read with sub-
section (3) of section 3 of the Additional Duties of Excise (Goods
of Special Importance) Act, 1957 (58 of 1957) and sub-section
(3) of Section 3 of the Additional Duties of Excise (Textiles and
Textiles Articles) Act, 1978 (40 of 1978), the Central Government,
being satisfied that it is necessary in the public interest so to do,
hereby exempts the goods specified in the First Schedule and
the Second Schedule to the Central Excise Tariff Act, 1985 (5
of 1986), other than goods specified in Annexure I appended
hereto, and cleared from a unit located in the Industrial Gr owth
Centre or Industrial Infrastructure Development Centre or Export
Promotion Industrial Park or Industrial Estate or Industrial Area
or Commercial Estate or Scheme Area, as the case may be , in
the State of Sikkim, specified in Annexure – II appended hereto,
1023
from so much of the duty of excise or additional duty of excise,
as the case may be, leviable thereon under any of the said A cts
as is equivalent to the amount of duty paid by the manufacturer
of the said goods, other than the amount of duty paid by utilization
of CENVAT credit under the CENVAT Credit Rules, 2002.”
(emphasis supplied)
18. Section 136 of the Finance Act, 2001 provides imposition of
the NCCD. Section 136 is extracted hereunder:
“136. National Calamity Contingent Duty.-(1) In the case of
goods specified in the Seventh Schedule, being good s
manufactured or produced, there shall be levied and collected
for the purposes of the Union, by surcharge, a duty of excise , to
be called the National Calamity Contingent Duty (hereinaft er
referred to as the National Calamity Duty), at the rates specified
in the said schedule.
(2) The National Calamity Duty chargeable on the goods
specified in the Seventh Schedule shall be in addition to
any other duties of excise chargeable on such goods
under the Central Excise Act, 1944 (1 of 1944) or any
other law for the time being in force.
(3) The provisions of the Central Excise Act, 1944 (1 of
1944) and the rules made thereunder, including those
relating to refunds and exemptions from duties and
imposition of penalty, shall, as far as may be, apply in
relation to the levy and collection of the National
Calamity Duty leviable under this section in respect of
the goods specified in the Seventh Schedule as they
apply in relation to the levy and collection of the duties
of excise on such goods under that Act or those rules,
as the case may be.”
(emphasis supplied)
19. The education cess came to be imposed vide notification
dated 10.9.2004 issued under the Finance Act, 2004. Sections 91 and
93 are extracted hereunder:
“91. Education Cess-(1) Without prejudice to the provisions of
sub-section (11) of Section 2, there shall be levied and collected,
M/S. UNICORN INDUSTRIES v. UNION OF INDIA & OTHERS
[ARUN MISHRA, J.]
in accordance with the provisions of this Chapter as surcharge
for purposes of the Union, a cess to be called the Education Cess,
to fulfil the commitment of the Government to provide and
finance universalized quality basic education.
(2) The Central Government may, after due appropriation made
by Parliament by law in this behalf, utilize, such sums of money
of the Education Cess levied under sub-section (11) of Section
2 and this Chapter for the purposes specified in sub-sectio n (1),
as it may consider necessary.
***
93. Education Cess on Excisable Goods- (1) The Education Cess
levied under Section 81, in the case of goods specified in the First
Schedule to the Central Excise Tariff Act, 1985 (5 of 1986), being
goods manufactured or produced, shall be a duty of excise (in
this section referred to as the Education Cess on e xcisable
goods), at the rate of two per cent, calculated on the aggrega te
of all duties of excise (including special duty of excise or any
other duty of excise but excluding Education Cess on excisable
goods) which are levied and collected by the Central Government
in the Ministry of Finance (Department of Revenue) under t he
provisions of the Central Excise Act, 1944 (1 of 1944) or under
any other law for the time being in force.
(2) The Education Cess on excisable goods shall be in addition
to any other duties of excise chargeable on such goods under
the Central Excise Act, 1944 (1 of 1944) or any other law for
the time being in force.
(3) The provisions of the Central Excise Act, 1944 (1 of 1944)
and the rules made thereunder, including those relating to refunds
and exemptions from duties and imposition of penalty shall, as
far as may be, apply in relation to the levy and collection of the
Education Cess on excisable goods as they apply in relation to
the levy and collection of the duties of excise on such goods under
the Central Excise Act, 1944 or the rules, as the case may b e.”
(emphasis supplied)
20. The Central Government introduced the secondary and higher
education cess at the rate of 1 per cent of the total exc ise duty under
1025
Sections 126 and 128 of the Finance Act, 2007, which are reproduced
hereunder:
“126. (1) Without prejudice to the provisions of sub-section (12)
of section 2, there shall be levied and collected, in accordan ce
with the provisions of this Chapter as surcharge for purposes of
the Union , a cess to be called the Secondary and Higher Education
Cess, to fulfil the commitment of the Government to provide and
finance secondary and higher education.
(2) The Central Government may, after due appropriation made
by Parliament by law in this behalf, utilize, such sums of money
of the Secondary and Higher Education Cess levied under sub-
section
(12) of section 2 and this Chapter for the purposes speci fied in
subsection (1) as it may consider necessary.
XXXXXX XXXXXX XXXXXX XXXXXX
128. (1) The Secondary and Higher Education Cess levied under
section 126, in the case of goods specified in the First Schedule
to the Central Excise Tariff Act, 1985, being goods manufactured
or produced, shall be a duty of excise (in this section referred to
as the Secondary and Higher Education Cess on excisab le
goods), at the rate of one per cent., calculated on the aggre gate
of all duties of excise (including special duty of excise or any
other duty of excise but excluding Education Cess chargeable
under section 93 of the Finance (No. 2) Act, 2004 and Secondary
and Higher Education Cess on excisable goods) which are levied
and collected by the Central Government in the Minist ry of
Finance (Department of Revenue), under the provisions of the
Central Excise Act, 1944 or under any other law for the tim e
being in force.
(2) The Secondary and Higher Education Cess on excisable goods
shall be in addition to any other duties of excise chargeable on
such goods, under the Central Excise Act, 1944 or any other law
for the time being in force and the Education Cess charge able
under section 93 of the Finance (No. 2) Act, 1944.
