Case study

Prepared by: CA vaibhav bothra &
prayushi jain

Introduction:-The appellant M/s Bhansali Engineering Polymers Ltd. were engaged in the manufacture of Styrene Acrylonitrile (SAN) Co-polymers and Acrylonitrile Butadiene Styrene (ABS) falling under sub-heading No. 39 of the first schedule to the Central Excise Tariff Act, 1985 and availing CENVAT credit of duty paid on inputs/imported inputs and capital goods and of the Service Tax paid on input services and utilizing the same for the clearance of their finished goods.The Show cause notice was issued to the assessee on account of wrong utilization of Cenvat Credit of Basic Duty of Excise for payment of Education Cess and Secondary & Higher Secondary Education Cess during the period from April, 2013 to Mar, 2014 in contravention to the provisions of Rule 3 (7) (b) of Cenvat Credit Rules, 2004.

M/S BHANSALI ENGINEERING POLYMERS LTD.[OIO JAI-EXCUS-002-COM-21-14-15 DATED 18.11.2014]

Relevant legal provisions
·         Rule 3(7)(b) of Cenvat Credit Rules, 2004
·         Rule 3(4) of the Cenvat Credit Rules, 2004
·         Section 91 of Finance Act 2004
·         Section 93 of Finance Act 2004
·         Section 136 of Finance Act 2007
·         Section 138 of Finance Act 2007
·         15(1) of the Cenvat Credit Rules, 2004
·         Section 11AA of the Central Excise Act, 1944
Issue Involved:
 
The following issue was made before the Commissioner:-
Whether Cenvat Credit of Basic Duty of Excise be utilized for payment of Education Cess and Secondary & Higher Secondary Education Cess?

Brief facts:-M/s Bhansali Engineering Polymers Ltd. SP-138-143= Ambaji Industrial Area, Abu Road (Rajasthan) having Central Excise Registration No. AAACB3368HXMoo3. They are engaged in the   manufacture of Styrene Acrylonitrile (SAN) Co-polymers and Acrylonitrile Butadiene Styrene (ABS) failing under sub-heading No. 39 of the first schedule to the Central Excise Tariff Act, 1985. The assessee is availing CENVAT credit of duty paid on inputs/imported inputs and capital goods and of the Service Tax paid on input services and utilizing the same for the clearance of their finished goods.
 
The brief facts of the case are as under:
 
 
M/s Bhansali Engineering Polymer Ltd., Abu Road appeared to had wrongly utilized the 'Cenvat Credit of Basic duty of Excise amounting to Rs. 1,03,44,744/- (Ed Cess Rs. 6896987/- + SHE Cess Rs. 3447757/-) contravening the provisions of Rule 3(7)(b) of Cenvat Credit Rules, 2004.
 
During the scrutiny of monthly ER-1 returns of the assessee, it was observed that they were utilizing the credit of Basic Excise Duty (BED) for payment of Education Cess leviable under Section 91 read with Section 93 of Finance Act 2004 & Higher Secondary Education Cess leviable under Section 136 read with Section 138 of Finance Act 2007 payable on the clearance of their final product. The Superintendent Central Excise Range, Abu Road, requested the assessee to provide the details of Credit of BED utilized for payment of Cess during Apr, 13 to Mar, 14. In response the assessee provided a chart showing details of credit of Basic Excise Duty utilized towards payment of Ed. Cess and SHE Cess during the period Apr, 13 to Mar, 14.
 
Hence a show cause notice was issued to assessee as to why
 
Cenvat credit of Rs. 1,03,44,744/- (Ed Cess Rs. 68,96,987/- + SHE Cess Rs. 34,47,757/-) wrongly utilised by assessee should not be disallowed and Ed. Cess and SHE Cess short paid as above should not be recovered from assessee under section 11A (1) of the Central Excise Act, 1944;
Interest as applicable should not be recovered from assessee under section 11AA of the Central Excise Act, 1944;
Penalty should not be imposed upon assessee under Rule 15 (1) of the Cenvat Credit Rules, 2004 for wrong utilisation of the Cenvat Credit in contravention of Rule 3 (7)(b) ibid with intent to evade payment of duty in cash and under Rule 25 of the Central Excise Rules, 2002 for short payment of Cess. 
 
 
 
Appellant’s Contention:  The revenue stated that as per Rule 3 (7) (b) of Cenvat Credit Rules 2004
 
         CENVAT credit in respect of -
 
(i) The additional duty of excise leviable under section 3 of the Additional Duties of Excise (Textiles and Textile Articles) Act, 1978 (40 of 1978);
 
(ii) The National Calamity Contingent duty leviable under section 136 of the Finance Act, 2001 (14 of 2001);
 
(iii) The education cess on excisable goods leviable under section 91 read with section 93 of the Finance (No.2) Act, 2004 (23 of 2004);
 
(iiia)The Secondary and Higher Education Cess on excisable goods leviable under section 136 read with section 138 of the Finance Act, 2007 (22 of 2007);
 
(iv) The additional duty leviable under section 3 of the Customs Tariff Act, equivalent to the duty of excise specified under items (i), (ii) and (iii) above;
 
(v) The additional duty of excise leviable under section 157 of the Finance Act, 2003 (32 of 2003);
 
(vi)The education cess on taxable services leviable under section 91 read with section 95 of the Finance (No.2) Act, 2004 (23 of 2004); and
 
(via) The Secondary and Higher Educaticn Cess on taxable services leviable under section 136 read with section 140 of the Finance Act, 2007 (22 of 2007); and
 
(vii) The additional duty of excise leviable under section 85 of Fin. Act, 2005 (18 Of 2005),
 
-shall be utilized towards payment of duty of excise or as the case may be, of service tax leviable under the said Additional Duties of Excise (Textiles and Textile Articles) Act, 1978 or the National Calamity Contingent duty leviable under section 136 of the Finance Act, 2001 (14 of 2001), or the education cess on excisable goods leviable under section 91 read with section 93 of the said Finance (No.2) Act, 2004 (23 of 2004), or the Secondary and Higher Education Cess on excisable goods leviable under section 136 read with section 138 of the Finance Act, 2007 (22 of 2007) or the additional duty of excise leviable under section 157 of the Finance Act, 2003 (32 of 2003), or the education cess on taxable services leviable under section 91 read with section 95 of the said Finance (No.2) Act, 2004 (23 of 2004), or the Secondary and Higher Education Cess on taxable services leviable under section 136 read with section 140 of the Finance Act, 2007 (22 of 2007), or the additional duty of excise leviable under section 85 of the Finance Act, 2005 (18 of 2005) respectively, on any final products manufactured by the manufacture- or for payment of such duty, on inputs themselves, if such inputs are removed as such or after being partially processed or on any output service
Provided that the  credit  of the  education cess on  excisable  goods and the education cess on taxable services can be utilized, either for payment of the education cess on excisable goods or for the payment of the education cess on taxable services:
 
Provided further that the credit of the Secondary and Higher Education Cess on excisable  goods  and  the  Secondary and  Higher  Education Cess on taxable services  can  be  utilized,  either for payment  of the  Secondary and  Higher Education Cess on excisable goods or for the payment of the Secondary and Higher Education Cess on taxable services:
 
Therefore sub Rule      7 of Rule 3 of Cenvat Credit Rules. 2004 specifically states that "NOTWITHSTANDING ANYTHING CONTAINED IN Sub Rule (1) & (4)" which makes the position very clear that the provision of Rule 3(7) (b)  applies in respect of manner of utilization of credit of duties & Cess mentioned therein irrespective of Sub Rule 4 of Rule 3 of Cenvat Credit Rules,2004.
 
Further, Rule 3(7) (b) of CCR, 2004 specifically provides that the Cenvat credit of Education Cess can be utilized for payment of Education Cess and the credit of Secondary and Higher Education Cess can be utilized for payment of Secondary and  Higher Education Cess only. Provisions expressly used respectively while referring to utilization of Cess on a particular item, thus credit of basic excise duty, CVD or additional duty (SAD) levied under Section 3(5) of Customs Tariff Act, 1975 cannot be utilized for payment of Education Cess and S & H E Cess as per the provisions of Rule 3(7) (b) of Cenvat Credit Rules, 2004.
 
