Customs, Excise and Gold Tribunal - Mumbai
Mahindra And Mahindra Ltd. vs Commissioner Of Central Excise on 12 February, 2007
Equivalent citations: 2007(116)ECC313, 2007ECR313(TRI.-MUMBAI), 2007(211)ELT481(TRI-MUMBAI)
ORDER K.K. Agarwal, Member (T)
1. These are four appeals filed by M/s Mahindra & Mahindra. Since the issues involved are inter-related they are being decided through a common order.
2. The brief facts of the case are that the appellants are engaged in the manufacture of tractor, tractor skids, IC Engine and Transmission Assembly and parts thereof. While tractors were exempted from duty, other items like tractor skids, IC engine, transmission assemble and parts thereof were dutiable and were cleared by the appellants on payment of duty. They have taken Cenvat credit in respect of all inputs which were used for manufacture of exempted tractor as well as dutiable excisable goods without maintaining a separate account of inputs used in the manufacture of dutiable and exempted goods and therefore in terms of Rule 6(2) of the Cenvat Credit Rules, 2002 and relevant Cenvat Credit Rules 2004, they were required to pay an amount equal to 8% (paid 09.09.2004) and 10% from 10 09.2004 onwards on the total price excluding sales tax and other taxes if any paid on sale of such goods of the exempted final product i.e. tractors, cleared from home consumption as required under Rule 6(3)(b) of the Cenvat Credit Rules, 2002/2004.
3. The scrutiny of the records however revealed that appellants have also taken credit in respect of some inputs which were exclusively used for the manufacture of exempted products and since in terms of Rule 6(1) of the Cenvat Credit Rules, they were not entitled for credit in respect of inputs exclusively used for manufacture of exempted product and was entitled to take credit in respect of only that quantity of inputs which is intended for use in the manufacture of dutiable goods they were issued various show cause notices demanding credit so incorrectly taken by them on such inputs exclusively used for the manufacture of exempted products.
4. The other connected issue is that while paying 8% or 10% as the case may be the amount so paid was recovered from the customer in addition to the sale price charged and therefore it was contended by the department that the amount of 8% or 10% should be paid on the entire amount reahsed from the customer (i.e. sale price + 8/10% payment of duty) and since this was not done, demands were raised accordingly. The amount of duty demanded the period involved and that the penalty imposed in respect of the four appeals are annexed as Annexure A.
5. Heard both, sides.
6. It was submitted that under Rule 6(b) of the Cenvat Credit Rules, 2002/2004 the requirement of payment of duty @ 8% or 10% as the case may be is in respect of those cases where Cenvat credit is taken in respect of inputs which are used in the manufacture of both dutiable as well as exempted product. It was submitted that though tractors were exempted from basic excise duty they continue to attract cess duty of excise @ 1/8% of the value of tractors in terms of Section 9 of the Industrial (Development and Regulation) Act, 1951, read with Rule 3 of the Automobile Cess Rule. This cess has been paid by the appellant to the excise department for the last so many years. Further in terms of Section 93 of the Finance Act, 2004 education Cess on goods produced or manufactured is leviable @ 2% of the aggregate of all duty of excise which are levied and collected by the Central Government in the Ministry of Finance (Department of Revenue) under the provisions of Central Excise Act, 1944 or under any other law for the time being in force. Therefore, even though the tractors are chargeable to nil rate of basic excise duty education cess @ 2% was leviable on the total duty of excise being the automobile cess leviable on the tractor. This education cess has been paid since 09.07.2004 and is not disputed by the revenue. It was accordingly submitted that the tractors cannot be considered as exempted goods because education cess was payable on the same and education cess is nothing but duty of excise and therefore they are not hit by the provision of Rule 6(1) at all.
7. Learned advocate for the appellants submitted that this plea was taken by them before the Commissioner and though Commissioner, Central Excise, Mumbai has ignored this plea, Commissioner, Central Excise, Nagpur has dealt with the same and has held that cess cannot be considered as a duty of excise as it is levied by Ministry of Industry under Order No. 662(E) dated 10.09.1985 which means that it is levied under an Act other than Central Excise Act, 1944. The Commissioner has further held that duty of excise is levied under Section 3 of the Central Excise Act, 1944 and Rule 2(e) of the Central Excise Rules, 2002 define duty as "duty means the duty payable under Section 3 of the Central Excise Act, 1944 and therefore once cess is not payable under Section 3 of the Central Excise Act, 1944 the same cannot be considered as a duty of excise and consequently the tractor cannot be considered as exempted goods merely because education cess as well as automobile cess is paid on the tractors. This argument has also been reiterated by the learned S.D.R.