(3) The provisions of the Central Excise Act, 1944 and the rules
made thereunder, including those relating to refund s and
M/S. UNICORN INDUSTRIES v. UNION OF INDIA & OTHERS
[ARUN MISHRA, J.]
exemptions from duties and imposition of penalty shall, as far as
may be, apply in relation to the levy and collection of the
Secondary and Higher Education Cess on excisable goods as they
apply in relation to the levy and collection of the duties of excise
on such goods under the Central Excise Act, 1944 or the rules
made thereunder, as the case may be.”
21. The appellant challenged the exemption Notification No.71/
2003 dated 9.9.2003, before the High Court only to the extent that it
limits the exemption only in relation to basic excise duty under the Excise
Act, additional duties under the Act of 1957 and the additional duties
under the Act of 1978. It is submitted that though various Finance Acts
imposed these duties, they were recoverable as exci se duty,
notwithstanding their nomenclature. The notification dated 17.2.2003
indicated that 100 per cent income tax and excise duty exemption for
ten years was granted. The exemption should cover t he NCCD,
education cess and the secondary and higher education cess im posed
by the notifications issued under Finance Acts of 2001, 2004, and 2007.
22. The main question arising for consideration is when 100 per
cent exemption had been granted for excise duty for a peri od of 10
years, whether the exemption notification issued for the State of Sikkim
on 9.9.2003 shall be confined to the basic excise duty under the Act of
1944, additional duty under the Act of 1957 and additional duty under
the Act of 1978, which were specifically mentioned in the notification
issued on 9.9.2003, or it also includecess/duty imposed by Finance Acts
of 2001, 2004 and 2007.
23. The submission raised on behalf of appellant is that the duty
and cess in the nature of excise duty cannot be realized, particularly in
view of the provisions in the Finance Acts of 2001, 2004 and 20 07
relating to refund and exemption, which have made applicable , the
provisions of the Act of 1944 and the Rules made thereunder relat ing
to exemption. As such, in view of the decisions of Division Bench of
this Court in SRD Nutrients Private Limited (supra) and Bajaj Auto
Limited (supra), the decision of the High Court deserves to be set aside.
24. It is not in dispute that when initial exemption notification was
issued in 1997 for the North-Eastern States, which was later on applied
to the State of Sikkim on 9.9.2003. The benefits from payment of excise
duty and additional excise duty were confined to the basic excise duty
payable under the Acts of 1944, 1957 and 1978. The re was no
1027
reference made to NCCD imposed under the Finance Act, 2001. Apart
from that, when the notification came to be issued, the education cess
and secondary and higher education cess, which came to be imp osed
by Finance Acts of 2004 and 2007, were not in vogue.
25. A Division Bench of this Court in SRD Nutrients Private
Limited (supra) has considered the Finance Acts of 2004 and 2007, by
which education and secondary and higher education cess were
imposed. Under the Industrial Policy dated 1.4.2007 for the Nor th-
Eastern States, the notification dated 25.4.2007, issued by the Ce ntral
Government, came up for consideration before this Court. The said
notification and the industrial policy, have been dealt with in paragraphs
4 and 5 of the SRD Nutrients Private Limited (supra), which are
extracted hereunder:
“4. Industrial Policy dated 1-4-2007 for the North-Eastern States,
including the State of Assam, was announced by the Ministry of
Commerce and Industry (Department of Industrial Policy and
Promotion), Government of India to set up a special package for
the North-Eastern States to accelerate industrial development of
the State. As per this package, new industrial units were entitled
to 100% excise duty exemption for a period of ten years from
the date of commencement of commercial production. Pursuant
to the said Industrial Policy, the Central Government issued
Notification No. 20/2007-Ex. Dated 25-4-2007 granting exemption
from duties of excise levied under the Central Excise Act, 1944
(hereinafter referred to as “the Act”) read with Secti on 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 entitled to refund
of duty paid other than the duty paid by way of utilisation of
CENVAT credit under the CENVAT Credit Rules, 2004.
5. Reproduction of the first three paragraphs of this Notification
would be sufficient, which are as follows:
“NOTIFICATION No.: 20/2007-CE dated 25-4-2007
North-East — Exemption to all goods, except as specifie d,
cleared from Assam, Tripura, Meghalaya, Mizoram,
M/S. UNICORN INDUSTRIES v. UNION OF INDIA & OTHERS
[ARUN MISHRA, J.]
Manipur, Nagaland, Arunachal Pradesh or Sikkim from duty
paid other than by utilisation of CENVAT credit.
In exercise of the powers conferred by sub-section (1) of Section
5-A of the Central Excise Act, 1944 (1 of 1944), the Central
Government, being satisfied that it is necessary in the public
interest so to do, hereby exempts the goods specified in the First
Schedule to the Central Excise Tariff Act, 1985 (5 of 1986) other
than those mentioned in the Annexure and cleared from a unit
located in the States of Assam or Tripura or Meghal aya or
Mizoram or Manipur or Nagaland or Arunachal Pradesh or
Sikkim, as the case may be, from so much of the duty of e xcise
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 utilisation of CENVAT credit under the CENVAT
Credit Rules, 2004.
2. In cases where all goods produced by a manufacturer are
eligible for exemption under this Notification, the exem ption
contained in this Notification shall be available subject to the
condition that, the manufacturer first utilises who le 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 month 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 other than the amount of duty paid by utilisation of
CENVAT credit under the CENVAT Credit Rules, 2004,
to the Assistant Commissioner or the Deputy
Commissioner of Central Excise, as the case may be,
by the 7th of the next month in which the duty has been
paid other than the amount of duty paid by utilisation of
CENVAT credit under the CENVAT Credit Rules, 2004;
(b) the Assistant Commissioner of Central Excise or the
Deputy Commissioner of Central Excise, as the case
may be, after such verification, as may be deemed
necessary, shall refund the amount of duty paid other
than the amount of duty paid by utilisation of CENVAT
1029
credit under the CENVAT Credit Rules, 2004, during the
month under consideration to the manufacturer by the
15th of the next month:
Provided that in cases, where the exemption contained in this
Notification is not applicable to some of the goods produced by
a manufacturer, such refund shall not exceed the amount of duty
paid less the amount of the CENVAT credit availed of, in respect
of the duty paid on the inputs used in or in relatio n to the
manufacture of goods cleared under this Notification;
(c) if there is likely to be any delay in the verification,
Assistant Commissioner of Central Excise or the Deputy
Commissioner of Central Excise, as the case may be,
shall refund the amount on provisional basis by the 15th
of the next month to the month under consideration and
thereafter may adjust the amount of refund by such
amount as may be necessary in the subsequent refunds
admissible to the manufacturer.”