In the case of CCE J&K Vis Bharat Box Factory Ltd, Final order No 115-130/2011-EX(PB) dated 09.01.2011 reported in 2011(265) ELT.366 (Tri. Del) passed by CESTAT, Principal Bench New Delhi, wherein it  was held that payment of Cess by utilizing Cenvat credit of basic excise duty was not permissible.
 
Para 7 of the order, is reproduced below:-
 
" The issue in fact , has been elaborately discussed in the matter of CCE, Jammu  v. Jindal Drugs Ltd. reported in 2010 (97)RLT ON LINE 13. Even otherwise, the provision of law either as stood in the year 2005 or even today does not permit the payment of cess by utilizing Cenvat credit availed on payment of excise duty as the provision of law comprised under sub  rule 7 (b)  of  Rule 3  specifically  makes  the  provisions  regarding utilization of Cenvat credit. It specifically provides that the credit of the education cess on excisable goods and education cess on taxable services can be utilized, either for payment of education cess on excisable goods and education cess on taxable services. In fact, the provision thereunder expressly used the expression respectively while referring to the utilization of cess on a particular item to be utilized on a specified item."
 
From the above mentioned judgment delivered by Double Member Bench of Hon'ble Tribunal in the case CCE.. J&K V/s Bharat Box Factory Ltd, wherein it has been held that Cenvat credit of basic excise duty cannot be utilized for payment of education cess on excisable goods, It was clear that credit of basic excise duty cannot be utilized for payment of Cess, therefore, credit of Basic Excise Duty (BED) cannot be allowed to be utilized for payment of education cess and S& H  E cess on excisable finished goods.
 
In view of above, it appeared that utilization of the credit of Basic Excise Duty (BED) for the payment of Education Cess leviable under Section 91 read with Section 93 of Finance Act 200,1 & Higher Secondary Education Cess leviable under Section 136 read with Section 138 of Finance Act 2007 payable on the clearance of their final product was neither proper nor legal in terms of provisions of Rule 3(7) (b) of Cenvat Credit Rules, 2004. The assessee had to pay Education Cess or SHE Cess either form the credit of Education Cess or credit of SHE Cess respectively or in cash through PLA. From the above it appeared that the assessee could not have utilize the credit of basic excise duty towards payment of Education Cess and SHE Cess and they had not paid Ed. Cess and SHE Cess to the extent of Rs. 10344744/- either from credit of Ed. Cess and SHE Cess respectively neither had paid the same in cash from PLA, resulting in short payment of duty, i.e. Ed. Cess and SHE Cess on the goods cleared from Apr,2013 to Mar,2014 amounting to Rs.         10344744/-(Ed Cess Rs.63969871+SHE Cess Rs. 34477577 as per annexure A, which thus appeared recoverable form them under Section 11AA along with interest under Sec. 11AA of the Central Excise Act, 1944. Since the assessee had wrongly utilized the credit of basic excise  duty  for the  payment of  Education  Cess or SHE Cess intentionally to evade the payment of duty, thus the assessee also appeared liable for penalty under Rule 15 of the Cenvat credit Rules, 2004 for wrong utilization of credit of BED and under Rule 25 of the Central Excise Rules, 2002 for short payment of duty, i.e. Ed. Cess and SHE Cess on the finished goods cleared during the period Apr, 2013 to March 2014 intentionally to evade correct payment of duty.
Accordingly,  M/s  Bhansali  Engineering  Polymers  Ltd.  SP-   138—143, Ambaji Industrial Area, Abu Road (Rajasthan) were issued Show Cause Notice.
 
 
Respondent’s contention:-the respondent in reply to show cause notice contented that during the scrutiny of  monthly ER-1 returns, it was observed that they were utilising the credit of Basic Excise Duty (BED) for payment of Education Cess leviable under section 91 read with section 93 of the Finance Act, 2004 and SHE Cess leviable under section 136 read with section 138 of the Finance Act, 2007 payable on the clearance of our final product. Whereas, Rule 3(7)(b) of the Cenvat Credit Rules, 2004 reads as follows:-
 
Cenvat credit in respect of-
 
(i)            the additional duty of excise leviable under section 3 of the Additional Duties of Excise (Textiles and Textiles Articles) Act, 1978 (40 of 1978);
(ii)           the National Calamity Contingent duty leviable under section 136 of the Finance Act, 2001 (14 of 2001);
(iii)          the education cess on excisable goods leviable under section 91 read with section 93 of the Finance Act, 2004 (23 of 2004);
(iv)          the Secondary and Higher Education Cess on excisable goods leviable under section 136 read with section 138 of the Finance Act, 2007 (22 of 2007)
(v)           the additional duty leviable under section 3 of the Customs Tariff Act equivalent to the duty of excise specified under items (i), (ii) and (iii) above;
(vi)          the additional duty of excise leviable under section 157 of the Finance Act, 2003 (32 of 2003);
(vii)         the education cess on taxable services leviable under section 91 read with section 95 of the Finance Act, 2004 (23 of 2004); and
(viii)        the Secondary and Higher Education Cess on taxable services leviable under section 136 read with section 140 of the Finance Act, 2007 (22 of 2007); and
(ix)          the additional duty of excise leviable under section 85 of the Finance Act, 2005 (18 of 2005)
 
shall be utilised towards payment of duty of excise or as the case may be, of service tax leviable under the said Additional Duties of Excise (Textiles and Textile Articles) Act, 1978 or the National Calamity Contingent duty leviable under section 136 of the Finance Act, 2001 (14 of 2001), or the education cess on excisable goods leviable under section 91 read with section 93 of the said Finance (No.2) Act, 2004 (23 of 2004), or the Secondary and Higher Education Cess on excisable goods leviable under section 136 read with section 138 of the Finance Act, 2007 (22 of 2007) or the additional duty of excise leviable under section 157 of the Finance Act, 2003 (32 of 2003), or the education cess on taxable services leviable under section 91 read with section 95 of the said Finance (No.2) Act, 2004 (23 of 2004), or the Secondary and Higher Education Cess on taxable services leviable under section 136 read with section 140 of the Finance Act, 2007 (22 of 2007), or the additional duty of excise leviable under section 85 of the Finance Act, 2005 (18 of 2005) respectively, on any final products manufactured by the manufacturer or for payment of such duty on inputs themselves, if such inputs are removed as such or after being partially processed or on any output service: 

Further, it was also contended that the sub rule (7) of Rule 3 of the Cenvat Credit Rules, 2004 specifically states that “NOTWITHSTANDING ANYTHING CONTAINED IN Sub Rule (1) and (4)” which made the position very clear that the provision of Rule 3(7)(b) will apply in respect of manner of utilisation of credit of duties and cess mentioned therein irrespective of sub rule (4) of Rule 3 of the Cenvat Credit Rules, 2004. In this regard, respondent liked to discuss the statutory provisions as regards the utilisation of cenvat credit so that the issue under consideration is examined properly and efficiently.
Rule 3(4) of the Cenvat Credit Rules, 2004 containing the provisions as regards credit utilisation states as follows:-
“The cenvat credit may be utilised for payment of-
(a)any duty of excise on any final product; or
(b)  an amount equal to cenvat credit taken on inputs if such inputs are removed as such or after being partially processed; or
(c)   an amount equal to the cenvat credit taken on capital goods if such capital goods are removed as such; or
(d)  an amount under sub-rule (2) of rule 16 of the Central Excise Rules, 2002; or
(e)   service tax on any output service;
Provided that while paying duty of excise or service tax, as the case may be, the CENVAT credit shall be utilized only to the extent such credit is available on the last day of the month or quarter, as the case may be, for payment of duty or tax relating to that month or the quarter, as the case may be:
 
Providedfurther that cenvat credit shall not be utilised for payment of any duty of excise on goods in respect of which the benefit of an exemption under notification no. 1/2011-C.E., dated the 1^st March, 2011 is availed:

Provided further that the CENVAT credit of the duty, or service tax, paid on the inputs, or input services, used in the manufacture of final products cleared after availing of the exemption under the following notifications of Government of India in the Ministry of Finance (Department of Revenue),-
 

shall, respectively, be utilized only for payment of duty on final products, in respect of which exemption under the said respective notifications is availed of :

Provided also that no credit of the additional duty leviable under sub-section (5) of section 3 of the Customs Tariff Act, shall be utilized for payment of service tax on any output service:

Provided also that the CENVAT credit of any duty specified in sub-rule (1), except the National Calamity Contingent duty in item (v) thereof, shall not be utilized for payment of the said National Calamity Contingent duty on goods falling under tariff items 8517 12 10 and 8517 12 90 respectively of the First Schedule of the Central Excise Tariff:
 
Provided also that the Cenvat Credit of any duty specified in sub-rule (1) shall not be utilised for payment of the Clean Energy Cess leviable under section 83 of the Finance Act, 2010 (14 of 2010):

Provided also that the CENVAT credit of any duty mentioned in sub-rule (1), other than credit of additional duty of excise leviable under section 85 of Finance Act, 2005 (18 of 2005 ), shall not be utilised for payment of said additional duty of excise on final products.
 
On analysing the above Rule 3(4) and 3(7)(b) of the Cenvat Credit Rules, 2004, respondent summarized the following essential points that were relevant for the issue under consideration:-
·         The cenvat credit may be utilised for payment of any duty of excise on any final product. However, the Rule 3(7)(b) as stated above prescribes certain restrictions for utilisation of credit of certain special duties. Accordingly, on harmoniously reading both the Rules, we can safely conclude that the cenvat credit may be utilised for payment of any duty of excise except as provided in Rule 3(7)(b).
·         Further, the third proviso of the Rule 3(4) clearly states that the cenvat credit of the duty or service tax paid on the inputs or input services that are used in the manufacture of final products that are being cleared after availing exemption under certain specified exemption notifications shall be utilised only for payment of duty on final products in respect of which exemption under the respective notifications is availed. This means that the third proviso provides another exception to the general principle that the cenvat credit may be utilised for payment of any duty of excise. The third proviso specifies that if benefit of certain exemption notifications is availed then, the credit can be utilised only for payment of the specified duties for which exemption is being claimed. 
·         Further, if Rule 3(7)(b) is analysed, it is found that the rule in simple words says that  the cenvat credit of additional duty of excise (Textiles and Textiles Articles) Act can be utilised only for payment of additional duty of excise (Textiles and Textiles) Act and nowhere else. Similarly, the credit of National Calamity Contingent Duty can be utilised only for payment of National Calamity Contingent duty. Similarly, the credit of Education Cess can be utilised only for paying education cess on clearance of goods. Likewise, the credit of SHE Cess can be used only for paying SHE Cess on clearance of goods and so on. It never prohibits payment of Education Cess or SHE Cess by utilising the credit balance of Basic Excise Duty (BED). In nutshell, Rule 3(7)(b) restricts utilisation of Education Cess against  Education Cess but it does not says that payment of Education Cess cannot be made by utilising the cenvat credit balance of BED. Hence, the contention that the utilisation of BED for payment of Education Cess and SHE Cess is improper is totally baseless and erroneous.
In continuation to the above, they discussed the aspect whether Education Cess and SHE Cess that are leviable on excisable goods can be considered as “duty of excise” so as to get covered under the basic Rule 3(4)(a) that the credit may be utilised for payment of “any duty of excise”. Hence, the provisions of Education Cess as contained in section 92 and 93 of the Finance Act, 2004 were produced for the sake of convenient reference as follows:-
“91. Education Cess.–
(1) Without prejudice to the provisions of sub-section (11) of section 2, there shall be levied and collected, in accordance with the provisions of this Chapter as surcharge for purposes of the Union, a cess to be called the Education Cess, to fulfill 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, utilise, 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-section (1), as it may consider necessary.
 
93. Education Cess on excisable goods. –
(1) The Education Cess levied under section 91, 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 excisable goods), at the rate of two percent, calculated on the aggregate 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 the 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 be.”
 
The provision of Section 136 and 138 of the Finance Act, 2007 regarding levy of SHE Cess is identical to Section 91 and 93 of the Finance Act, 2004 regarding levy of education cess except that the rate of SHE Cess is 1% of the aggregate of duties of excise.
On analysing the provisions of Education Cess and SHE Cess as contained in the Finance Act, 2004 it is very much clear that both these Cess are “duty of excise” and all the provisions of the Central Excise Act, 1944 and the Rules made thereunder are applicable to these Cess. As such, there was no embargo in treating Education Cess and SHE Cess as “duty of excise” and accordingly, the cenvat credit of BED can be legally utilised for payment of Education Cess and SHE Cess because they are also “duty of excise” and there is no prohibition in the Central Excise Act, 1944 or the Cenvat Credit Rules, 2004 as regards utilisation of BED towards payment of Education Cess and SHE Cess.
 
Aligning with the above, in support of their contention that the Education Cess and the SHE Cess are “duty of excise”, reliance was also placed on the judgment given by the Hon’ble Rajasthan High Court in the case of BANSWARA SYNTEX LTD. VERSUS UNION OF INDIA [2007 (216) E.L.T. 16 (Raj.)] wherein it has been held as follows:-
Education Cess - Notification granting rebate thereof - Amendment thereto - Date of effect - Amendment in rebate notification adding Education Cess as duty of excise clarificatory - Education Cess levied as duty of excise as per statutory provisions from date of levy - Rebate eligible under basic notification even before amendment ibid - Separate notification not required for providing rebate of Education Cess - Notification Nos. 40/2001-C.E. (N.T.) and 19/2004-C.E. (N.T.) - Sections 91 and 93 of Finance Act, 2004. [paras 19, 21]
Rebate - Education Cess - Admissibility for period from date of levy to date of inclusion in notification on rebate - Education Cess levied on excisable goods from 9-7-2004 and statutorily collected as duty of excise - Education Cess collected as surcharge along with excise duty bearing same character as excise duty - Manner of collection and exemption applicable to parent levy of excise duty applicable to Education Cess also - Amendment dated 6-9-2004 to explanation in basic notification dated 26-6-2001, by including Education Cess in enumerative definition of levies considered as duty of excise, clarificatory - Basic notification providing exemption by way of rebate of excise duty applicable to Education Cess also from the date of effect of levy - Rebate of Education Cess eligible from 9-7-2004 to 5-9-2004 on export goods - Impugned orders set aside - Rule 18 of Central Excise Rules, 2002 - Notification No. 40/2001-C.E. (N.T.) and Notification No. 19/2004-C.E. (N.T.) - Sections 91 and 93 of Finance Act, 2004. [paras 12, 15, 16, 18, 19, 20 21]
In the above cited case it was concluded that even though the rebate under Rule 18 was available to the duty of excise, the rebate of education cess and SHE Cess would be admissible as the Cess collected bear the same character as excise duty. Although, the rebate of education cess specifically added w.e.f. 6.9.2004, even then, the rebate of education cess admissible for prior period because the amendment was clarificatory in nature.
 
