Leviability of Education Cess & SHE cess over and above Compound duty for SS Patta/patti

PJ/Case Study/2011-12/13

CASE STUDY

Prepared By:

CA Pradeep Jain

Sukhvinder Kaur, LLB [FYIC]

And Megha Jain

Introduction: -

For the SS Patta/patti and Aluminium circles the Government has introduced a special scheme wherein the duty is payable on capacity basis instead of on manufacturing activity. Under the compound levy scheme, the duty is paid at a fixed rate per cold-rolling machine installed in the factory. The question that arises is that the compound levy would include all types of duties of excise, therefore, whether the Education cess and SHE cess will also be included in the amount paid as compound duty. Whether the said cesses can be said to be types of excise duties? The issue arose as for the similar compound levy scheme introduced for Pan masala, the education cess and SHE cess were specified to be included in the compound duty. Therefore, the assessees of SS Patta/patti and Aluminium circles opting for compound levy have reason to believe that no education cess and SHE cess is payable over and above the amount payable under compound levy scheme. This is the issue involved in the case under study. Further question raised is can penalty can be imposed when the matter is of interpretation of legal provisions.

M/s Shanti Udyog & Others v/s Assistant Commissioner (Central Excise), Jodhpur

[Order-in-Appeal no. 417-515 (CB) CE/JPR-II/2010 dated: 21.12.2010]

Brief facts of the case: -

- Appellants are manufacturer of SS Cold Rolled Patta/ Patti falling under Sub-heading no. 7219.90 of the Central Excise Tariff Act, 1985. Appellant have opted for paying excise duty under Compound Levy Scheme introduced vide Notification No. 17/2007-CE dated 01.03.07 issued under Rule 15 of the Central Excise Rules, 2002. The rate of compound duty is fixed from time to time vide Notification issued under Rule 15 of the CER, 2002. During the relevant period, Notification No. 17/2002-CE provided that the rate of compound duty to be @ Rs. 30000/- per month per cold rolling machine. Accordingly, appellants paid the said compound duty but did not pay Education cess and Higher Education cess in addition to compound duty which are levied as per Section 91, 92 & 93 of the Finance Act, 2004 and Section 136, 137 & 138 of the Finance Act, 2007.

- Department issued Show Cause Notices to the 45 Patta/patti units who are appellants herein demanding the payment of Education Cess and Secondary & Higher Education Cess with interest for the period from March, 2008 to November, 2008. Penalty was also proposed to be imposed. Appellants replied to the show cause notice.

- The Adjudicating Officer passed the impugned Order-in-original confirming the demand with interest and also imposed penalty under Rule 25 of CER, 2002 as well as under Rule 27 of CER, 2002.

- The appellants filed appeal against the impugned order which were rejected by the Commissioner (Appeal) as time barred. Appellant thereafter filed appeals before the Tribunal. The Tribunal remanded the matter back to the Commissioner (Apeals) after condoing the delay for deciding the issue on merit.

Appellant’s Contentions: -

Before the Commissioner (Appeals), appellants have raised the following grounds:

- Appellants submitted that Education Cess and Secondary and Higher Education Cess are also types of excise duty. This is clear from the language of Finance (no. 2) Act, 2004 itself as reproduced hereunder:-

“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 or any other law for the time being in force.”

Similar language is in the case of secondary and higher education cess which is produced as follows:-

“The secondary and higher education cess on excisable goods shall bein 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 chargeable under section 93 of the finance (No. 2) Act, 2004.”

The phrase “in addition to any other duties of excise” as contained in the above stated provisions makes it ample clear that the education cess and secondary and higher education cess are also a type of duty of excise. And the language contained in the Notification no. 17/2007 – CE dt. 01.03.2007 clearly specifies that the amount of duty specified under this notification shall be in full discharge of duty leviable on the production.