8. It was submitted that the view taken by the Commissioner is not correct as Section 2(d) of the Cenvat Credit Rules, 2004 defines exempted goods to mean "excisable goods which are exempted from the whole of duty of excise leviable thereon and include goods which are chargeable to nil rate of duty." Thus in order to treat final goods as "exempted goods" as defined under Rule 2(d) of the Cenvat Credit Rules, the said final product should be exempted from the whole of duty of excise leviable thereon. If the final product is not exempted from any of the duty of excise, the same cannot be treated as exempted goods as defined 2(d) of the Cenvat Credit Rules. It was submitted that while Rule 2(e) of the Central Excise Rules, 2002 defines the expression "duty" to mean duty payable under Section 3 of the Central Excise Act, 1944 which in turn defines the term to mean duty leviable in terms of first schedule and the second schedule to the Central Excise Tariff Act, 1985, "exempted goods" have been defined under Section 2(d) as goods which are exempted from the whole duty of excise. Thus while Rule 2(e) refers to the expression "duty", Rule 2(d) of the Cenvat Credit Rules refers to "duty of excise" which are different. Once education cess is being paid on tractors, they cannot be called as exempted goods as education cess is also a duty of excise and therefore the bar of Rule 6(l) is not applicable to their case. Reliance in this regard was also placed on the decision of the Tribunal in the case of Silvasa Industries Pvt. Ltd. v. C.C.E. 2006 (196) E.L.T. 213 (T) in which it has been held as under:
Heard both sides. The dispute relates to credit of NCCD taken on inputs (POY) used in production of finished goods (PTY) which are not subject to NCCD. Firstly. PTY cannot be considered as exempted goods as other duties are imposable on the same. Secondly, if PTY is exported, the appellants would be entitled to use NCCD credit or get a refund of the same. NCCD credit can and has also been utilized on clearance of POY itself.
2. As such, we are of the view that the appellants are eligible to take credit of NCCD paid on inputs, which, it goes without saying, can only be utilized in the prescribed manner. Accordingly, we set aside the impugned orders and allow the appeals.
9. It was submitted that duty as defined under Rule 2(e) is relevant only for the purpose of Central Excise Rules, 2002. It is not relevant for understanding the term "duty of excise" occurring in Cenvat Credit Rules, 2004 and since under the Cenvat Credit Rules credit of education cess is permissible as duty of excise the same has to be treated as duty of excise and once the goods are chargeable to education cess the same cannot be considered as exempted goods. This view was also taken by the Tribunal in the case of Commissioner of Central Excise v. Malwa Industries Ltd. 2004 (171) E.L.T. 67 (T).
10. Referring to the other plea of the learned D.R. that education cess and automobile cess is not in the nature of excise duty, as excise duty means duty as referred to an Entry 84 of the 7th Schedule to the constitution of India and not to automobile cess which is charged under the relevant cess act and not under the Central Excise Act and further that the cess is meant for a specific purpose and as in the nature of sub-charge and education cess assumed the colour of the act under which it is levied, thus it has to be treated as excise duty, if collected on Central Excise as Customs duty if collected on Customs duty as Income Tax if it collected on income tax and so on and that mere collection of duty under the Central Excise Act does not make it and excise duty, it was submitted that Section 9(1) of the Industrial (Development and Regulation) Act, 1951 read as under:
There may be levied and collected as a cess for the purpose of this act on all goods manufactured or produced in any such scheduled industry as may he specified in this behalf by the Central Government by notified order a duty of excise at such rate as may be specified in the notified order and different rates may be specified for different goods or different classes of goods. Provided that no such rate shall in any case exceed two annas percent of the value of the goods.