Circulars have also been referred to in the decision of this Court
in SRD Nutrients Private Limited (supra). The same is extracted
hereunder:
“17. It is clear from the arguments of the counsel for the parties
that divergent views are expressed by the CESTAT as well as
High Courts. Even one Bench of the same Tribunal has differed
from its earlier Division Bench decision. In this sc enario, it
becomes important as to how the Department has viewed the
position regarding education cess and higher education cess which
is payable as a surcharge on the excise duty, once the excise
duty is exempted. Two circulars are relevant in this be half, one
is Circular dated 10-8-2004 which clarifies that education cess
is part of excise duty. In this circular, certain clarificat ions are
given by the Ministry of Finance (Department of Revenu e),
Government of India and the relevant portion thereof reads as
under:
“Subject: Issues relating to imposition of education cess on
excisable goods and on imported goods, as pointed o ut by
the trade and the field formations—Reg.
M/S. UNICORN INDUSTRIES v. UNION OF INDIA & OTHERS
[ARUN MISHRA, J.]
The undersigned is directed to state that subsequent to Budge t
2004 announcements, a number of representations/references
have been received from the trade as well as from the field
formations pertaining to imposition of education cess on excisable
goods and on imported goods. The points raised and the
clarifications thereon are as follows:
Issue (1): Whether education cess on excisable goods is leviable
on goods manufactured prior to imposition of cess but cleare d
after imposition of such cess?
Clarification : Education cess on excisable goods is a new levy.
In similar cases, it has been held by the Supreme Court that if a
levy is not there at the time the goods are manufactu red or
produced in India, it cannot be levied at the stage of removal of
the said goods. Thus, education cess is not leviable on excisable
goods manufactured prior to imposition of cess but cleared after
imposition of such cess.
Issue (2): Whether goods that are fully exempted from excise
duty/customs duty or are cleared without payment of excise duty/
customs duty (such as clearance under bond or fulfilmen t of
certain conditions) would be subjected to cess.
Clarification : The education cess is leviable at the rate of two
per cent of the aggregate of all duties of excise/c ustoms
(excluding certain duties of customs like anti-dumping duty,
safeguard duty, etc.), levied and collected . If goods are fully
exempted from excise duty or customs duty, are chargeable to
NIL duty or are cleared without payment of duty under specified
procedure such as clearance under bond, there is no collection
of duty. Thus, no education cess would be leviable on su ch
clearances. In this regard, letter D.O. No. 605/54/2004- DBK
dated 21-7-2004 issued by Member (Customs) may also be
referred to.”
(emphasis in original)”
In the circular dated 10.8.2004, reference has been made to the
notification issued by Member (Customs), wherein it is stated that there
is no collection of excise duty; hence, no education ces s would be
leviable on such clearances.
1031
Circular dated 8.4.2011 had been issued by the Central Board
of Excise and Customs with respect to service tax. In ca se service
tax stands exempted, education cess and secondary and higher education
cess shall not be levied.
26. This Court in SRD Nutrients Private Limited (supra) has
observed that the circulars bind department. When there is no ex cise
duty, the education cess and secondary and higher education cess could
not have been demanded. This Court observed thus:
“21. One aspect that clearly emerges from the reading of these
two circulars is that the Government itself has taken the position
that where whole of excise duty or service tax is exempted, even
the education cess as well as secondary and higher education
cess would not be payable. These circulars are binding on the
Department.
22. Even otherwise, we are of the opinion that it is more rational
to accept the aforesaid position as clarified by the Mi nistry of
Finance in the aforesaid circulars. Education cess is on exc ise
duty. It means that those assessees who are required to pay
excise duty have to shell out education cess as wel l. This
education cess is introduced by Sections 91 to 93 of the Finance
(No. 2) Act, 2004. As per Section 91 thereof, education cess is
the surcharge which the assessee is to pay. Section 93 ma kes it
clear that this education cess is payable on “excisable goods,”
i.e., in respect of goods specified in the First Schedule to the
Central Excise Tariff Act, 1985. Further, this education cess i s
to be levied @ 2% and calculated on the aggregate of all duties
of excise which are levied and collected by the Cen tral
Government under the provisions of the Central Excise Act, 1944
or under any other law for the time being in force. Sub-se ction
(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 appl ied in
relation to levy and collection of education cess on excisable
goods. A conjoint reading of these provisions would am ply
demonstrate that education cess as a surcharge is levied @ 2%
on the duties of excise, which are payable under the Act. It can,
therefore, be clearly inferred that when there is no excise duty
payable, as it is exempted, there would not be any education cess
M/S. UNICORN INDUSTRIES v. UNION OF INDIA & OTHERS
[ARUN MISHRA, J.]
as well, inasmuch as education cess @ 2% is to be calculat ed
on the aggregate of duties of excise. There cannot b e any
surcharge when basic duty itself is NIL.
***
24. We are in agreement with the aforesaid reasons accorded
by the Rajasthan High Court since it is in consonance with t he
legal principle enunciated by this Court. For this purpose, we may
refer to the judgment in CCE v. TELCO (1997) 5 SCC 275. In
that case, issue pertained to valuation of cess which was levied
@ 1/8 per cent of ad valorem “value” of the Central excise duty.
The Court held that the calculation of 1/8 per cent ad valorem
of the motor vehicle for the purposes of the levy and collect ion
of the automobile cess must be made that was being calc ulated
since automobile cess was to be levied and calculated as if it
was excise duty. As a fortiori, the education cess and h igher
education cess levied @ 2% of the excise duty would partake
the character of excise duty itself.”