“3.        Discharge of duty liability on payment of certain sum. – (1) A manufacturer whose application has been granted under paragraph 2 shall pay a sum calculated at the rate specified in this notification, subject to the conditions herein laid down, and such payment shall be in full discharge of his liability for duty leviable on his production of such cold re-rolled stainless pattas/patties, or aluminium circles during the period for which the said sum has been paid:”

The analysis of above para makes it clear that the duty prescribed under the aforesaid notification is inclusive of all the duties of excise. All this analysis was done in the reply to show cause notice but the learned Assistant Commissioner has not accepted the same by saying that the Education Cess and Secondary and Higher Education Cess are levied by virtue of Finance Act, 2004 and 2007 whereas the duty paid by the appellant is under Central Excise Act, 1944. But the learned Adjudicating officer has failed to discuss the above stated language of the notification which says that the duty prescribed under this notification is in full discharge of his duty liability and the language contained in both the Finance Acts says that these Cesses are also the types of duties of excise. Such a non speaking order is not legally viable and is liable to be quashed. It has been held in the case of Wipro Computers Ltd. vs Commissioner of Customs, Chennaireported at 2001 (135) ELT 450 (Tri.-Chennai) that findings arrived at without discussing the available evidences are not justified. The verdicts of hon’ble Chennai Tribunal are produced as follows:-

“Appellate order - Speaking order - Evidence - An order not discussing evidence submitted by assessee nor technical literature or trade opinion a non-speaking order and not a legal order - Section 35A of Central Excise Act, 1944. - The Commissioner (Appeals) was also bound to have examined the technical details and considering the Affidavit of the expert, could have remitted the matter for de novo consideration as the burden of classification had not been discharged by the Department, which had been filed by the appellants. Further, the rebuttal of the evidence of the importer had not been discussed in the order, thereby the order is not a speaking order. The Commissioner (Appeals) has erred in straightaway coming to a conclusion that the item imported is Micro Processor and at the same time treating it as “parts of computers”. To arrive at this conclusion he should have discussed the technical evidence or relied on trade understanding of the product in question. The finding arrived at without discussion of the evidence is not a legal one and it cannot be confirmed.”

The analysis of above decision makes it clear that a non speaking order passed without considering the submissions made by the assessee is not tenable.

-          Appellants further submitted that from above discussion it is ample clear that since education cess and secondary and higher education cess are also types of duties of excise, the amount so fixed under Compounded Levy is inclusive of these Cesses. This fact is further clarified by the Circular F. No. 81/17/2007-Cx. Dated 19-12-2007, issued for Compounded Levy Scheme on Pan Masala or Pan Masala containing tobacco units. The relevant para of this Circular is produced as follows:-

“(vi)      The duty of excise payable under the scheme includes all duties of excise leviable on the said products like BED, Additional duty of excise, NCCD, Education Cess, etc.”

The analysis of above para makes it ample clear that education cess and secondary and higher education cess are included in the amount determined under Compounded Levy Scheme. In other words, while determining the duty under Compounded Levy Scheme, Govt. considers all the duties and Cess payable on such products. As such, the unit opting for Compounded Levy Scheme is not required to pay the Education Cess and Secondary and higher education cess separately. Since the notifications issued for compounded levy on the SS patta patti and pan masala are similarly worded the ratio of aforesaid Circular is equally applicable on them and they are not required to pay Education cess and SHE cess separately as the duty amount paid by them is inclusive of these duties.

- With regard to the contention of the learned Assistant Commissioner that SS patta patti & aluminium circles, neither the Education Cess nor Secondary and Higher Education Cess were in existence, the appellant submitted that the compounded levy scheme was initially implemented vide Notification No. 34/2001-CE dated 28.6.2001. This notification was superseded vide notification no. 17/2007-CE dated 1.3.2007. At present, the compounded levy scheme is governed by this notification. This notification is similarly worded to that of notification no. 34/2001, only the rate of duty prescribed was increased. The Education Cess was introduced vide finance Act, 2004 and the notification no. 17/2007 was introduced on 1.3.2007. As such, at the time of issue of this notification Education Cess was in existence.

Appellant further submit that the impugned order is contending that the increase in rates of compounded levy duty was on account of increase in rates of stainless steel and aluminium. In this regard, it is submitted that the rate of duty under compound has increased more than double whereas prices of steel have not gone up so high. As such, the increase in rate prescribed under notification for compounded levy scheme is inclusive of the education cess and secondary and higher education cess.