Further, it was contended that Rule 3(7)(b) of the Cenvat Credit Rules, 2004 specifically provides that the cenvat credit of Education Cess can be utilised for payment of Education Cess and the credit of SHE Cess can be utilised for SHE Cess only. Provisions expressly used respectively while referring to utilisation of Cess on a particular item, thus credit of basic excise duty, CVD or additional duty (SAD) levied under section 3(5) of the Customs Tariff Act, 1975 cannot be utilised for payment of Education Cess and SHE Cess as per the provisions of Rule 3(7)(b) of the Cenvat Credit Rules, 2004. In this regard, they submitted that the impugned show cause notice was taking a very absurd interpretation of the provisions contained in Rule 3(7)(b) of the Cenvat Credit Rules, 2004. They submitted that the impugned show cause notice was itself saying that as per Rule 3(7)(b), cenvat credit of education cess can be utilised for payment of education cess. However, on the other hand, it was stating that in view of the above provision, credit of BED cannot be utilised for payment of Education Cess. We submit that there was difference in the utilisation of credit and payment of duty. When we say Education Cess is to be utilised for payment of Education Cess, it means that the credit balance of Education Cess is to be used for payment of Education Cess only and no other duty. However, this cannot be meant that payment of Education Cess cannot be made by utilising credit of BED. If it was interpreted that credit of BED cannot be utilised for payment of Education Cess then it would mean that Education Cess can be paid either in cash or by utilising education cess only which was not so. The prohibition in Rule 3(7)(b) is only for utilisation of the credit balance of Education Cess and not regarding payment of Education Cess. As such, there was no contravention in utilising the credit balance of BED towards payment of Education Cess and SHE Cess. The fact that the utilisation of BED towards payment of Education Cess and SHE Cess was legal and proper as discussed in the preceding paragraph and more so, there is also no specific prohibition on utilisation of the credit balance of BED towards payment of Education Cess and SHE Cess.
 
They further submitted that reliance was also to be placed on the decision given in the case of CCE J&K Vs Bharat Box Factory Ltd, Final order no. 115-130/2011-EX(PB) dated 09.01.2011 reported in 2011 (265) E.L.T. 366 (Tri.-Del) passed by CESTAT, Principal Bench, New Delhi wherein it had been held that payment of cess by utilising cenvat credit of basic excise duty was not permissible. Para 7 of the order was produced as follows:-
“7. The issue, in fact, has been elaborately discussed in the matter of C.C.E., Jammu v. Jindal Drugs Ltd. reported in 2010 (97) RLT ON LINE 13. Even otherwise, the provision of law either as it stood in the year 2005 or even today does not permit the payment of cess by utilising cenvat credit availed on payment of excise duty as the provision of law comprised under sub-rule 7(b) of Rule 3 specifically makes the provision regarding the utilisation of the cenvat credit. It specifically provides that the credit of the education cess on excisable goods and education cess on taxable services can be utilised, either for payment of the education cess on excisable goods or for payment of education cess on taxable services. In fact, the provision thereunder expressly used the expression respectively while referring to the utilisation of cess on a particular item to be utilised on a specified item. This clearly shows that the modus operandi adopted by the respondents was not correct in relation to the utilisation of the cenvat credit while availing the benefit of Notification No. 56/2002, dated 14-11-2002.”
Accordingly, it was alleged that from the above mentioned judgment delivered by Double Member Bench of the Hon’ble Tribunal, the cenvat credit of basic excise duty (BED) cannot be allowed to be utilised for payment of education cess and SHE cess on excisable finished goods. In this regard, it was submitted that the facts of the above cited case are clearly distinguishable from the present case and so erroneous reliance had been placed on the same. In order to better analyze the above cited decision, it was pertinent to look at the provisions of utilisation of credit in this regard. As already discussed above, the third proviso of the Rule 3(4) of the Cenvat Credit Rules, 2004 clearly states that if exemption is claimed under notification no. 56/2002-CE dated 14.11.2002, the credit balance can be utilised only for payment of duties with respect to which exemption is available under the said notification. Accordingly, they submitted that under notification no. 56/2002-CE dated 14.11.2002, the exemption is admissible only for the following duties of excise:-
(a) Basic Excise duty leviable under Section 3(1) of Central Excise Act, 1944 on the goods mentioned in the 1st schedule to the Central Excise Tariff Act, 1985;
(b) Special Excise duty leviable under Section 3(1) of Central Excise Act, 1944 on the goods covered by 2nd Schedule to the Central Excise Tariff Act, 1985;
(c) AED (GSI) leviable under AED (GSI) Act, 1957 and
(d) AED (T & TA) leviable under AED (T & TA) Act, 1978;
 
Consequently, the credit balance of input and input services availed by a manufacturer availing the benefit of the above notification can be utilised only for payment of Basic Excise Duty leviable under section 3(1) of the Central Excise Act, 1944 on the goods covered by the 1^st Schedule to the Central Excise Tariff Act, 1985, Special Excise Duty leviable under section 3(1) of the Central Excise Act, 1944 on the goods covered by the 2^nd Schedule to the Central Excise Tariff Act, 1985, AED (GSI) leviable under AED (GSI) Act, 1957 and AED (T & TA) leviable under AED (T & TA) Act, 1978. The reason for the same being that the exemption under this notification was given by way of refund of the excise duty paid by PLA by the assessee. If the assessee was allowed to utilise the credit balance towards duties of excise other than those specified in the notification, it would lead to claiming indirect refund of the other duties of excise that are not specified in the notification. As such, the above cited decision will hold good only if the assessee was availing the benefit of the exemption notification no. 56/2002-CE dated 14.11.2002 or for that matter any notification prescribed in the third proviso to the Rule 3(4) of the Cenvat Credit Rules, 2004. Therefore, the ratio of the above cited decision was only applicable when the benefit of any of the exemption notification prescribed under third proviso to Rule 3(4) of the Cenvat Credit Rules, 2004 is being availed. However, when an assessee was not availing the benefit of the exemption notification, the general provisions of credit utilisation would apply and the credit of BED can be utilised for payment of Education Cess or SHE Cess. The restriction of credit utilisation was essential condition of the exemption notification and so the above cited case concluded that the credit utilisation of BED towards the payment of Education Cess was contrary to the availment of the exemption notification. However, since the assessee was not availing any of the exemption notifications as specified in the third proviso to the Rule 3(4) of the Cenvat Credit Rules, 2004, they had correctly utilised the credit balance of BED towards payment of Education Cess and SHE Cess.
 
In support of the above contention that in the normal circumstances, when an assessee was not availing the benefit of the exemption notification, there was no prohibition of utilisation of the credit of BED towards payment of Education Cess and SHE Cess, they wished to place reliance on the recent decision given by the Delhi Tribunal in the case ofCOMMISSIONER OF C. EX., JAMMU VERSUS R.B. JODHAMAL & CO. PVT. LTD. [2013 (30) S.T.R. 326 (Tri. - Del.)]wherein it was held as follows:-
 
Cenvat credit - Utilisation of - Notification No. 56/2002-C.E. vis-à-vis Cenvat Credit Rules - While there is no prohibition on use of Cenvat credit of Basic Excise Duty for payment of Education Cess and Secondary and Higher Education Cess, the provisions of Rule 3(4) of Cenvat Credit Rules, 2004 are only a facilityand therefore, the extent to which they are in conflict with the conditions of Notification No. 56/2002-C.E., the same would not be applicable, as it is the condition of notification which would prevail- Commissioner v. Prag Bosimi Synthetics Ltd. (Central Excise Reference Application No. 4/2008) distinguished. [paras 7, 7.18]
 
In light of the above cited decision, it could be safely concluded that there was no restriction on utilising the credit balance of BED for payment of Education Cess when the benefit of exemption notification was not availed. Therefore, the benefit of the decision should be extended and the reliance placed on the decision of Bharat Box Factory Ltd. should be rejected as the same was being misconceived. It was also mentioned that the above cited decision of R.B. JODHAMAL & CO. PVT. LTD. was the latest decision of the Delhi Tribunal and so in view of the settled legal principle also, the latest decision should be prevailed rather than the earlier decision of the Delhi Tribunal. Moreover, the decision of Bharat Box Factory Ltd. was also considered while passing the above latest decision. As such, the impugned show cause notice was proposing to deny utilisation of credit of BED against payment of Education Cess by placing reliance on the decision given in the case of Bharat Box Factory Ltd. was not tenable
Aligning with the above, they further submitted that there was no restriction in utilising the cenvat balance of BED towards payment of Education Cess in light of the following decision of Gujarat High Court:-
 
·         VIPOR CHEMICALS PVT. LTD. VERSUS UNION OF INDIA [2009 (233) E.L.T. 44 (Guj.)]:-
 
Refund of Education Cess - Payment of duty as well as Education Cess thereon from Cenvat account - When petitioner found entitled to refund of excise duty and actual refund of excise duty amount is also given, amount of Education Cess paid from out of Cenvat credit amount should also be refunded to petitioner and credited in same account - Notification No. 40/2001-C.E. (N.T.).[paras 5, 6]
It was held in the case that when assessee was entitled to refund of excise duty and the same was also sanctioned, there was no reason not to refund the amount of Education Cess paid from the Cenvat Credit amount. This case indirectly confirmed that cenvat balance of BED can be utilised for payment of Education Cess.
 