27. In Bajaj Auto Limited (supra), a Division Bench of this Court
considered the question of liability towards NCCD, education cess and
secondary and higher education cess on manufacturing establis hment
which is exempted from payment of central excise duty under the Act
of 1944. The matter arose from the State of Uttarakhand; a n Office
Memorandum dated 7.1.2003 was issued, by which 100 per cent outright
excise duty exemption for ten years was granted from the date of
commencement of the commercial production. Notifica tion dated
10.6.2003 issued under Section 5A has been reproduced in the decision
mentioned above, the same is extracted hereunder:
“GENERAL EXEMPTION NO. 41
Exemption to goods other than specified goods cleared from units
located in the Industrial Growth Centre or Industri al
Infrastructure Development Centre or Export Promotion Industrial
Park or Industrial Estate or Industrial Area or Commercial Estate
or Scheme Area of Uttarakhand and Himachal Pradesh.—I n
exercise of the powers conferred by sub-section (1) of sectio n
5A of the Central Excise Act, 1944 (1 of 1944) read with sub-
section (3) of section 3 of the Additional Duties of Excise (Goods
of Special Importance) Act, 1957 (58 of 1957) and sub-section
1033
(3) of section 3 of the Additional Duties of Excise (Textiles and
Textiles Articles) Act, 1978 (40 of 1978), the Central Government,
being satisfied that it is necessary in the public interest so to do,
hereby exempts the goods specified in the First Schedule and
the Second Schedule to the Central Excise Tariff Act, 1985 (5
of 1986), other than the goods specified in Annexure-I appended
hereto, and cleared from a unit located in the Industrial Gr owth
Centre or Industrial Infrastructure Development Centre or Export
Promotion Industrial Park or Industrial Estate or Industrial Area
or Commercial Estate or Scheme Area, as the case may b e,
specified in [Annexure-II and Annexure III] appended hereto,
from the whole of the duty of excise or additional duty of excise,
as the case may be, leviable thereon under any of the said Acts.”
The Division Bench has relied upon the decision of SRD
Nutrients Private Limited (supra). The decision of the Rajasthan High
Court in Banswara Syntex Ltd. v. Union of India, 2007 SCC OnLine
Raj. 365, which was considered in SRD Nutrients Private Limited
(supra), was also referred to, besides the circular of 2004. Thi s Court
has observed thus:
“21. We may notice that the primary reasoning contained in the
impugned order is common for the three cesses, i.e., NCCD;
Education Cess and Secondary & Higher Education Cess. These
were in the nature of surcharges levied in other Acts, which have
not been specifically excluded under the Notification in question.
That reasoning does not prevail, more so because of the judgment
in SRD Nutrients Pvt. Ltd. The question, thus, is whether, even
though the NCCD is in the nature of an excise duty, its incidence
being on the product, rather than on the value of the excise duty,
that itself would make any difference to the applicability of the
NCCD to excise exempt units.
22. On a proper appreciation of the judicial pronouncement i n
SRD Nutrients Pvt. Ltd ., we are not inclined to take a different
view from the one taken for Education Cess and Secondary &
Higher Education Cess, even while considering the is sue of
NCCD.
23. We may notice that this Court, in SRD Nutrients Pvt. Ltd.
gave its imprimatur to the view expressed by the Rajasthan High
Court in Banswara Syntex Ltd. The rationale is that while there
M/S. UNICORN INDUSTRIES v. UNION OF INDIA & OTHERS
[ARUN MISHRA, J.]
may be surcharges under different financial enactments to provide
the Government with revenue for specified purposes, the s ame
have been notified as leviable in the nature of a particula r kind
of duty. In the case of NCCD, it is in the nature of an excise
duty. It has to bear the same character as those respect ive taxes
to which the surcharge is appended. NCCD will not cease to b e
an excise duty, but is the same as an excise duty, even if it is
levied on the product. Thus, when NCCD, at the time of
collection, takes the character of a duty on the product, whatever
may be the rationale behind it, it is also subject to the provisions
relating to excise duty, applicable to it in the manner of collection
as well as the obligation of the taxpayer to discharge the duty.
Once the excise duty is exempted, NCCD, levied as an excise
duty, cannot partake a different character and, thus, would be
entitled to the benefit of the exemption notification. The exemption
notification also states that the exemption is from the “whole of
the duty of excise or additional duty of excise.” We may als o
note that the exemption itself is for a period of ten years from
the date of commercial production of the unit.
24. We are, thus, of the view that the appellant would not be
liable to pay the NCCD.”
28. The Division Bench of this Court has rendered both the above
decisions. The most unfortunate part is that the binding decision of larger
bench consisting of three-Judges of this Court in Union of India v.
Modi Rubber Limited, (1986) 4 SCC 66, dealing with the similar issue,
was not placed for consideration before this Court when the
abovementioned decisions came to be rendered.
29. This Court in Modi Rubber Limited (supra) has considered
the similar question in the backdrop of the facts that what is the meaning
of the expression ‘duty of excise’ employed in the notific ations dated
1.8.1974 and 1.3.1981, issued by the Government of India under Rule
8(1) of the Central Excise Rules. A question arose whether expression
‘duty of excise’ is limited in its connotation only to basic duty levied
under the Central Excises and Salt Act, 1944 or it also c overs special
duties of excise levied under the various Finance Bil ls and Acts,
additional duty of excise levied under the Act of 1957 and othe r kind
of duty of excise levied under the Central enactments.
1035
30. In Modi Rubber Limited (supra), the company was the
manufacturer of tyres, which product was subject to a duty of excise
under the Central Excises and Salt Act, 1944. The word ‘duty’ under
the said Act is defined in Rule 2(v) to mean “the duty payabl e under
Section 3 of the Act”. The exemption is dealt with under Rule 8 of
Central Excise Rules, exempting various categories of excisable goods
from the whole or any part of the duty of excise leviable on such goods.
The notification dated 1.8.1974, came up for consideration before this
Court in Modi Rubber Limited (supra), which is extracted hereunder:
“3…..
Notification No. 123/74-C.E. dated August 1, 1974
In the exercise of the powers conferred by sub-rule (1) of Rule
8 of the Central Excise Rules, 1944, the Central Government
hereby exempts tyres for motor vehicles falling under sub- item
(1) of Item No.16 of the First Schedule to the Central Excise s
and Salt Act, 1944 (1 of 1944), from so much of the duty of excise
leviable thereon as is in excess of fifty-five per cent ad
valorem .”
The notification was confined to the exemption of duty of excise
under the Act of 1944 in excess of 55 per cent ad valorem.
Subsequently, the notification dated 1.3.1981, was issued by the Central
Government exempting specified goods from so much of the duty of
excise leviable thereon as is more than the duty spe cified in the
corresponding entry in column 5.
31. This Court in Modi Rubber Limited (supra) considered the
question that since 1963, the special duty of excise was levie d inter
alia on the manufacture of tyres from year to year up to 1971 by various
Finance Acts passed from time to time. It was discontinued from 1972
to 1978, and the Finance Act, 1978, again revived it. After that, it
continued to be levied from year to year right up to the p eriod. The
special duties of excise came to be imposed under Section 32 of the
Finance Act, 1979, which came up for consideration before this Court
in Modi Rubber Limited (supra). The same is extracted hereunder:
“32. Special Duties of Excise.— (1) In the case of goods
chargeable with a duty of excise under the Central Excis es Act
as amended from time to time, read with any notification for the
time being in force issued by the Central Government in relation
M/S. UNICORN INDUSTRIES v. UNION OF INDIA & OTHERS
[ARUN MISHRA, J.]
to the duty so chargeable there shall be levied and colle cted a
special duty of excise equal to five per cent of the amount so
chargeable on such goods.