- The appellant submit that the impugned order is contending that the wordings of another notification are of no benefit in construing a particular notification. The learned Adjudicating officer has placed reliance on decision of Rukmani Pakkwell Traders in support of his contention. In this regard, the appellant submit that they have not drawn any inference from the ambiguity in the language. The language of the notification no. 17/2007-CE is clear and unambiguous that the amount prescribed under this notification is in full discharge of its duty liability. They have referred the language of similarly worded other notification. The languages of both the notifications are the same and no inference has been drawn. The case law cited by the learned Adjudicating officer is applicable only in case any interpretation is drawn from the language of notification. Therefore, the contention of the impugned order is not sustainable and is liable to be quashed.

- The appellant submit that the impugned order is alleging that the Education Cess and Secondary and Higher Education Cess are levied in addition to the duties of excise/custom and it has to be calculated separately. In this regard, the appellant submit that in the case laws cited by the learned Adjudicating officer, the duties so referred were those prescribed under the Central Excise Act, 1944 or the Customs Act, 1962 whereas in the case of appellant, the duty is prescribed under Compounded Levy Scheme implemented vide notification no. 17/2007-CE dated 1.3.2007. This scheme is entirely a different scheme and has separate procedure prescribed therein on which general provisions of the Central Excise Act and Customs Act are not applicable. As such, the case laws cited by the learned Assistant Commissioner are of no relevance in the instant case. Therefore, the impugned order in original is not tenable and is liable to be quashed.

- The appellant submit that the learned Adjudicating officer has cited the decision of Shah Paper Mills Ltd. in which circular no. 345/2/2004-TRU (Pt.) dated 10-8-04 has been upheld which says that Education Cess is calculated on aggregate due excise duty/custom duty levied and collected by the department of Revenue. In this respect, the appellant submit that the Circulars are not binding on the assessee and they have liberty to disagree and challenge such Circulars. This has been held in the case of Birla Jute and Industries Ltd. v/s Assistant Collector of C. Ex. [1992 (57) E.L.T. 674 (Cal.)]. In this case it was held that Board Circulars are not binding on the assessees and they may opt not to follow these Circulars. The verdicts of hon’ble Calcutta High Court are produced as follows:-

“Departmental circulars and trade notices - Binding on departmental officers but not binding on quasi-judicial authorities and assessees - Court can compel Central Excise officers to comply with such instructions as are for benefit of assessee - Section 37B of Central Excises and Salt Act, 1944 - Rule 233 of Central Excise Rules, 1944.

- It is not disputed that the Board’s Circular (No. 25/90-CX. 1 dated 26-11-1990 regarding tariff classification of Acrylic-viscose blended yarn, followed by Calcutta Trade Notice No. 15/Ch-55-1/1991 dated 24-1-1991) is an instruction issued under Section 37B of the Act. Seemingly irreconcilable views have been judicially expressed regarding such departmental circulars. But the difference in the views expressed is more apparent than real. It is true that the Central Excise Officers are statutorily bound to abide by the instructions of the Board regarding classification if Section 37B is not to be reduced to a dead letter. At the same time it cannot be lost sight of that several decisions noted above have held that Central Excise Officers acting quasi-judicially must exercise their independent judgment. In my view the principles that emerge from the aforesaid decisions read in the light of Section 37B of the Act are: (1) There is a distinction between a decision in a particular assessment by a quasi-judicial authority and a decision on principle by the Board. While an instruction issued under Section 37B cannot be binding upon a quasi-judicial authority under the Act, the departmental officers conducting the lis before such quasi-judicial authority cannot take a stand contrary to the directive instruction issued. (2) The instructions which may be binding on the Central Excise Officers are not binding on the Assessee who may question the correctness of the same before a quasi-judicial authority and before a Court. Both the quasi-judicial authority and a fortiori, the Court, can question the correctness of the instructions. (3) An assessee has on the other hand the right to claim and the court may compel compliance with such instructions as are for the benefit of the assessee by the Central Excise Officers. [1978 (2) E.L.T. J 345 (S.C.) and J 382 (S.C.) and 15 others referred to].”

Applying the ratio of aforementioned decision, it is ample clear that the Circulars are not binding on the assessees. Similar decision was given in the case of Commissioner of Central Excise v/s Eswaran & Sons Engineers Ltd. [2005 (179) E.L.T. 272 (S.C.)]. As such, the refund cannot be denied by relying on the above mentioned circular and as such, the impugned order-in-original is not justified and is liable to be quashed.