In continuation to the above, they placed reliance on the following judicial pronouncements in support of their submissions:-
 
·         COMMISSIONER OF CENTRAL EXCISE, VAPI VERSUS BALAJI INDUSTRIES [2008 (232) E.L.T. 693 (Tri. - Ahmd.)]:-
Cenvat/Modvat - Utilization of credit - Education Cess can be paid by utilizing the Cenvat credit of Basic Excise Duty (BED) - Rule 3(4) of Cenvat Credit Rules, 2004. [para 2]
·         SUN PHARMACEUTICAL INDUSTRIES VERSUS COMMISSIONER OF C. EX., JAMMU [2007 (207) E.L.T. 673 (Tri. - Del.)= 2008 (11) S.T.R. 93 (Tri. – Del.)]:-
Refund - Exemption under Notification No. 56/2002-C.E. to units located in Jammu - Refund claim not in relation to any payment of education cess but for basic excise duty paid by cash after fully exhausting Cenvat credit - Claims within Notification ibid. [para 9]
Cenvat/Modvat - Utilisation of credit - Payment of education cess out of input credit of Basic Excise Duty (BED) - Rule 3(7)(b) of Cenvat Credit Rules, 2004 placing limitation for utilisation of credit obtained through education cess paid on inputs has no application in regard to utilisation of credit of BED - Rule 3(4) ibid which relates of BED places no limitation on utilisation of such duty credit - Payment of education cess from BED credit permissible. [para 8]
Education cess - Duty of Excise, Scope - Section 93(1) of Finance Act, 2004 states that education cess levied thereunder “shall be a duty of excise” - Further, cess paid on goods produced in India is excise duty as confirmed by Larger Bench [2006 (193)E.L.T.169 (Tribunal - LB)] - Education cess is also a duty of excise.[paras 5, 9]
·         COMMISSIONER OF CE, CUSTOMS, & ST , VAPI VS M/S MADURA INDUSTRIES TEXTILES [2012-TIOL-1094-HC-AHM-CX]:-
 
Central Excise - CENVAT Credit - education Cess - benefit of utilization of credit of basic excise duty for payment of education cess allowed - Tribunal order upheld - No question of law arises.
 
·         COMMISSIONER OF C. EX., SHILLONG VERSUS GODREJ CONSUMER PRODUCTS LTD. [2007 (219) E.L.T. 585 (Tri. – Kolkata)]:-
Cenvat/Modvat - Utilization of credit - Area based exemption - No bar to utilization of basic excise duty credit for payment of Education Cess, which is a kind of Excise duty, in terms of Rule 3(4) of Cenvat Credit Rules, 2004. [paras  5, 7]
In light of the above cited decisions, it was crystal clear that there was no prohibition in utilising the credit of BED towards payment of Education Cess and SHE Cess and so the impugned show cause notice was not sustainable and the same should be dropped by extending the benefit of the above decisions.
They further submitted that when the demand itself was not sustainable, they had no interest liability under section 11AA of the Central Excise Act, 1944.
They further submitted that penalty was also proposed under Rule 15(1) of the Cenvat Credit Rules, 2004 for wrong utilisation of cenvat credit in contravention of Rule 3(7)(b) and under Rule 25 of the Central Excise Rules, 2002 for short payment of Cess. In this regard, they submitted that no penalty was imposable on us as they had not contravened any of the provisions of the Cenvat Credit Rules, 2004. They submitted that in view of the above discussion with respect to the legal provisions and also in light of the judicial pronouncements, it was very clear that they have correctly utilised cenvat credit and there was no wrong utilisation of the cenvat credit. Accordingly, when there was no wrong utilisation of credit, no penalty was imposable under Rule 15(1) of the Cenvat Credit Rules, 2004. The Rule 15(1) is produced for the sake of convenient reference as follows:-
“If any person, takes or utilises cenvat credit in respect of input or capital goods or input services, wrongly or in contravention of any of the provisions of these Rules, then, all such goods shall be liable for confiscation and such person, shall be liable to a penalty not exceeding the duty or service tax on such goods or services, as the case may be, or two thousand rupees, whichever is greater.”
On perusal of the above rule, it was clear that penalty was imposable under this Rule only if the credit was wrongly utilised or the provisions of the Rules were contravened. However, as discussed in detail above, there was no contravention on asessee’s part and the credit was utilised in accordance with the provisions of the Cenvat Credit Rules, 2004. Therefore, the proposal for imposition of penalty was not at all sustainable and the impugned show cause notice should be quashed. 
 
Similarly, as regards the imposition of penalty under Rule 25 of the Central Excise Rules, 2002 is concerned, they submitted that the penalty under the said Rule is subject to the provisions of section 11AC while in the present case, none of the ingredients of section 11AC are present so as to invoke the provisions of section 11AC read with Rule 25 of the Central Excise Rules, 2002. They submitted that when the provisions of section 11AC were not applicable, the question of penalty under Rule 25 did not arise at all.  They submitted that the above allegation had been raised on scrutiny of our ER-1 returns and on the basis of information submitted by them and so the charge of suppression of facts was not leviable on them. Moreover, when there was no fraud, suppression of facts or wilful misstatement, the provisions of section 11AC cannot come into play and consequently, penal provisions under Rule 25 were not invokable. As such, when everything was in the knowledge of the department, and every information was submitted, penal provisions should not be invoked.
 
Without prejudice to the above, they contended that even if it was accepted for the sake of argument only that they  had wrongly utilised the cenvat credit, then too, no penal provisions were invokable against us as our act of utilisation was based upon the legal interpretation of the law and judicial pronouncements in their favour. In view of the above bonafide belief, the benefit of doubt should be extended to the asesse and the penal provisions should not be invoked.
 
They further submitted that the confirmation of penalty was not tenable in the light of decision of CCE, Goa vs M/s Betts India Pvt Ltd [2008-TIOL-2057-CESTAT-MUM] wherein it was held that where the issue pertains to interpretation of any provision, penalty was not imposable. Similar decision had been given in the case of M/s Arani Agro Oil Industries Ltd. vs CCE, Vishakhapatnam [2008-TIOL-1883-CESTAT-BANG]. In this case, it was held that where the assessee had a bonafide belief due to interpretation of provisions, penalty was not imposable. They contended that their case also involved interpretation as regards to utilisation of credit of BED towards the payment of Education Cess and SHE Cess and so penalty should not be imposed.
 
In continuation to the above, they further submitted that even the highest court of India – Hon’ble Supreme Court has held in the case of COMMISSIONER OF CENTRAL EXCISE, TRICHY Versus GRASIM INDUSTRIES LTD. [2005 (183) E.L.T. 123 (S.C.)] that where the act of assessee was based on the interpretation taken by the Tribunal, penalty cannot be imposed as the act were based on bonafide belief. The verdicts of Apex Court are produced as follows:-
 
“Penalty - Bona fide belief caused by Tribunal’s decision - Tribunal in a number of cases giving an interpretation as understood by assessee - Penalty not imposable - Rule 173Q of erstwhile Central Excise Rules, 1944 - Rule 25 of Central Excise Rules, 2002. [para 20]”
The analysis of above decision made it clear that since they had acted under bonafide, no penalty can be imposed on them. Therefore, the benefit of above decision of Hon’ble Supreme Court should be extended to them and the whole proceedings should be dropped.
 