(2) Sub-section (1) shall cease to have effect after the 31st
day of March, 1980, except as respects things done or
omitted to be done before such cesser; and Section 6
of the General Clauses Act, 1897, shall apply upon such
cesser as if the said sub-section had then been repealed
by a Central Act.
(3) The Special duties of excise referred to in sub-se ction
(1) shall be in addition to any duties of excise chargeable
on such goods under the Central Excises Act or any
other law for the time being in force.
(4) The provisions of the Central Excises Act and the rules
made thereunder, including those relating to refunds and
exemptions from duties, shall, as far as may be, apply
in relation to the levy and collection of the special duties
of excise leviable under this section in respect of any
goods as they apply in relation to the levy and collection
of the duties of excise on such goods under that Act or
those rules as the case may be.”
(emphasis supplied)
32. The provisions of Section 32 are pari materia to the
abovementioned provisions of the Finance Act(s) in question. The
special duty under Section 32 of Finance Act, 1979 imposed was in
addition to any duties of excise chargeable on such goods under the
provisions of the Central Excises Act and the Rules made t hereunder,
with respect to refunds and exemptions from duties, shall, as far as
may be, apply to the levy and collection of special duties of excise
leviable under the provisions of Section 32 of the Finance A ct, 1979.
33. The assessee Modi Rubber Limited (supra) claimed that
in view of the notification dated 1.8.1974, assessee was exempted from
payment not only in respect of basic excise duty levied under the Central
Excises and Salt Act, 1944, but also in respect of special duty of excise
levied under the relevant Finance Acts, because the language u sed in
the notification was not restrictive and it referred generally to ‘duty of
excise’ without any qualification, therefore, it covered all duties of excise
1037
whether levied under the Central Excises and Salt Act, 1944 or under
any other Central enactments. The dispute pertained to the period from
November 1979 to October 1982.
34. The Assistant Collector of Excise, in the case of Modi
Rubber Limited (supra), held that exemption granted under the
notification dated 1.8.1974, was not available in respect of special duty
of excise levied under the Finance Acts. The assessee thereu pon filed
a writ petition in the Delhi High Court, challenging the order of t he
Assistant Collector of Excise. The Delhi High Court upheld the claim
of the assessee. It took the view that the expression ‘duty of excise’
included not only basic duty of excise levied under the Central Excises
and Salt Act, 1944, but also the special duty of excise levied under the
various Finance Acts and any other duties of excise levied under Central
enactment. Meanwhile, Parliament also enacted the Centr al Excise
Laws (Amendment and Validation) Act, 1982 laying down statutory rules
which should guide the court in interpreting notification s granting
exemption from payment of duty of excise and prescribing the conditions
on which a notification granting exemption from payment of duty of
excise can be construed as applicable to duty of excise levied under
any Central law making the provisions of the Central Excises and Salt
Act, 1944 and the Rules made thereunder applicable to the lev y and
collection of duty of excise under such Central Law.
35. The question arose for consideration before this Court as to
what is the real import of the expression ‘duty of e xcise’ in the
notifications dated 1.8.1974 and 1.3.1981 and whether it includes the
duties of excise leviable not only under the Central Excises and Salt
Act, 1944, but also under any other enactment.
36. This Court in Modi Rubber Limited (supra) has considered
the purport of the notifications and the specific prov isions mentioned
therein and held that exemption has to be considered in the lig ht of
provisions of Central Excise Rules, 1944, as envisaged under Rule 2(v)
of Central Excise Rules, 1944. It cannot, in the circumsta nces, bear
an extended meaning to include special excise duty and auxiliary excise
duty. This Court observed thus:
“6. The first question that arises for consideration on these facts
is as to what is the true import of the expression “duty of excise”
in the notifications dated August 1, 1974, and March 1, 1981. It
is only if this expression is held to include duties of excise leviable
M/S. UNICORN INDUSTRIES v. UNION OF INDIA & OTHERS
[ARUN MISHRA, J.]
not only under the Central Excises and Salt Act, 1944 but also
under any other enactments that the question would arise whether
the Central Laws (Amendment and Validation) Act, 1982 is
constitutionally invalid. We, therefore, asked the learned counsel
appearing on behalf of the parties to confine their arguments only
to the first question of interpretation of the expression ‘ duty of
excise’ in the notifications dated August 1, 1974 and March 1,
1981.
7. Both these notifications, as the opening part shows, are issued
under Rule 8(1) of the Central Excise Rules, 1944 and since the
definition of ‘duty’ in Rule 2, clause ( v) must necessarily be
projected in Rule 8(1) and the expression “duty of excise” in Rule
8(1) must be read in the light of that definition, the same
expression used in these two notifications issued under Rule 8(1)
must also be interpreted in the same sense, namely, duty of excise
payable under the Central Excises and Salt Act, 1944 and the
exemption granted under both these notifications must be regarded
as limited only to such duty of excise. But the respond ents
contended that the expression ‘duty of excise’ was one of lar ge
amplitude and in the absence of any restrictive or limitative words
indicating that it was intended to refer only to duty of excis e
leviable under the Central Excises and Salt Act, 1944, it must be
held to cover all duties of excise whether leviable unde r the
Central Excises and Salt Act, 1944 or under any other enactment.
The respondents sought to support this contention by pointing out
that whenever the Central Government wanted to confine the
exemption granted under a notification to the duty of exc ise
leviable under the Central Excises and Salt Act, 1944, the Central
Government made its intention abundantly clear by u sing
appropriate words of limitation such as “duty of excise leviab le
... under Section 3 of the Central Excises and Salt Act, 1944”
or “duty of excise leviable ... under the Central Excises and Salt
Act, 1944” or “duty of excise leviable ... under the said Act” as
in the Notification No. CER-8(2)/55-C.E. dated September 17,
1955, Notification No. 255/77-C.E. dated July 20, 1 977,
Notification No. CER-8(1)/55-C.E. dated September 2, 1955 ,
Notification No. CER-8(9)/55-C.E. dated December 31, 1955,
Notification No. 95/61-C.E. dated April 1, 1961, Notification No.