-           The appellant submit that the impugned order is contending again and again that the Education Cess and Secondary and Higher Education Cess are levied in addition to the duty of excise prescribed under the Central Excise Act, 1944. The appellant reiterates that the language of notification no. 17/2007 is clear and unambiguous that the duty prescribed in this notification is in full discharge of liability of the assessees opting for the compounded levy scheme. A detailed discussion has already been done hereabove in this regard which clears the side of the appellant against this contention of the impugned order. Therefore, the impugned order should be quashed and the appeal should be allowed.

-           The appellant submit that the impugned order is giving reference of the CBEC Circular No. 27/16/2008-CX-1 dated 25.08.2008 which states that the circular relating to Pan Masala is not applicable on them. In this respect, the appellant submit that the Circulars are not binding on the assessee and they have liberty to disagree and challenge such Circulars. This has been held in the case of Birla Jute and Industries Ltd. v/s Assistant Collector of C. Ex. [1992 (57) E.L.T. 674 (Cal.)] and Commissioner of Central Excise v/s Eswaran & Sons Engineers Ltd. [2005 (179) E.L.T. 272 (S.C.)]. In these cases, it was held that Board Circulars are not binding on the assessees and they may opt not to follow these Circulars. Both of these decisions were cited in the reply to show cause notice but the learned Assistant Commissioner has not even referred these decisions while passing the impugned order in original. As such, a non speaking order is being passed which is not tenable in the eyes of law. It has been held in the case of Commissioner of Central Excise, Bangalore versus Srikumar Agencies [2008 (232) E.L.T. 577 (S.C.)] that an order passed without considering the submissions of the appellant is a non speaking order and a non speaking order is not legally viable in the eyes of law. The verdicts of hon’ble Apex court are produced as follows:-

“Appellate Tribunal’s order - Non-speaking order - Facts not analysed in detail in impugned order by Tribunal - Disposal of appeals by mere reference to decisions not proper way to deal with appeals - Applicability of decision cited by Revenue not considered- Appeals involving different goods - CESTAT ought to have examined cases individually and articles involved - Manner of disposal not proper - Impugned order set aside - Question referred to Larger Bench of Supreme Court not answered as matter remitted to CESTAT for fresh decision by appropriate Bench - Section 35C of Central Excise Act, 1944. - By clubbing all the cases together and without analyzing the special features of each case disposing of the appeals in the manner done was not proper. [para 6]”

Therefore, in the light of the above decision, the impugned order in appeal is not justified and is liable to be quashed. The appeal should therefore be allowed.

-           The appellant further submit that in the impugned order-in-original it is held that the order of the Hon’ble Commissioner (Appeals), Jaipur inOrder-in-Appeal no. 12-47 (DK) CE/JPR-II/2009 dated 03.02.09is not helpful to themthe issue involved has already been decided by the higher judicial authorities. In this regard the appellant submit that the order passed by the Commissioner (Appeal) was binding upon the Adjudicating Authority passing the impugned order in original. The lower authority is required to follow the precedent laid down by the High Authority. This has also been held in the case of Union of India v/s Kamalakshi Finance Corporation Ltd [1991 (55) ELT 433 (SC)], CCE, Ahmedabad v/s Ramesh food Products [2004 (174) ELT 310 (SC)] and UOI v/s Arviva Industries Ltd. [2007 (209) ELT 5(SC)]. The copies of these decisions were given during personal hearing but the ratio of the same has not been considered while passing the impugned order in original. As such, a non speaking order has been passed without considering the case laws submitted by the appellant which is not tenable in the light of decisions already cited hereabove regarding non-tenability of a non speaking order. Thus, the impugned order is totally against the principle of judicial discipline. Such an order-in- original is required to be set aside.

-           The appellant further submits that it is held in the impugned order in original that the appellant has not paid duty with the intent to evade duty and therefore the appellant are liable for penal action. In this regard, the appellant submits that the appellant never had the intention to evade payment of duty and therefore to violate any laws. The appellant genuinely and bone fide believes that they are not required to pay education cess and secondary & higher education cess over and above the duty paid under compound levy. This bona fide belief was based upon the decision of Commissioner (Appeal). In case of bona fide belief, it cannot be said that there was intention to evade duty and hence penalty cannot be imposed. This has been held in the case of Abe Value Point Systems Pvt Ltd v/s Commissioner of Service Tax, Bangalore [2009 (013) STR 0288 (Tri-Bang)]. It was held therein that if appellant was under bona fide belief that they need not discharge the service tax liability and therefore imposition of penalty under Section 76 appears very harsh.