11. It was submitted that the Section very much makes it clear that the cess is nothing but duty of excise. Reference was also invited to the Supreme Court decision in the case of Baranagar Jute Mills v. Inspector where while interpreting Section 9 of the Industrial (Development and Regulation) Act the Supreme Court held that though levied and collected as a cess, the imposition under Section 9 is duty of excise. Relevant portion of the para 18 is reproduced as under:
18. ...The second and more important aspect is the nature of the cess in question. Though levied and collected as a cess, the imposition under Section 9 is a duty of excise. Section 9 says so in so many words. The explanation to Sub-section (1) of Section 9 defines the expression value' in practically the same terms as it is defined in the Central Excise Act. And Rule 3 of the Jute Cess Rules provides that except as otherwise provided in the said rules, the provisions of Central Excise Act, and the rules made thereunder "shall, so far as may be, apply in relation to the levy and collection of the cess as they apply in relation to the levy and collection of the duty of excise on Jute Manufactures under that Act". The language employed in this rule is significant. According to it, the provisions of the Central Excise Act and Rules are applicable in the matter of levy and collection of the cess in the same manner they apply in relation to levy and collection of excise duty on jute manufactures....
12. Reference was also invited to the Supreme Court decision in the case of A.B. Abdul Kadir and Ors. v. State of Kerala , wherein it was held that tax on articles produced or manufactured is an excise duty only. In this case the court has observed as under:
9. ...Excise duty, it is now well settled, is a tax on articles produced or manufactured in the taxing country. Generally speaking, the tax is on the manufacturer or the producer, yet laws are to be found which impose a duty of excise at stages subsequent to the manufacture or production....
13. Referring to the learned S.D.R.'s submission that cess is in the nature of licence fee the learned advocate invited attention to para 10 of the above decision, wherein it was observed that the levy of excise duty should be essentially linked with production or manufacture of an excisable article, though it may be recovered in the form of a licence fee. Where, however, the levy or tax has no nexus with the manufacture or production of an article, the impost or tax cannot be regarded to be one in the nature of excise duty.
14. Reference was also invited to the Supreme Court decision in the case of Jullundur Rubber Manufacturers Association v. UOI 1999 (110) E.L.T. 339 (SC) wherein it was held that Excise duty is primarily a duty on the production or manufacture of goods produced or manufactured within the country and that the method of collection will not affect the essence of the duty. Therefore, even if levied and collected as a cess, the taxable even is manufacture and therefore it is a duty of excise. As cess under Section 9(1) of the Industrial (Development and Regulation) Act, is in relation to manufacturer production of goods it is clearly a duty of excise.
15. As regards the plea that education cess is in the nature of surcharge and not excise duty it was submitted that surcharge partakes the character of main levy as has been held by the Hon'ble Supreme Court in the case of CIT v. K. Srinivasan and Sarojini Tea Co. (P) Ltd. v. Collector (para 16).
16. During the course of hearing learned D.R. took the plea that education cess is not payable under the provision of Section 93 of the Finance Act, 2004 which reads as under:
The education cess levied under Section 91 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 the Section referred to as education cess on excisable goods) at the rate of 2%, calculated on the aggregate of all duty of excise (including special duty on excise or any other duty of excise but excluding education cess on excisable goods) which are levied and collected by the Central Government in the Ministry of Finance (Department of Revenue), under the provision of Central Excise Act, 1944 or under any other la w for the time being in force.
17. It was stated that as under these provision cess is to be collection on all duty of excise which are levied and collected by the Central Government in the Ministry of Finance (Department of Revenue) and since automobile cess is levied by the Ministry of Industries and collected by the Ministry of Finance, the provision of Section 93 will not apply and accordingly no education cess was payable the learned advocate for the appellants submitted that levy is always by parliament who alone can impose a tax liability by way of appropriate legislation. The Central Government or any Ministry thereof is not part of the Parliament. Hence no Ministry of Government can impose any tax liability. Imposition of tax by an appropriate legislative body is never done by any Ministry of Central Government. Reference was invited to the Supreme Court decision in the case of Assistant Collector of Central Excise, Calcutta Vs. National Tobacco Co. of India Ltd. [1978 (2) ELT J416 (SC) where in para 19 it has been held as under:
19. The term "levy" appears to us to be wider in its import than the term "assessment". It may include both "imposition" of a tax as well as assessment. The term "imposition" is generally used for the levy of a tax or duty by legislative provisions indicating the subject-matter of the tax and the rates at which it has to be taxed. The term "assessment", on the other hand, is generally used in this country for the actual procedure adopted in fixing the liability to pay a tax on account of particular goods or property or whatever may be the object of the tax in a particular case and determining its amount. The Division Bench appeared to equate "levy" with an "assessment" as well as with the collection of a tax when it held that "when the payment of tax is enforced, there is a levy". We think that, although the connotation of the term "levy" seems wider than that of "assessment", which it includes, yet it does not seem to us to extend to "collection". Article 265 of the Constitution makes a distinction between "levy" and "collection". We also find that in N.B. Sanjana, Assistant Collector of Central Excise, Bombay v. Elphinstone Spinning and Weaving Mills Co. Ltd. 2 this Court made a distinction between "levy" and "collections" as used in the Act and the rules before us.