23/55-C.E. dated April 29, 1955, and similar other notifications.
1039
But, here said the respondents, no such words of limitation are
used in the two notifications in question and the expression “duty
of excise” must, therefore, be read according to its plain natural
meaning as including all duties of excise, including special duty
of excise and auxiliary duty of excise. Now, it is no doubt true
that in these various notifications referred to above, the C entral
Government has, while granting exemption under Rule 8(1), used
specified language indicating that the exemption, total or partial,
granted under each such notification is in respect of excise duty
leviable under the Central Excises and Salt Act, 1944. But, merely
because, as a matter of drafting, the Central Government has i n
some notifications specifically referred to the excis e duty in
respect of which exemption is granted as “duty of e xcise”
leviable under the Central Excises and Salt Act, 1944, it does
not follow that in the absence of such words of specific ity, the
expression “duty of excise” standing by itself must be rea d as
referring to all duties of excise. It is not uncommon to find that
the legislature sometimes, with a view to making its intention clear
beyond doubt, uses language ex abundanti cautela though it
may not be strictly necessary and even without it the same
intention can be spelt out as a matter of judicial construction and
this would be more so in case of subordinate legislation b y the
executive. The officer drafting a particular piece of subordinat e
legislation in the Executive Department may employ words with
a view to leaving no scope for possible doubt as to its inte ntion
or sometimes even for greater completeness, though these words
may not add anything to the meaning and scope of the subordinate
legislation. Here, in the present notifications, the words d uty of
excise leviable under the Central Excises and Salt Act, 1944’ do
not find a place as in the other notifications relied upon by the
respondents. But, that does not necessarily lead to the inference
that the expression “duty of excise’ in these notifications w as
intended to refer to all duties of excise including special and
auxiliary duties of excise. The absence of these words does n ot
absolve us from the obligation to interpret the expression “dut y
of excise” in these notifications. We have still to construe this
expression — what is its meaning and import — and that has to
be done, bearing in mind the context in which it occurs. We have
already pointed out that these notifications having been issued
M/S. UNICORN INDUSTRIES v. UNION OF INDIA & OTHERS
[ARUN MISHRA, J.]
under Rule 8(1), the expression ‘duty of excise’ in these
notifications must bear the same meaning which it has in Rule
8(1) and that meaning clearly is — excise duty payable under
the Central Excises and Salt Act, 1944 as envisaged in Rule 2
clause ( v). It cannot in the circumstances bear an extended
meaning so as to include special excise duty and auxiliary excise
duty.”
37. This Court in Modi Rubber Limited (supra) further
considered the question when the notification was issued on 1.8.1974,
there was no special duty of excise leviable on tyres, it ca me to be
introduced in 1978 under various Finance Acts. It was held tha t the
notification could not be read as comprehending the special duty of
excise on the date of the notification and came to be levied four years
later. This Court also laid down that the presumption is that when the
Central Government issues a notification granting exempti on from
payment of excise duty under Rule 8(1) of Rules of 1944, the Centr al
Government would have considered whether exemption sho uld be
granted and if so, to what extent and can only be with reference to the
duty of excise which is then leviable, not a duty to be imposed in future.
This Court in Modi Rubber Limited (supra) strongly repelled the
argument that it would cover the duties to be imposed in the future not
prevailing at the relevant time thus:
“8. Moreover, at the date when the first notification was issued,
namely, August 1, 1974, there was no special duty of excise
leviable on tyres. It came to be levied on tyres with eff ect from
the financial year 1978 under various Finance Acts enacted from
year to year. It is therefore difficult to understand how the
expression “duty of excise” in the notification dated August 1,
1974 could possibly be read as comprehending special duty of
excise which did not exist at the date of this notification and came
to be levied almost four years later. When special duty of excise
was not in existence at the date of this notification, how c ould
the Central Government, in issuing this notification, have intended
to grant exemption from payment of special excise duty? The
presumption is that when a notification granting exemption from
payment of excise duty is issued by the Central Government
under Rule 8(1), the Central Government would have applied its
mind to the question whether exemption should be granted and
if so, to what extent. And obviously, that can only be with
1041
reference to the duty of excise, which is then levi able. The
Central Government could not be presumed to have projected
its mind into the future and granted exemption in respect of excise
duty which may be levied in the future, without considering the
nature and extent of such duty and the object and purpose f or
which such levy may be made and without taking into account
the situation which may be prevailing then. It is only when a new
duty of excise is levied, whether special duty of excise or auxiliary
duty of excise or any other kind of duty of excise, that a question
could arise whether any particular article should be exempte d
from payment of such duty of excise and the Central Government
would then have to apply its mind to this question and having
regard to the nature and extent of such duty of excise and the
object and purpose for which it is levied and the ec onomic
situation including supply and demand position then prevailing,
decide whether exemption from payment of such excise duty
should be granted and if so, to what extent. It would be abs urd
to suggest that by issuing the notification dated August 1, 19 74
the Central Government intended to grant exemption not only in
respect of excise duty then prevailing but also in respec t of all
future duties of excise which may be levied from time to tim e.”
38. This Court in Modi Rubber Limited (supra) also considered
the provisions of Section 32 of the Finance Act, 1979, levying s pecial
duty making applicable to the provisions of the Act of 1944 a nd the
Rules made thereunder, relating to refunds and exemptions from duties.
They shall, as far as may be, apply in relation to the levy and collection
of the special duty of excise as they apply to the levy and collection of
the duty of excise under the Act of 1944. It was held that ref erence
to the provisions under section 32 of the Finance Act as to the source
of power under which notifications dated 1.8.1974 and 1.3.1981 were
issued, it could not be held that exemption granted under these two
notifications was extendable to Finance Act, 1979. It was limited only
to the duty of excise payable under the Act of 1944. The expres sion
‘duty of excise’ in these two notifications could not legiti mately be
construed as comprehending special duty of excise. Merely refer ence
to the source of power is not enough to attract the exemption and what
exemption has been granted to be read from the notification i ssued
therein. This Court has further laid down that in case notification
granting exemption issued under the Central Excise Rules, 1944 without
reference to any other statute, the exemption must be read as limited
M/S. UNICORN INDUSTRIES v. UNION OF INDIA & OTHERS
[ARUN MISHRA, J.]