It is further submitted that in the case of Mahalakshmi Textiles v/s Commissioner of Central Excise, Coimbatore [2008 (232) ELT 0099 (Tri. - Chennai)]it was held as under: -

Impugned short levy arose due to divergent interpretations of exemption Notification No. 38/2003-C.E. There was no dishonest or fraudulent conduct on the part of the party which would justify a penalty. It is a settled position that penalty cannot be imposed just because it is legal to do so. Penalty imposed vacated. Appeal partly allowed. (Para.3)

Therefore, no penalty can be imposed on them as the appellant have acted under bona fide belief. Therefore, the impugned order-in-original is required to be quashed.

Issue Involved:

The issue involved in this appeal was that:

Whether Education cess and Secondary Higher Education Cess is leviable on the S.S. Patta/ Patti falling under Chapter 72, cleared by the appellants in addition to the compound duty paid by them in terms of Notification No. 17/2007-CE, dated 01.03.2007 @ Rs. 30, 000/- per month per cold rolling machine?

Secondly, whether the penalty can be imposed when the matter is of interpretation of legal provisions?

Reasoning of Judgment: -

- The learned Commissioner (Appeal) observed that the issue involved was decided by the Commissioner (A) vide OIA No. 12-47/DK/CE/JPR-II/2009, dated 28.01..2009 & OIA No. 263-306/DK/CE/JPR-II/2008, dated 19.01.2009 in the favor of the appellants by holding that education cess and higher education cess was not leviable in addition to the compounded duty paid by them in terms of Notification No. 17/2007-CE, dated 01.03.2007.

- It was further noted that the Department had filed appeal against the Order-in-Appeal No. 263-306/DK/CE/JPR-II/2008 dated 19.01.2009 before the Tribunal who set aside the orders of Commissioner (A) vide Final Orders no. 469-511/2010-EX (DB) dated 08.07.2010 by holding that “education cess and higher education cess being imposed under independent statutory provisions comprised under Finance Acts, certainly, the liability flowing there from would not be part of duty determined under the compound levy scheme”.

- Accordingly, it was held that the appellant’s contention that education cess and higher education cess are type of excise duty, therefore amount of education cess and higher education cess are included in the amount determined under Compounded Levy Scheme vide Notification no. 17/2007-CE, dated 01.03.2007 is not sustainable as both the cesses were imposed vide the Finance Act are independent statutory provisions and different from Central Excise Act, 1944 therefore duty levied under Compounded Levy Scheme as per Rule 15 of the Central Excise Rules, 2002 means duty of excise only and does not cover education cess and higher education cess.

- Following the ratio of Tribunal’s above judgment, the Commissioner (A) held that education cess and higher education cess is leviable on the S.S. Patta/ Patti, falling under Chapter 72 of the Schedule to the CETA, 1985, in addition to the compounded duty paid authority rightly demanded education cess and higher education cess. Accordingly, the Commissioner (A) upheld the findings of the Adjudicating Authority to this extent.

- Regarding imposition of penalty, it was noted that the appellant had contended that it is matter of interpretation as clarification was issued by Board therefore penalty should be waived and relied upon the case of Akar Motors [2010-TIOL-1560-CESTAT-AHM]. The Commissioner (A) set aside the penalty imposed on the appellants under Rule 25 & 27 of the CER, 2002.

Decision:-Appeal partially allowed.

Conclusion:-The main issue that whether the component of education cess and SHE cess is included in the amount paid as duty under Compound levy scheme was not decided in favour of the assessee. But the remedy of appeal to higher forums is still available to the assessees. However, the learned Commissioner (Appeal) has rightly set aside the penalty imposed under Rule 25 and Rule 27 of the Central Excise Rules, 2002. It was rightly held that as the matter was regarding the interpretation of provisions, penalty could not be imposed on the assessees.

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PJ/CASE STUDY/2011-12/13
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