18. Reference was also invited to the Supreme Court decision in the case of Somaiya Organics v. State of U.P. where the Constitution Bench has observed as under:
...In taxing statute the words "levy" and "collect" are not synonymous terms (refer to CCE v. National Tobacco Co. of India Ltd. at p. 572), while "levy" would mean the assessment or charging or imposing tax, "collect" in Article 265 would mean the physical realization of the tax which is levied or imposed. Collection of tax is normally a stage subsequent to the levy of the same. The enforcement of levy could only mean realization of the tax imposed or demanded....
19. In view of this it was submitted that when Section 93(1) uses the word levied, in is used in the sense of assessed by Ministry of Finance. Undoubtedly the automobile cess paid by the appellants in the present case is assessed and collected by the Ministry of Finance (Department of Revenue) and therefore education cess is being correctly paid by the appellant on automobile cess.
20. Reference was also invited to Rule 3 of Automobile Rules which says as under:
...that the provision of Central Excise Act, 1944 and rules made thereunder including those relating to refund of duty, so far as may apply in relation to the levy and collection of the cess as they apply in relation to the levy and collection of duty of excise on manufacture of automobile under the Act and Rules". It was argued that once the provision of Central Excise Act, 1944 relating to levy and collection of duty of excise apply to collection & levy of cess, it has to be held that both levy and collection of education cess is under Central Excise Act & Rules only. Referring to the learned D.R.'s reference to the Calcutta High Court decision in the case of Delta Jute & Industries Ltd. wherein it was pointed out by the learned D.R. that Section 3(4) of the Jute Cess Act, 1983 making the provision of the Central Excise and Salt Act, 1944 in relation to the levy in collection of duty on jute manufactures under this Act, does not create a legal fiction by which the duty was imposed by Section 3 is treated as if it was the duty imposed under the Central Excise & Salt Act, 1944 it was submitted that this decision is not relevant as in this case the assessee was a 100% exported oriented unit and were exempt from payment of basic excise duty under a notification issued under Sect on 5A of the Central Excise Act and the assessee argued that the duty that has been imposed under 1983 Act is nothing but an additional excise duty and is also therefore exempted under the notification issued under Section 5A, the court held that cess leviable under the Jute Cess Act, 1983 is not duty levied under Section 3 of the Central Excise Act, 1944 and is therefore not covered by the exemption notification issued under Section 5A of the Central Excise Act. The argument that it was surcharge on the main tractors was also rejected on the fact of that case. Similarly the decision in the case of Pasupati Fabrics Ltd. v. UOI cited by learned S.D.R. in which it was held that merely because words "duty of excise" are used in Section 5A of the Act would not mean that what is charged is the excise and that cess had traces of fee and was not tax which is charged under Central Excise and Salt Act, 1944. It was submitted that this decision has no binding effect inasmuch as the decision of the Hon'ble Supreme Court in the case of A.B. Abdul Kadir and Ors. v. State of Kerala and Baranagar Jute Mills v. Inspector has not been considered by the Hon'ble Delhi High Court.
21. In the alternative it was submitted that if the proposition that tractors are not exempted from duty in spite of payment of education cess on the same is not accepted, even then also within the terms of Rule 6(2) they are entitled to take credit on both non common inputs which go into manufacture of exempted final product only as well as common inputs which go into the manufacture of both dutiable and exempted products. The requirement of Rule 6(2) is that once credit is taken on inputs which are used in the manufacture of dutiable as well as exempted goods where if no separate accounts are maintained, the manufacturer is required to pay an amount equal to 8/10% of the total price paid on exempted goods. There is no bar under Rule 6(2) that credit cannot be taken in respect of non common inputs which have exclusively gone into the manufacture of exempted final products. In this regard they placed their reliance on the following decisions of the Tribunal:
a. Hexero Labs Ltd. v. CCE Final Order No. 572-576/2005 dated 07/04/2005 [page 161-174 Vol-II] b. Koya & Company Construction Pvt. Ltd. v. CCE Final Order No. 1198/2005 dated 08/07/2005 [page 175-178 Vol-II] c Indian Hume Pipe Co. Ltd. v. CCE Final Order No. A/1595/WZB/2005/EB/C-II dated 07/04/2005 [page 179-182 Vol-II] d. Escort Limited v. CCE 2004 (176) ELT 817 [PAGE 377 of Volume IV] e. Kumbhl Kasari SSK Ltd. v. CCE 2001 (128) ELT 246 (T) [page 378-379 of Volume IV]
22. The learned D.R. however submitted that Rule 6(2) refers to only those inputs which are used in the manufacture of both exempted as well as dutiable final product. It does not refer to non common inputs at, all. It was argued that this is plain meaning of the provision of Rule 6(2) and is in consonance with concept of Modvat scheme and Rule 6(1) of Cenvat Credit Rules which says that Cenvat credit shall not be allowed on such quantity of inputs which is used in the manufacture of exempted goods. It was stated that the object of Modvat scheme as is wall known is to avoid cascading effect of duty paid on duty and also to avoid repeated nayment of duty on inputs utilized in the manufacture of specified finished product. In other words object of the scheme if. that down stream manufacturer pays duty only on the value added by him as a result of his labour/manufacture as has been observed by the Tribunal in the case of Light Metal Industries v. Commissioner of Central Excise, Calcutta-IV and upheld by Supreme Court as reported at . Similarly in Daiiche case upheld by Supreme Court in para 14 reported at (Tribunal it was held that the scheme is having the effect of neutralizing or limiting the cascading effect of taxation on a large number of excisable products, that are used in the manufacture of some other excisable products. In view of this the rule should be interpreted in a manner as well not defeat the purpose or object of the scheme as held by the Tribunal in the case of Mahindra & Mahindra v. Collector of Central Excise, Bombay-II .
23. Reference was also invited to the Supreme Court decision in the case of Hashmatunnisa Begum Sarla Debi Birla v. Commissioner of Wealth-Tax and Oswal Agro Mills Ltd. v. Collector of Central Excise wherein it was held that when there is ambiguity in the word, statement and objects the legislative history, the memorandum appended to the bill and the speech of the mover of the bill are relevant material to discover the intention of the legislature. The rule of construction is that if the statutory provision is susceptible to or admits of, two reasonably possible views, then the one which would promote its constitutionality should be preferred on the ground that the legislature is presumed not to have intended an excess of its own jurisdiction, is subject to the further rule that it applies only where two views are reasonably possible on the statutory language. If the words of the statute, on a proper construction, can be read only in a particular way, then it cannot be read in another way by a Court of construction anxious to avoid unconstitutionality. The purpose of interpretation is to ascertain the intentions of the legislature and to make it effective. Interpretation is resorted to for ascertaining what the legislative meant by the words (Baburam and Ors. v. State of U.P.).
24. In view of above it was submitted that keeping in view the object of the Modvat scheme and the principle laid down in Rule 6(1) of the Cenvat Credit Rules that no credit can be taken in respect of inputs used in the manufacture of exempted final products, the only interpretation which can be put on Rule 6(2) of the Cenvat Credit Rules is that it refers to only those inputs which are common and used in the manufacture of both dutiable and non dutiable final product and not to non common inputs used in the manufacture of exempted products. The fact that this was intention of the legislature has been made clear by addition of Explanation III to Rule 6(3) of Cenvat Credit Rules by Notification No. 27/2005-CE (Non Tariff) dated 16.05.2005. It was also submitted that this notification is clarificatory in nature and should have therefore have retrospective effect and therefore doubts if any should no longer exist and the decision of the Tribunal in Hetero Labs Ltd. & others cited by the appellants are not relevant as they were rendered prior to the addition of explanation III in Rule 6(3).
25. In the rejoinder Shri Sridharan, learned advocate for the appellants submitted that Notification 27/2005 under which explanation was added itself specifically provides that it will come into force on the date of its publication in the official gazette. In view of this the notification would not apply for the period prior to 16.05.2005 being the date on which notification was published in official gazette. In support thereof he referred to the decision of the Tribunal in the case of Ester Industries v. C.C.E. wherein it was held that the plea that the notification is to be treated as clarificatory and retrospective in operation was not accepted on the ground that notification itself specifically provides that it will come into force on the date of its publication in the official gazette.
26. Reference was also invited to the Supreme Court decision in the case of Commissioner of Central Excise v. Associated Cement Companies Ltd. 2003 (15) E.L.T. 12 (S.C.) wherein it was held that the explanation added to Rule 57A will have the effect from the late of amendment in the rule. A similar view was taken in the case of CIT v. Kerala Electric Lamp Works Ltd. .
27. Dealing with the second issue as to whether the amount of 8/10% required to be paid under Rule 6(3)(b) of the Cenvat Credit Rules is to be considered as tax and therefore liable for deduction from the total price charged from the customer Learned advocate for the appellants referred to the decision of the Larger Bench of Tribunal in the case of Unison Metals Ltd. v. C.C.E. 2006 (204) E.L.T. 323 (Tri-LB) wherein it has been held that recovery of 8% amount from the customer payable in terms of Rule 6(3)(b) will not be hit by Section 11D as this is an amount which has been paid to the Government and therefore it has to be treated as a tax. The fact is that the amount paid as 8% is a requirement under Rule 6(3)(b) and is recovered by the Government and has therefore to be treated as a tax and referred to the decision of the Supreme Court in Tata Iron & Steel Co. Ltd. v. CCE which held as under:
14. In Kisan Sahkari Chinni Mills Ltd.'s case, to give a broad meaning to the term "tax", reliance was placed upon the case in D.G. Gose and Co. v. State of Kerala which is In D.G. Gose's case the question was regarding the validity of tax imposed by the Kerala State on buildings by virtue of the Kerala Building Tax Act, 1975. The validity of this Act was challenged, inter alia, on the ground that this was the tax on the capital value and assessee of an individual or a Company and therefore fell within the scope of Entry 86 of List I of the VII Schedule of the Constitution and not under Entry 49 of List II. On this basis it was urged that the State did not have the statutory authority to impose such a tax. In dealing with these questions this Court held as follows
5. The word 'tax' in its widest sensn includes all money raised by taxation. It therefore includes taxes levied by the Central and the State legislatures, and also those known as "rates", or other charges, levied by local authorities under statutory powers, "taxation" has therefore been defined in Clause (28) of Article 366 of the Constitution to include "the imposition of any tax or impost, whether general or local or special", and it has been directed that "tax" shall be "construed accordingly.
Thus it is to be seen that even though the term "tax" has been given a wide interpretation to include all monies raised, the levy still has to be by the Central or State legislatures or by some statutory authority. In Kisan Sahkari Chinni Mills Ltd. s case the imposition was under a statute enacted by the State of Uttar Pradesh. Thus the levy was by the State. It was thus held that that levy fell within the definition of the term "other taxes".
28. Learned D.R. however submits that 8% amount of the price is not a duty or tax and that if the legislature had intention to exclude this amount, they could have expressly excluded from the price as has been done in Section 4(4)(d)(ii) of the Central Excise Act, 1944. There is no statutory provision requiring payment of 8% as a duty. It is only an adjustment of credit on account of credit being allowed even in respect of inputs used in the manufacture of exempted product which but for the fact of common inputs being used is otherwise not admissible.
29. We have considered the submissions. We find that the basic issue to be decided is that whether education cess and automobile cess paid on tractors is to be considered as duty of excise or not and whether tractors on which education and automobile cess is required to be paid can be considered as exempted goods and thereby attracting the provision of Rule 6(2) of the Cenvat Credit Rules or not. The second issue to be decided is that if they are treated as exempted goods whether in terms of Rule 6(2) where common inputs are used alongwith non common inputs in both exempted and dutiable final products whether credit can be taken in respect of non common inputs used in the manufacture of exempted products in view of the explanation III added to Rule 6(3)(b) by Notification 27/2005 dated 16.05.2005 or not and the last issue is whether an amount of 8/10% required to be paid under Rule 6(3)(b) is to be considered as a tax and therefore eligible for deduction from the total price charged by the manufacturer from the customer for exempted goods or not.
30. As regards the contention whether education cess and automobile cess are in the nature of excise duty we find that the provision of Section 9(1) of the Industrial Development and Regulation Act, 1951 are very clear as it says "there may be levied and collected as a cess for the purpose of this Act on all goods manufactured or produced in any such schedule industry as may be specified in this behalf by the Central Government by notified order, a duty of excise at such rate as may be specified...". Therefore the section makes it clear that cess is nothing but duty of excise. This is also supported by the decision of the Apex Court in the Baranagar Jute Mills (cited supra) where the provision of Section 9 were interpreted and it was held that though levied and collected as a cess, imposition under Section 9 is duty of excise. We further note that excise duty is on manufacture and production and since Automobile Cess is imposed on manufacture and production of automobile it is nothing but excise duty. This view was also taken by the Supreme Court in the case of A.B. Abdul Kadir and Ors. and Jullundur Rubber Manufacturers Association (cited supra). Similarly Education cess is also very much a duty of excise as Section 93 of Finance Act, 2004 specifically says that education cess levied under Section 91 in the case of goods specified in the first schedule to the Central Excise Tariff Act, 1985 being goods manufactured or produced shall be "duty of excise (in the section referred to as education cess on excisable goods) @ 2% collected on the aggregate of all duty of excise (including special duty of excise or any other duty of excise but excluding education cess on excisable goods)...." In this section education cess has been very clearly referred to as a duty of excise and for the purpose of computing the quantum of duty excise duty in the nature of education cess on excisable goods has been excluded. We also agree with the contention of the appellant that education cess is levied and collected by Ministry of Finance and not by Ministry of Industry as contended by the learned D.R., as levy is always by parliament and levy and collection of automobile cess under Central Excise Act is very much provided under Rule 3 of Automobile Rules. In view of this both automobile cess and education cess are in the nature of excise duty.
31. The next question arises is whether tractors on which automobile cess and education cess is payable can be considered as exempted from the whole of duty of excise thereon or chargeable to nil rate of duty as required under Rule 2(d) of Cenvat Credit Rules. Here we find that the terms exempted goods has been defined under Section 2(d) of the Cenvat Credit Rules 2002/2004 as under:
"Exempted goods" means goods which are exempt from whole of duty of excise leviable thereon and includes goods which are chargeable to nil rate of duty.
It is pertinent to note that the word used is 'duty of excise' and not 'duties of excise'. The expression 'whole of duty of excise' and 'chargeable to nil rate of duty' is 'singular expression referring to one duty of excise' and not all duties of excise. Section 2A of the Central Excise Act, 1944 uses four terms:- 'duty', 'duties', 'duty of excise' and 'duties of excise' which means that there is a difference between them. If the intention of the legislature was that it should be exempted from all duties of excise then the words used should have been 'from whole of duties of excise and not duty of excise'. We further note that Rule 3 of the Cenvat Credit Rule 2002/2004 allows a manufacturer credit of all duty of excise and also of education cess national calamity contingent duty etc. but duty of excise has been referred to in Rule 3(1)(i) and Rule 3(1)(ii) and no where else and in fact education cess has been separately referred to. In this context the duty of excise has to be considered as referring to duty of excise as referred to in Rule 3(1)(i) & (ii) and not others. The decision in the case of Malwa Industries 2004 (171) E.L.T. 67 cited by the learned advocate for the appellants is not relevant as in that case the provision of Rule 57AB(1)(b) were interpreted which used the term that the cenvat credit can be utilized for payment of any duty of excise and therefore any duty of excise cannot be restricted to basic duty of excise only. In the present case the term used is not 'any duty of excise' but 'duty of excise' only. Similarly the decision in the case of Silvasa Industries Pvt. Ltd. v. C.C.E. 2006 (196) E.L.T. 213 (T) is also not relevant as in that case, finished goods were exempted only from NCCD and were otherwise chargeable to other duties which may include excise duty also. The tribunal was no where required to interpret the term 'exempted goods' as defined under Rule 2(d) of the Cenvat Credit Rules and the issue as to whether the final product which is exempted from excise duty but chargeable to cess can be considered as exempted goods or not. Since the tractors are exempted from duty of excise specified both in first schedule of the Tariff Act and second schedule to the Tariff Act, it has to be considered as exempted and not dutiable as is being contended by the appellants. In view of the same the appellants are required to follow the provision of Rule 6(2) and (3) of the Cenvat Credit Rules.