1)            Furthermore, it was submitted that the issue involved herein was that of interpretation of legal provisions and where interpretation of legal provisions was involved penalty cannot be imposed on the assessee. This contention had been upheld in the case of Uniflex Cables Ltd v/s Commissioner of Central Excise, Surat-II [2011-TIOL-85-SC-CX] wherein it was held as under:
Central Excise – No penalty in a case of interpretational nature: The Commissioner, himself in his order-in-original has stated that the issue involved in the case is of interpretational nature, Keeping in mind the said factor, the Commissioner thought it fit not to impose harsh penalty and a penalty of an amount of Rs. 5 lakhs was imposed on the appellant while confirming the demand of the duty. Therefore, in the facts and circumstances of the present case, penalty should not have been imposed upon the appellant.
Thus, hon’ble Supreme Court had held that penalty was not imposable in the issues involving the interpretation of legal provisions. The benefit of this decision was equally applicable on them and the impugned notice deserved to be quashed.
 
 
Reasoning of the judgment: -the commissioner went through the Show cause Notice, corrigendum, Case records, reply to the show cause notice and the submission made during course of personal hearing.
The assessee were engaged in the manufacture of Styrene Acrylonitrile (SAN) Co-polymers and Acrylonitrile Butadiene Styrene (ABS) falling under sub-heading No. 39 of the first schedule to the Central Excise Tariff Act, 1985 and availing CENVAT credit of duty paid on inputs/imported inputs and capital goods and of the Service Tax paid on input services and utilizing the same for the clearance of their finished goods.
The Show cause notice was issued to the assessee   on account of   wrong utilization of Cenvat Credit of Basic Duty of Excise for payment of Education Cess and Secondary & Higher Secondary Education Cess during the period from April, 2013 to Mar, 2014 in contravention to the provisions of Rule 3 (7) (b) of Cenvat Credit Rules, 2004 resulting into short payment of Education Cess and SHE Cess amounting to Rs. 1,03e14,744/- The assessee has been asked to show cause and explain as to why:-
(I)Cenvat credit of Rs.  1,03,44,744/-   (Ed Cess Rs.     68,96,987/- + SHE Cess Rs. 34,47,757/-) wrongly utilized by them should not be disallowed and Ed. Cess and SHE Cess short paid as above should be recovered from them under Section 11 A(1) of the Central Excise Act, 1944;
(II)Interest,  as  applicable  should  not  be  recovered  from  them  on  Rs. 10344744/-under Section 11 AA of the Cent-al Excise Act, 1944;
(III) Penalty should not be imposed upon them under Rule 15(1) of the Cenvat Credit   Rules, 2004   for wrong utilization of the Cenvat Credit in contravention of Rule 3(7) (b) ibid with intent to evade payment of duty in cash and under Rule 25 of the Central Excise Rules, 2002 for short payment of Cess.
The assessee in their reply had submitted that Cess is "duty of excise" and all the provisions of the Central Excise Act,       1944 and the Rules made thereunder are applicable to this Cess. There is no embargo in treating Education Cess and SHE Cess as "duty of excise" and accordingly, the Cenvat credit of BED can be legally utilized for payment of Education Cess and SHE Cess. There is no prohibition in the Central Excise Act, 1944 or the Cenvat Credit Rules, 2004 for utilization of BED towards payment of Education Cess and SHE Cess. There is difference in tie utilization of credit and payment of duty. The facts of decision given in the case of CCE J&K Vs Bharat. Box Factory Ltd, Final o-der no. 115-130/2011-EX(PB) dated 09.01.2011 reported in 2011            (265) E.L.T.      366 (Tri.-Del) passed by CESTAT, Principal Bench,  New  Delhi are clearly distinguishable from the present case and so erroneous reliance has been placed on the same. They also placed reliance on following decisions:
 
(i)         BANSWARA SYNTEX LTD. VS UOI [2007 (216) E.L.T. 16 (Raj.)]
(ii)        CCE Vs RB JODHAMAL 8‹. CO. PVT. LTD. :2013 (30) S.T.R. 326 (Tri. - Del.)]
(iii)       VIPOR CHEMICALS PVT. LTD. VS U01[2009 (233) E.L.T. 44 (Gu j.)
(iv)       CCE VAPI Vs BALAJI INDUSTRIES [2008 (232) E.L.T. 693 (TH. - Al         ncl.)]
(v)        SUN PHARMA. IND Vs CCE JAMMU [2007 (207) E.L.T. 673 (Tri. - Del.)
(vi)       CCE VAPI VS MADURA IND. TEXTILES [2012--T 10L-1094-HC-AHM-CX]
(vii)      CCE SHILLONG Vs GODREJ CONSUMER PRODUCTS LTD. [zoo; (219) E.L.T. 585 (Tri. — Kolkata)]
(viii)      Sterlite Ind (India) Ltd Vs CCE Vapi (2008(225)ELT397(Tri-Ahrnd)
(Ix)       CCE GOA Vs Betts India P Ltd (2o08-TIOL-2057-CESTAT-Mum]
(x)        Arani Agro Oil Ind Ltd Vs CCE Vishakhapattanarn{208-T IOL-i883-Bang}
(xi)       CCE Trichy Grasim Ind Ltd[zoo5(183)ELT(SC)]
(xii)      Uniflex Cables Ltd Vs CCE Surat-11{2o11-TIOL-85-SC-CX}
 
They submitted that Education Cess and the SHE Cess are "duty of excise", the assessee placed reliance on the judgment given by the Hon' ble Rajasthan High Court in the case of BANSWARA SYNTEX LTD. VERSUS UNION OF INDIA [2007 (216) E.L.T. 16 (Raj.)] where as in normal circumstances, where an assessee is not availing the benefit of the exemption notification, there is no prohibition of  utilization of the credit of BED towards payment of Education Cess and SHE Cess,  the assessee placed reliance on the decision given by the Delhi Tribunal in the case  of COMMISSIONER OF C. EX., JAMMU VERSUS R.B. JODHAMAL & CO. PVT. LTD. [2013 (30) S.T.R. 326 (Tri. - Del.)] and submitted that there is no restriction on utilizing the credit balance of BED for payment of Education Cess when the benefit of exemption notification is not availed. Therefore, the benefit of the decision should be extended and the reliance placed on the decision of Bharat Box Factory Ltd. should be rejected as the same is being misconceived. It was also worth mentioning that the above cited decision of R.B. JODHAMAL & CO. PVT. LTD. is the  latest decision of the Delhi Tribunal and so in view of the settled legal principle  also, the latest decision should be prevailed rather than the earlier decision of the  Delhi Tribunal.  Moreover, the decision of Bharat Box Factory Ltd. was also considered while passing the above latest decision. As such, the impugned show cause notice proposing to deny utilization of credit of BED against payment of Education Cess by placing reliance on the decision given in the case of Bharat Box Factory Ltd. was not tenable and was liable to be set aside. There was no restriction in utilizing the Cenvat balance of BED towards payment of Education Cess in light of the decision of Gujarat High Court in tile case of VIPOR CHEMICALS PVT. LTD.  VERSUS UNION OF INDIA [2009 (233) E.L.T. 44 (Gt-10].COMMISSIONER OF  CENTRAL EXCISE, VAPI VERSUS BALAJI INDUSTRIES [2oo8 (232) E.L.T. 693 (Jrl. - Ahmd.)], SUN PHARNIACEUTICAL INDUSTRIES VERSUS COMMISSIONER OF C. EX.,  JAMMU [2007 (207) E.L.T. 6713 (Tri. - Del.), 2008 (11) S.T.R. 93 (Tri. - Del.)],  COMMISSIONER OF CE, CUSTOMS, & ST , VAPI VS M/S MADURA INDUSTRIES  TEXTILES [2012-TIOL-1094-HC-AHIVI-CX], COMMISSIONER  OF  C.  EX.,  .SHILLONG VERSUS  GODREJ  CONSUMER  PRODUCTS  LTD. [2007 (219)  E.L.T. 585 (Tri.-Kolkata)] The commissioner found that the fact and circumstances of the judgments in the case of  BANSWARA SYNTEX LTD. VERSUS UNION OF INDIA [2007 (216) E.L.I. 16 (Raj.)], CCE Vs RB JODHAMAL & CO. PVT.LTD.[2013 (3o) S.T.R. 326 (Tri.   Del.)] , VIPOR CHEMICALS PVT. LTD„ VS U01[2oo9 (233) E.L.T. 44 (Cuj.), SUN PHARMA.  IND Vs CCE JAMMU [2007 (207)  E.L.T. 673 (Tri. -CCE  SHILLONG  Vs  GODREJ  CONSUMER PRODUCTS LTD. [2007 (219) E.L.T. 585 (Th.-Kolkata)], on which the assessee had placed reliance were not identical to the present case as these cases were either related to refund or area based exemption or other grounds. The reliance placed by the assessee in the case of M/s Sterlite Ind (India) Ltd Vs CCE Vapi (2008 (225)ELT397 (Tri-Ahmd), CCE Tnichy Grasim Ind Ltd[2005(183)ELT (SC)], CCE GOA Vs Betts India P Ltd (2008-TIOL-2o57-CESTAT-Mum], Arani Agro Oil Ind Ltd Vs CCE Vishakhapattanam[2o08-TIOL-1883-Bargl and Uniflex Cables Ltd Vs CCE Surat-11[2011-TIOL 85-SC-CX} were not related to the issue whether the credit of BED can be utilized towards payment of Education cess or SHE Cess.
They further submitted that the demand itself was not sustainable, thus no interest liability arises. They did not contravene any of the provisions of the Cenvat Credit Rules, 2004. There was no wrong utilization of the Cenvat credit, thus no penalty is imposable on them Under Rule 15(1) of the Cenvat Credit Rules, 2004. As regards, imposition of penalty under Rule 25 of the Central Excise Rules, 2002, they submitted that under the said Rule penalty was subject to the provisions of section 11AC while in the present case, none of the ingredients of section 11AC were present so as to invoke the provisions of section 11AC read with Rule 25 of the Central Excise Rules, 2002. Thus, the question of penalty under Rule 25 does not arise at all. Their act of utilization was based upon the legal interpretation of the law and judicial pronouncements in their favour.
The commissioner found that the basic point in the present case to be decided was whether the Cenvat Credit of BED can be utilized for payment of Education Cess and Secondary & Higher Education Cess. Further, if the same cannot be utilized, whether the same is to be recovered along with interest and ultimately whether penalty is liable to be imposed?
Before going into details of the case and each aspects and facts of the matter, the relevant provisions of Central Excise Act, 1944 and Rules made there under are
reproduced as below:
The Education Cess is leviable under Section 93 of Finance Act, 2004, which reads as under:
Section 93 of Finance Act, 2004
 
(1) The Education Cess levied under section 91, in the case of goods specifie in the First Schedule to the Central Excise Tariff Act, 1985, being good manufactured or produced, shall be a duty of excise (in this section referred to as the Education Cess on excisable goods), at the rate of two percent., calculated on the aggregate of all dirties 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 the provisions of the Central Excise Act, 19,44 or under any other law for the  time being in force.
(2) The Education Cass on excisable goods snail 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,
(3) The  provisions  of  the  Central  Excise  Act, 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 be
Section 128 of the Finance Act, 2007,
(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  excisable goods), at the rate of one per cent., calculated on the aggregate 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 Ministry of Finance (Department of Revenue), under
the provisions of the Central Excise.Act, 1914 or under any other law for the
time 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 chargeable under section 93 of the Finance (No. 2) Act,  2004.
(3) The provisions of the Central Excise Act, ;944 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 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.
The term "duty" has been defined under Central excise Act, 1944 and Rules made there under as follows:
Section 2A of Central Excise Act 1944:"2A. References of certain expressions. In this Act, save as otherwise expressly provided and unless the context otherwise requires, references to the expressions "duty", "duties", "duty of excise" and "duties of excise" shall be construed to include a reference to "Central Value Added Tax (CENVAT)"
Rule 2 of Central Excise Rules, 2002: "2(e) "duty" means the duty payable under section 3 of the Act”
The summery of the dispute is sub-rule (4) of Rule 3 of Cenvat Credit Rules, 2004. The commissioner found that utilization of Cenvat Credit is governed by total 5 clauses of sub-rule (4) of Rule 3 of Cenvat Credit Rules, 2004, which are as under:
·         Clause (a) stipulates that Cenvat credit can be utilized for payment of any duty of excise on any final product.   '
·         Clause (b) stipulates that the Cenvat Credit can be utilized for payment of an amount equal to Cenvat Credit taken on inputs, if such inputs are removed as such or after being partially processed.
·         Clause (c) stipulates that the Cenvat Credit can be utilized for payment of an amount equal to the Cenvat Credit taken on capital goods if such
capital goods are removed as such.
·         Clause (d) stipulates that the Cenvat Credit can be utilized for payment of
an amount determined under sub-rule (2) of Rule 16 of Central Excise
Rules, 2002.
·         Clause (e) stipulates that the Cenvat Credit can be utilized for payment of service tax on any output service.
The commissioner also found that sub-clause (iii) clause (b) of sub-rule (7) of Rule 3 of Cenvat Credit Rules, 2004 stipulated that Cenvat Credit of Education Cess on excisable goods leviable under Section 91 read with Section 93 of Finance Act, 2004 shall be utilized for payment of Education Cess on excisable goods leviable under Section 91 read with Section     93 of Finance Act, 2004. Likewise, the commissioner also found that sub-clause (iiia) clause (b) of sub-rule (7) of Rule3 of Cenvat Credit Rules, 2004 stipulates that Cenvat Credit of Secondary 3( Higher Education Cess on excisable goods leviable under Section 136 read with Section 138 of Finance Act, 2007 shall be utilized for payment of Secondary & Higher Education Cess on excisable goods leviable under Section 136 read with Section 138 of Finance Act, 2004. In the backdrop of the above provisions, the commissioner found that the first point that needs to be decided is whether the Education Cess and Secondary & Higher Education Cess can be considered as duties of excise as stipulated in clause (a) of sub-rule (4) of Rule 3 of Cenvat Credit Rules, 2004.
Thus, upon plain reading of sub-section (1) of Section 93 of Finance Act, 2004 and sub-section (1) of Section 128 of the Finance Act, 2007, it was found that Education Cess and the Secondary & Higher Education Cess were termed as duties of excise consequently, in terms of Rule 3(4) of the Cenvat Credit Rules. 2004, the Cenvat credit of Basic Excise duty can be used for payment of Education Cess and Secondary & Higher Education Cess. However, before penning down the final decision, he also discussed the various case laws pertaining to this issue.
    He also found that sub-clause (iii) clause (b) of sub-rule (7) of Rule 3 of Cenvat Credit Rules, 2004 stipulates that Cenvat Credit of Education Cess on excisable goods leviable under Section 91 read with Section 93 of Finance Act, 2004 shall be utilized for payment of Education Cess on excisable goods leviable under Section 91 read with Section          93 of Finance Act, 2004. Likewise, It was also found that sub-clause (iiia) clause (b) of sub-rule(7) of Rule 3 of Cenvat Credit Rules,2004 stipulates that Cenvat Credit of Secondary & Higher Education Cess on excisable goods leviable under Section 136 read with Section 138 of Finance Act, 2007 shall be utilized for payment of Secondary & Higher Education Cess on excisable goods leviable under Section 136 read with Section 138 of Finance Act, 2004. In the backdrop of the above provisions, It was found that the first point ti-at needs to be decided is whether the Education Cess and Secondary & Higher Education Cess can be considered as duties of excise as stipulated in clause (a) of sub-rule (4) of Rule 3 of Cenvat Credit Rules, 2004.
Thus, upon plain reading of sub-section (1) of Section 93 of Finance Act, 2004 and sub-section (1) of Section 128 of the Finance Act, 2007, I find that Education Cess and the Secondary & Higher Education Cess are termed as duties of excise consequently, in terms of Rule 3(4) of the Cenvat Credit Rules. 2004, the C.envat credit of Basic Excise duty can be used for payment of Education Cess and Secondary & Higher Education Cess. However, before penning down the final decision he discussed the various case laws pertaining to this issue.
He founnd that Hon'ble Tribunal in the case of Mahindra & Mahindra Limited Vs Commissioner of Central Excise, Mumbai reported at     2007    (211) ELT         481      (Tri. Mumbai) at Para 3o has held that "3o. 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 (200z-TIOL-582-SC-
CX) where the provision of Section 9 were interp-eted 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 & Others and Jaullundur Rubber Goods Manufacturer; Association (1976) 3 5CC 219,.
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 a ] 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 have been excluded. He also agreed 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 Acts 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.
 
 
He found that the above decision was rendered in relation to Education Cess leviable under sub-section (i) of Section 93 of Finance Act, 2004. Since sub-section (1) of Section 93 of Finance Act, 2004 and sub-section (1) of Section 128 of the Finance Act, 2007 were identically worded therefore he found that the ratio of the said decision was also applicable as far as Secondary & Higher Education Cess were concerned.
He found that the issue for consideration in the case of CCE J&K Vs Bharat Box Factory Limited [2011(265)ELT366]  was  whether the credit availed out of payment of central excise duty could have been utilized for payment of cess while availing the benefit under the said Notification No. 56/2002-C.E., dated 14-11-2002, therefore, refund could have been claimed, as such , the ratio of same cannot be applied in the present case as this case was not related to area based exemption and utilization of BED for payment of education cess.
In view of above, he found that both the cess are leviable on the manufacture of excisable  goods and were leviable and collected under the provisions of Central Excise Act, 1944 and rules made there under and section 3 of the Central Excise Act, 1944 was the charging section for levy of duty on manufacture of goods. Hence, it was a type of Central Excise duty. He also found that Rule 3 (7) of the CENVAT Credit Rules, 2004 applies restriction to the credit of various duties, such as additional duties on textiles and textile articles, NCCD, Education Cess etc. There was nothing in this rule which restrict the use of CENVAT credit of basic excise duty for payment of Education cess and S. & H. education cess. When there is no restriction prescribed under rule 3(7) of the CENVAT rules about such utilization of credit of basic duty there was any reason to deny it. Therefore, in absence of any restriction and as provided under Rule 3(4) of Cenvat Credit Rules, 2004 the CENVAT credit of basic duty may be utilized for payment of any duty of excise on any final product.
Besides the merit, he found that the Hon'ble HIGH COURT OF GUJARAT  AT AHMEDABAD Tax Appeal No.2210 of 2010 in the case of COMMISSIONER OF CENTRAL EXCISE, CUSTOMS & SERVICE TAX, VAPI Vs M/s MADURA INDUSTRIES TEXTILES , in order dated 23.07.2012 reported at 2012-TIOL-1094-HC-AHM-CX has upheld the order of the tribunal and dismissed the appeal filed by the department. This Tax Appeal was filed under Section 35-G of the Central Excise Act, 1944 by the department on the following two proposed substantial questions of law, which are extracted below:-
"(i) Whether, in the facts and circumstances of the case, the CESTAT has correctly come to the conclusion that under rule 3 (7) (b) of the Cenva: Credit Rules, the amount to be paid towards education cess has been rightly deducted as Cenvat credit?
(ii) Whether in the facts circumstances of the case, the CESTAT can rely upon the judgment rendered in another case, without even discussing the merits of the present case?"
In this case the respondent paid the Education Cess for utilizing the Cenvat of basic excise duty available in the Cenvat credit account. The department demanded the duty and also imposed penalty. The Commissioner (Appeals) allowed the appeal and therefore, the department filed second appeal before the Customs, Excise and Service Tax Appellate Tribunal .The Tribunal dismissed the appeal of the appellant on the ground that the benefit of utilization of credit of basic excise duty for payment of Education Cess could be allowed. It is necessary to extract Paragraph No.3 of order of the Tribunal, which is as under:-
“3. I have considered the submissions. The very same issue had come up before this Tribunal also and in case of CCE Vapi Vs. Ms Balaji Industries as reported  in 2008 (232)  ELT 693 (Tri-Ahrricl.) .(2008-TfOL-2629- CESTAT- AHM). This Tribunal had also allowed the benefit of utilization of credit of basic excise duty for payment of education cess. Further, as submitted by the respondent, there are several other decisions of the Tribunal rendered subsequent to the decision of M/s Sun Pharmaceutical, where similar view has been taken. The learned SDR could not submit a copy of the stay order also."
The Hon'ble High court while dismissing the appeal filed by the department held that:
“4. We agree with the view taken by the Tribunal; and the appeal is devoid of any merits. Both the substantial questions raised by the appellant do not
involve any substantialquestion of law and therefore, the appeal is dismissed".
He found that the assessee had also placed reliance on the above order of the Hon'ble High Court. Further he found that the status of said order in Tax Appeal No.2210 of 2010 was enquired form the CCE Vapi wherein vide letter No. V(Ch.59)Vapi-58/Law/2010 dated 19.09.2014 intimated  that said order was  not accepted on merit , however on low revenue It was accepted.
He further found that the CESTAT Ahmedabad vide Final Order No A/10217/WZB/AHD/2013 dated 07.02.2013 in the case of M/s Madura Industries Textiles Plot No. 60/2/2, Demini Village, Dadra had decided an identical Issue following the ratio of decision dated 23.07.2012 of Hon'ble High court of Gujrat in the Tax Appeal No.2210 of 2010. As such, the status of same was also ascertained from the CCE Vapi. The CCE, Vapi vide their letter No. V/Misc-o1/2014/RC dated 19.09.2014 has intimated that CESTAT Final Order No A/10217/WZB /AHD/2013 dated 07.02.2013 in the case of Madura Industries textiles has been accepted by the department on 25.04.2013. Since the Issue involved in the CESTAT Final Order No A/10217/WZB /AHD/2013 dated 07.02.2013 was identical to the issue of instant case, which has also been accepted by the department, as such following the ratio of CESTAT Final Order No A/10217/VVZB /AHD/2013 dated 07.02.2013. Thus, he could conclude the CESTAT final order dated 07.02.2013 has attained finality on merits.
In view of above discussions and findings, he held that  the assessee has rightly utilized the balance of Basic Excise Duty towards the payment of education cess /
SHE Cess and the demand proposed in the Show Cause Notice dated 06.05.2014 is not sustainable. Since the demand was not sustainable, therefore, he also held that the demand of interest was also not sustainable and no penalty under Rule 15(1) of the Cenvat Credit Rules, 2004 was imposable on the assessee.  Accordingly, he passed the following Order:-
“Dropping the   entire   proceedings initiated vide   Show Cause   Notice C.  No V(39)Adj.II/JPR-11/165/2014/   274   dated      06.05.2014   issued   to   M/s.  Bhansali' Engineering Polymers. Ltd SP- 138 —143, Ambaji Industrial Area, Abu Road Distt. Sirohi (Raj.)
 
Decision:- show cause notice dropped
 
Comment:- the gist of the case is that the education cess and secondary education are leviable on the manufacture of excisable  goods and are leviable and collected under the provisions of Central Excise Act, 1944 and rules made there under and section 3 of the Central Excise Act, 1944 is the charging section for levy of duty on manufacture of goods. Hence, they are type of Central Excise duty. Rule 3 (7) of the CENVAT Credit Rules, 2004 applies restriction to the credit of various duties, such as additional duties on textiles and textile articles, NCCD, Education Cess etc. There is nothing in this rule which restricts the use of CENVAT credit of basic excise duty for payment of Education cess and S. & H. education cess. When there is no restriction prescribed under rule 3(7) of the CENVAT Rules about such utilization of credit of basic duty there was any reason to deny it. Therefore, in absence of any restriction and as provided under Rule 3(4) of Cenvat Credit Rules, 2004 the CENVAT credit of basic duty may be utilized for payment of any duty of excise on any final product.