to the duty of excise payable under the Central Excises and Salt Act,
1944. It cannot cover such special or another kind of duty of e xcise.
This Court in Modi Rubber Limited (supra) has discussed the
provisions of the Finance Act, 1979 thus:
“9. We have already pointed out, and this is one of the principal
arguments against the contention of the respondents, th at by
reason of the definition of “duty” in clause ( v) of Rule 2 which
must be read in Rule 8(1), the expression “duty of excise” in
the notifications dated August 1, 1974 and March 1, 1981 must
be construed as duty of excise payable under the Central Excises
and Salt Act, 1944. The respondents sought to comba t this
conclusion by relying on sub-section (4) of Section 32 of the
Finance Act, 1979 — there being an identical provision in each
Finance Act levying special duty of excise — which provided
that the provisions of the Central Excises and Salt Act, 1944 and
the rules made thereunder including those relating to refunds and
exemptions from duties shall, as far as may be, apply in relation
to the levy and collection of special duty of excise as they apply
in relation to the levy and collection of the duty of excise under
the Central Excises and Salt Act, 1944. It was urged on beha lf
of the respondents that by reason of this provision, Rule 8(1)
relating to exemption from duty of excise became applicable in
relation to the levy and collection of special duty of excise and
exemption from payment of special duty of excise could therefore
be granted by the Central Government under Rule 8(1) in the
same manner in which it could be granted in relation to the duty
of excise payable under the Central Excises and Salt Act, 1944.
The argument of the respondents based on this premise was that
the reference to Rule 8(1) as the source of the power under which
the notifications dated August 1, 1974 and March 1, 1981 were
issued could not therefore be relied upon as indicating that the
duty of excise from which exemption was granted under these
two notifications was limited only to the duty of excise payable
under the Central Excises and Salt Act, 1944 and the expression
“duty of excise” in these two notifications could legitimately be
construed as comprehending special duty of excise. This
argument is, in our opinion, not well-founded and cannot b e
sustained. It is obvious that when a notification granting exemption
from duty of excise is issued by the Central Government in
exercise of the power under Rule 8(1) simpliciter, without
1043
anything more, it must, by reason of the definition of ‘ duty’
contained in Rule 2 clause ( v) which according to the well
recognised canons of construction would be projected in Rule
8(1), be read as granting exemption only in respect of duty of
excise payable under the Central Excises and Salt Act, 1944.
Undoubtedly, by reason of sub-section (4) of Section 32 of the
Finance Act, 1979 and similar provision in the other Finance
Acts, Rule 8(1) would become applicable empowering the Central
Government to grant exemption from payment of special duty
of excise, but when the Central Government exercises this
power, it would be doing so under Rule 8(1) read with sub-section
(4) of Section 32 or other similar provision. The reference to the
source of power in such a case would not be just to Rule 8(1),
since it does not of its own force and on its own language apply
to granting of exemption in respect of special duty of excise, but
the reference would have to be to Rule 8(1) read with sub-section
(4) of Section 32 or other similar provision. It is signi ficant to
note that during all these years, whenever exemption is sought
to be granted by the Central Government from payment of special
duty of excise or additional duty of excise, the recital of the source
of power in the notification granting exemption has invariabl y
been to Rule 8(1) read with the relevant provision of the statute
levying special duty of excise or additional duty of exc ise, by
which the provisions of the Central Excises and Salt Act , 1944
and the rules made thereunder including those relat ing to
exemption from duty are made applicable. Take for example, the
Notification bearing No. 63/78 dated August 1, 1978 w here
exemption is granted in respect of certain excisable goods “from
the whole of the special duty of excise leviable thereon under
sub-clause (1) of clause 37 of the Finance Bill, 1978”. The
source of the power recited in this notification is “sub-rul e (1)
of Rule 8 of the Central Excise Rules, 1944 read with sub-clause
(5) of clause 37 of the Finance Bill, 1978”. So als o in the
Notification bearing No. 29/79 dated March 1, 1979 exempting
unmanufactured tobacco “from the whole of the duty of excise
leviable thereon both under the Central Excises and Salt Act ,
1944 and Additional Duties of Excise (Goods of Spec ial
Importance) Act, 1957”, the reference to the source of power
mentioned in the opening part of the notification is “sub-rule (1)
of Rule 8 of the Central Excise Rules, 1944 read with sub-section
M/S. UNICORN INDUSTRIES v. UNION OF INDIA & OTHERS
[ARUN MISHRA, J.]
(3) of Section 3 of the Additional Duties of Excise (Goods of
Special Importance) Act, 1957”. The respondents have in fact
produced several notifications granting exemption in respect of
special duty of excise or additional duty of excise and in each of
these notifications, we find that the source of power is described
as sub-rule (1) of Rule 8 of the Central Excise Rules, 1944 read
with the relevant provision of the statute levying special duty of
excise or additional duty of excise by which the provisions of
the Central Excises and Salt Act, 1944 and the Rule s made
thereunder including those relating to exemption from duty a re
made applicable. Moreover, the exemption granted under all these
notifications specifically refers to special duty of excise or
additional duty of excise, as the case may be. It is, theref ore,
clear that where a notification granting exemption is issued only
under sub-rule (1) of Rule 8 of the Central Excise Rules, 1944
without reference to any other statute making the provisions o f
the Central Excises and Salt Act, 1944 and the Rule s made
thereunder applicable to the levy and collection of special, auxiliary
or any other kind of excise duty levied under such statute, the
exemption must be read as limited to the duty of excise payable
under the Central Excises and Salt Act, 1944 and cannot cover
such special, auxiliary or other kind of duty of excise . The
notifications in the present case were issued under sub-rul e (1)
of Rule 8 of the Central Excise Rules, 1944 simpliciter without
reference to any other statute and hence the exemption granted
under these two notifications must be construed as limited onl y
to the duty of excise payable under the Central Excises and Salt
Act, 1944.”
This Court in Modi Rubber Limited (supra) has also considered
when the exemption is granted under the particular provision; it would
not cover any other kind of duty of excise imposed under separate Acts.
This Court observed thus:
“10. We may incidentally mention that in the appeals a question
of interpretation was also raised in regard to the Notific ation
bearing No. 249/67 dated November 8, 1967 exempting tyres for
tractors from “so much of the duty leviable thereon under it em
16 of the First Schedule to the Central Excises and Salt Act, 1944
as is in excess of 15 per cent”. The argument of the respondents
in the appeals was that the exemption granted under this
1045
notification was not limited to the duty of excise payable under
the Central Excises and Salt Act, 1944 but it also extended to
special duty of excise, additional duty of excise and auxiliary duty
of excise leviable under other enactments. This argument plainly
runs counter to the very language of this notification. It is obvious
that the exemption granted under this notification is in respe ct
of “so much of the duty leviable thereon under item 16 of the
First Schedule to the Central Excises and Salt Act, 1944 as is in
excess of 15 per cent” and these words describing the nat ure
and extent of the exemption on their plain natural construction,
clearly indicate that the exemption is in respect of duty of excise
leviable under the Central Excises and Salt Act, 1944 and do es
not cover any other kind of duty of excise. No more discuss ion
is necessary in regard to this question beyond merely referr ing
to the language of this notification.”
