V.S. Products Vs Union of India (Karnataka High Court)
Legality of levy of NCCD as per Section 136 of the Finance Act, 2001
As per Section 136 of the Finance Act, a surcharge by way of duty of excise at the rates specified in the schedule is levied.
By virtue of the amendment of the Twelfth Schedule of the Finance Act, 2005 the rates stand amended.
The surcharge would merely refer to an increase of the duty which in the present case is by way of a duty of excise. The nature of alteration of duty by way of the Finance Act has been considered in the case of The Madurai District Central Co-operative Bank Ltd. v. The Third Income Tax Officer, Madurai reported in (1975) 2 SCC 454 (Bench of Three Judges). The Apex Court has clearly opined that the surcharge leviable under Section 2 (1) of the Finance Act, 1963 are relatable to Article 271 of the Constitution of India. In a detailed discussion, the Apex Court has also clarified that the purpose and concept of the additional surcharge is different from the Income Tax and that “26…. Thus, additional surcharge is a distinct charge not dependent for its leviability on the assessees liability to pay income tax or super tax.”
The Apex Court has also observed that the Income Tax Act and Annual Finance Acts are enacted by the Parliament in exercise of the power conferred by Article 246 (1).
Surcharge is a methodology for raising additional revenue and has nothing to do with the leviability of the tax or the assesses liability to pay the tax.
NCCD as a surcharge and Article 271 :
The legality of such surcharge is to be tested independent of the tax and must be traced to Article 271 eventually.
The levy of the surcharge i.e., NCCD by way of provision of the Finance Act, though is described as a duty of excise, is legally speaking a self-contained levy which stands independent of the duty.
Article 271 provides for levy of surcharge, which reads as follows:
“271. Notwithstanding anything in Articles 269 and 270, Parliament may at any time increase any of the duties or taxes referred in those articles except for the goods and services tax under Article 246-A by a surcharge for purposes of the Union and the whole proceeds of any such surcharge shall form part the Consolidated Fund of India.”
Though the NCCD is a surcharge by way of duty of excise, its validity rests on the validity of the provision of the Finance Act of 2001 and has nothing to do with the validity of leviability of the duty of excise. As noted supra, in the case of The Madurai District Central Co-operative Bank Ltd. v. The Third Income Tax Officer, Madurai reported in (1975) 2 SCC 454 the Apex Court has clarified the legal position and upheld the validity of imposition of surcharge by way of provision in the Finance Act and accordingly, levy of surcharge by way of provision under the Finance Act of 2001 is not open to be questioned.
Article 271 is also clear and provides for increase in duty or taxes by a surcharge.
The only bar under Article 271 is that the surcharge contemplated excludes the surcharge as regards the Goods and Services Tax under Article 246A. In the present case, the surcharge is by way of duty of excise and accordingly, cannot be construed to be a surcharge as regards Goods and Services Tax as contemplated under Article 246A.
The interpretation of the petitioners that surcharge cannot be levied under Article 271 as regards those goods and services which are included under Article 246A is liable to be rejected as no such restriction could be placed on a plain reading of Article 271 which provides that surcharge could be levied at any time to increase duties or taxes. In fact, surcharge being imposed by way of the Finance Act has nothing to do with surcharge on GST that may still be levied. As levy under Article 246 is permissible even after introduction of Article 246A, the levy of surcharge tracing power under Article 271 would still subsist even if the goods are subjected to levy of goods and services tax under Article 246A.
Levy of NCCD during the period of Exemption of Excise Duty :
Insofar as petitioner’s contention that the exemption of Excise Duty by virtue of Notification No. 11/2017 would result in NCCD being inapplicable at least till 06.07.2019 whereby Notification 2/2019 introduced nominal Excise Duty also requires to be rejected.
The levy of NCCD is to be construed to be independent of the levy of basic Excise Duty in light of the discussion supra.
It must be noted that the argument of the petitioner while relying on the judgment in Bajaj Auto Ltd. case has been clarified by the judgment of the Apex Court in Unicorn Industries Vs. Union of India (2020) 3 SCC 492 where Apex Court has declared the judgment in Bajaj Auto to be per incuriam. It was also held by the Apex Court that the judgment in Union of India Vs. Modi Rubber Ltd., (1986) 4 SCC 66 was not considered earlier in Bajaj Auto and in S.R.D. Nutrients v. CCE (2018) 1 SCC 105. In the case of Modi Rubber it was clearly held that the exemption of Excise Duty under the Act of 1944 could not be extended to exempt the levy introduced by the Finance Act.
The Exemption notification No. 11/2017 dated 30.06.2017 exempts the excisable goods from so much of the duty of excise specified there on under the said Schedule to the Excise Act, as is in excess of the amount calculated at the rate specified in the corresponding entry in Column (4) of the said Table. Accordingly, as Notification No. 11/2017 does not refer to the exemption of NCCD, the exemption of Excise Duty cannot be extended to NCCD as well which interpretation would flow from the law laid down in the case of “Modi Rubber” as well as the detailed discussion in the Unicorn Industries case. Accordingly, though the Notification No.2/2019 dated 06.07.2019 reintroduced a nominal basic Excise Duty, the levy during the period of 30.06.2017 and 06.07.2019, is not disturbed and accordingly the relief sought for in by the petitioners for refund of NCCD during such period is liable to be rejected. It must further be noted that even though NCCD is in the nature of duty of Excise and may be construed to be an additional duty, yet it is an independent levy and exemption granted on Excise Duty cannot prohibit imposition of other additional duties or levy and accordingly there is no bar for operation of NCCD.
Levy of basic excise duty and NCCD is violative of Article 14 of the Constitution of India :
At the outset, it needs to be noted that the petitioner has not raised any contentions in the pleading regarding the attack of the levy of basic duty and NCCD on the ground of it being violative of Article 14 of the Constitution of India. It is only in the written submission that such contention has been raised.
The case that is made out is that tobacco and tobacco products are the only category of goods which are subject to indirect taxes under two regimes viz., GST Regime and Excise Regime.
Grounds of challenge are:
