Whether the Appellant is eligible to claim exemption of EC, SHEC and NCCD on manufacture of excisable goods cleared from specified industrial centers in the State of Sikkim under the notification no. 71/2003 dated September 9, 2003 (Notification)?

PJ/Case Law/2020-2021/3629

Unicorn Industries v. Union of India & Others Civil Appeal no. 9237 of 2019, Civil Appeal no. 9238 of 2019

Brief Facts: - The Applicant set up a manufacturing unit within the state of Sikkim in 2006 for manufacture of “Indian Mouth Freshener”(an excisable commodity). Under Notification, the Appellant was entitled to claim exemption from payment of Excise duty for specified goods cleared from specified areas within the State of Sikkim for a period of 10 years from the date of commencement of production. Under the said scheme, the Appellant was required to pay the Excise duty by utilising CENVAT credit and the balance by cash and then later avail refund or claim re-credit of net Excise duty paid in cash. In light of the Notification, the Appellant sought an exemption from the below mentioned duties of Excise:
-Basic Excise duty @ 37.5 % ad valorem;
-NCCD @ 23% ad valorem
-Additional Excise Duty (Pan Masala & Tobacco Products) @ 5.5% ad valorem and
-EC @ 2% ad valorem and SHEC
The Department issued various SCNs asking the Appellant to show cause why NCCD, EC and SHEC should not be collected along with interest & penalty.

Issue: -Whether the Appellant is eligible to claim exemption of EC, SHEC and NCCD on manufacture of excisable goods cleared from specified industrial centers in the State of Sikkim under the notification no. 71/2003 dated September 9, 2003 (Notification)?

Appellant contentions: -The applicant filed an appeal filed before the Hon’ble Supreme Court where it was submitted that:
-Perusing to various sections through which NCCD, EC & SHEC were introduced, the Appellant stated that the said duties are a ‘duty of Excise’ and that the provisions of the Central Excise Act, 1944 relating to refunds and exemptions from duties shall apply with respect to the abovementioned duties. Accordingly, as the Notification provides for an exemption from the “duty of Excise”, the duties/ cess under dispute should also be given the same treatment as Basic Excise duty, notwithstanding their nomenclature;
-The Appellant placed reliance on the judgments pronounced by the Division Bench of the Hon’ble Supreme Court in the case of SRD Nutrients Private Limited v. Commissioner of Central Excise, Guwahati, Bajaj Auto Limited v. Union of India & others wherein it was held that when Excise duty itself is exempted, there cannot be any cess or surcharge on it. Further, it also referred to the circulars dated August 10, 2004 and April 8, 2011, which clarified that no EC and SHEC would be leviable on clearances where no Excise duty has been collected or Service tax is exempted, respectively.

Reasoning of Judgement: - The Hon’ble Supreme Court made the following observations: The Court drew reference to the judgment passed by three member bench of Supreme Court in the case of Union of India v. Modi Rubber Limited, for the purport of understanding the expression “duty of Excise” and held that the same must be read according to its plain natural meaning and the same cannot in any circumstance bear an extended meaning;
-The Court on perusal of the Notification observed that the exemption was granted specifically under section 5A of the Central Excise Act, 1944 concerning Additional duties under the Act of 1957 and of 1978 and the Notification does not make any reference to the Finance Act 2001, 2004 and 2007. Hence, there is no source of power in the aforesaid Notification to provide an exemption to EC, SHEC and NCCD.
-The Court held that the Notification could not have contemplated inclusion of EC and SHEC for exemption which had not even been introduced at that point in time. The decision in case of Modi Rubber Limited strongly deterred the argument made by the Appellant that duties imposed in future not prevailing at the time of issue of the Notification shall be covered for the purpose of exemption;
-The Court held that the circulars relied upon by the Appellant have no force of law and cannot be binding on the Court;
-The Court held that the reason employed in SRD Nutrients Private Limited that as there was nil Excise duty, Additional duty cannot be charged is unacceptable as
Additional duty can be determined and merely exemption granted in respect of Excise duty cannot come in the way of determination of yet another duty based thereupon;

Held: -The Hon’ble Supreme Court upheld the view taken by the Hon’ble High Court of Sikkim following the decisions in the cases of Modi Rubber Limited and Rita Textiles Private Limited v. Union of India as they are binding.

Comment: - The applicability of cesses is in addition to the Excise duty, are actually calculated on the component of duty of Excise. Hence, where such duty is exempt or ‘NIL’ there can be no EC or SHEC. However, the judgement pronounced has not considered this, it can be seen whether it can be reviewed by the court of law or not.

Prepared By: CA. Kartik Singhvi

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