32. The next issue now to be decided is whether in terms of existing Rule 6(2), once it is an admitted fact that common inputs are being used in the manufacture of dutiable and exempted products, whether the appellants are eligible to take credit even in respect of non common inputs i.e. inputs which exclusively go into the manufacture of exempted final products. We find that this issue has been dealt at length by the Tribunal in the case of Hetero Labs Ltd. (cited supra) and followed in other decisions in the case of Koya & Company, Indian Hume Pipe, Escort Limited, Kumbhi Kasari SSK Ltd. and in all these decisions it has been held that the credit will be available even on non common inputs used exclusively for the manufacture of exempted final products. We find no reason to differ with the same except for the fact that explanation III has been added to Rule 6(3) of the Cenvat Rules stating that the credit cannot be taken in respect of inputs exclusively used in the manufacture of exempted final products. Here also we are in agreement with the plea taken by the appellants that Notification 27/2005 under which the explanation was added will have effect from date of publication in the official gazette i.e. 16.05.2005 and not prior to that in view of fact that the notification itself states that it will come into force from the date of its publication in the official gazette. This view is supported by the CEGAT decision in the case of Ester Industries and Apex court decision in the case of C.C.E. v. Associated Cement Company and Kerala High Court decision in the case of CIT v. S K. Srinivasan (cited supra). Accordingly it is held that the appellants are entitled to take credit on non common inputs upto the date when explanation III came into force.
33. The last issue to be decided is as to whether the amount of 3%/10% required to be paid under Rule 6(3)(b) of the Cenvat Credit Rules and recovered from the customers ie eligible for deduction as a tax or not we find that the main plea taken is that the requirement of paying 8% of the total price is under Rule 6(3)(b) which is a statutory requirement and therefore has to be treated as tax and reliance was placed on the decision of the Supreme Court in the case of Tata Iron and Steel Co. (cited supra) wherein it was held that tax has to be given wide interpretation to include all monies raised by the Central or State legislature or by some statutory authority. We however note that there is no requirement of payment of duty as the goods are exempted. It is only the credit to which the appellants were not entitled as the inputs were used in the manufacture of exempted products that the credit was allowed subject to the condition that either the appellants maintained a separate account and take no credit and if they are not in a position to maintain separate accounts then they pay 8/10% of the total price of the exempted goods. Therefore the nature of this payment is for the adjustment of credit which was otherwise not admissible but allowed as a measure of facilitation and the scope of Rule 6 was never to raise money for the Government. We therefore hold that the same is not in the nature of tax and therefore this deduction cannot be allowed.
34. The Larger Bench decision in the case of Unison Metals (cited supra) is not relevant as the issue involved in that case was applicability of Section 11D of the Central Excise Act in respect of amount recovered as duty whereas in the present case the amount has not been recovered as duty but a deduction is being claimed from the sale price on the ground that the same comprises of 8/10% reversed by them on account of requirement under Rule 6(3)(b). Since this amount is not recovered as duty nor is a tax as already observed the question of any abatement does not arise. Further from the above (sic) we notice that the automobile cess is being charged by the appellant on the entire sale price without claiming any deduction of the so called duty (8% reversal) and therefore the question of its deduction for the purpose of reversal of credit @ 8% of the total sale price does not arise.
35. In view of above the appeals are disposed off as under:
Appeal No. E/2184/06:- It is held that the appellants are entitled to take credit on all inputs including inputs exclusively used in the manufacture of exempted final product. Since there is no requirement of duty, the penalty imposed is set aside and appeal is allowed.
Appeal No. E/3118/06:- It is held that the appellants are entitled to take credit on all inputs including inputs exclusively used in the manufacture of exempted final product. Since there is no requirement of duty, the penalty imposed is set aside and appeal is allowed.
Appeal No. E/2183/06:- It is held that the appellants will not be entitled to deduction of 8% from the total amount recovered from the customer and accordingly the appeal is dismissed.
Appeal No. E/471/06:- It is held that the appellants are entitled to take credit on all inputs including inputs exclusively used in the manufacture of exempted final product. Since there is no requirement of duty, the penalty imposed is set aside and appeal is allowed. However it is held that the tractors are not to be considered as exempted goods but the credit will be available in view of the CEGAT decision in the case of Hetero Labs & Others.
(Pronounced in Court in 12.02.07)