The appeals were allowed, and it was held that exemption was
not available in respect of special duty of excise or addi tional duty of
excise or auxiliary duty of excise. A three-Judge Bench in Rita Textiles
Private Limited v. Union of India, 1986 SCC Supp. 557, has followed
the decision of Modi Rubber Limited (supra). The decision in Modi
Rubber Limited (supra) squarely covers the issue and is rendered by
a Co-ordinate Bench.
39. Rule 8 of Central Excise Rules, 1944, authorises the Central
Government to grant an exemption to any excisable goods from the
whole or any part of duty leviable on such goods. Rule 8 is extracted
hereunder:
“8. Power to authorise an exemption from duty in specia l
cases.— (1) The Central Government may from time to time, by
notification in the official Gazette, exempt (subje ct to such
conditions as may be specified in the notification) any excisable
goods from the whole or any part of duty leviable on such goods.
(2) The Central Board of Excise and Customs may by specia l
order in each case exempt from the payment of duty, un der
circumstances of an exceptional nature, any excisable goods.”
The word ‘duty’ is defined under Rule 2(v) to mean the duty as
levied under the Act.
40. Notification dated 9.9.2003 issued in the present case makes
it clear that exemption was granted under Section 5A of the A ct of
M/S. UNICORN INDUSTRIES v. UNION OF INDIA & OTHERS
[ARUN MISHRA, J.]
1944, concerning additional duties under the Act of 1957 and additional
duties of excise under the Act of 1978. It was questioned on the ground
that it provided for limited exemption only under the Acts ref erred to
therein. There is no reference to the Finance Act, 2001 by which NCCD
was imposed, and the Finance Acts of 2004 and 2007 were not in vogue.
The notification was questioned on the ground that it s hould have
included other duties also. The notification could not have contemplated
the inclusion of education cess and secondary and higher education cess
imposed by the Finance Acts of 2004 and 2007 in the nature of the
duty of excise. The duty on NCCD, education cess and secondar y
and higher education cess are in the nature of additional ex cise duty
and it would not mean that exemption notification dated 9.9.2003 covers
them particularly when there is no reference to the notific ation issued
under the Finance Act, 2001. There was no question of granting
exemption related to cess was not in vogue at the relevant time imposed
later on vide Section 91 of the Act of 2004 and Section 126 of the Act
of 2007. The provisions of Act of 1944 and the Rules made thereunder
shall be applicable to refund, and the exemption is only a refer ence to
the source of power to exempt the NCCD, education cess, secondar y
and higher education cess. A notification has to be issued for providing
exemption under the said source of power. In the ab sence of a
notification containing an exemption to such additional duties i n the
nature of education cess and secondary and higher education cess, they
cannot be said to have been exempted. The High Court was right i n
relying upon the decision of three-Judge Bench of this Court i n Modi
Rubber Limited (supra), which has been followed by another three-
Judge Bench of this Court in Rita Textiles Private Limited (supra).
41. The Circular of 2004 issued based on the interpretation o f
the provisions made by one of the Customs Officers, is of no avail as
such Circular has no force of law and cannot be said to be bin ding on
the Court. Similarly, the Circular issued by Central Boa rd of Excise
and Customs in 2011, is of no avail as it relates to service tax and has
no force of law and cannot be said to be binding co ncerning the
interpretation of the provisions by the courts. The reason employed in
SRD Nutrients Private Limited (supra) that there was nil excise duty,
as such, additional duty cannot be charged, is also equally unacceptable
as additional duty can always be determined and merely exem ption
granted in respect of a particular excise duty, cannot come in the way
of determination of yet another duty based thereupon. The proposition
urged that simply because one kind of duty is exempted, other kinds of
1047
duties automatically fall, cannot be accepted as there is no difficulty in
making the computation of additional duties, which are payable under
NCCD, education cess, secondary and higher educatio n cess.
Moreover, statutory notification must cover specific ally the duty
exempted. When a particular kind of duty is exempted, other typ es of
duty or cess imposed by different legislation for a diffe rent purpose
cannot be said to have been exempted.
42. The decision of larger bench is binding on the smaller bench
has been held by this Court in several decisions such as Mahanagar
Railway Vendors’ Union v. Union of India & Ors. (1994) Suppl. 1
SCC 609, State of Maharashtra & Ors. v. Mana Adim Jamat
Mandal, AIR 2006 SC 3446 and State of Uttar Pradesh & Ors. v.
Ajay Kumar Sharma & Ors. (2016) 15 SCC 289. The decision
rendered in ignorance of a binding precedent and/or ignorance of a
provision has been held to be per incuriam in Subhash Chandra &
Ors. v. Delhi Subordinate Services Selection Board & O rs. (2009)
15 SCC 458, Dashrath Rupsingh Rathod v. State of Maharashtra
(2014) 9 SCC 129, and Central Board of Dawoodi Bohra Community
& Ors. v. State of Maharashtra & Ors. (2005) 2 SCC 673. It was
held that a smaller bench could not disagree with the view t aken by a
larger bench.
43. Thus, it is clear that before the Division Bench deciding SRD
Nutrients Private Limited and Bajaj Auto Limited (supra), the
previous binding decisions of three-Judge Bench in Modi Rubber
(supra) and Rita Textiles Private Limited (supra) were not placed for
consideration. Thus, the decisions in SRD Nutrients Private Limited
and Bajaj Auto Limited (supra) are clearly per incuriam . The
decisions in Modi Rubber (supra) and Rita Textiles Private Limited
(supra) are binding on us being of Co-ordinate Benc h, and we
respectfully follow them. We did not find any ground to take a different
view.
44. Resultantly, we have no hesitation in dismissing the appeals.
The judgment and order of the High Court are upheld, and the appeals
are dismissed. No costs.
Ankit Gyan Appeals dismissed.
M/S. UNICORN INDUSTRIES v. UNION OF INDIA & OTHERS
[ARUN MISHRA, J.]