South Eastern Coalfields Limited Vs Commissioner (Audit) (CESTAT Delhi)
Introduction: In a significant case heard by the Hon’ble CESTAT, Delhi, the question of imposing Clean Energy/Environment Cess (CEC) on the closing stock of coal as of June 30, 2017, took center stage. The dispute revolved around the interpretation of the Taxation Amendment Act, 2017, and its applicability post-GST.
Detailed Analysis: The crux of the matter was whether the liability for CEC was incurred on the closing stock of coal despite the repeal of CEC provisions from July 1, 2017.
The Department argued that though the provisions relating to levy of CEC were repealed w.e.f. 01.07.2017, the liability of CEC had been incurred and accrued on production of coal and was therefore saved by Section 18(2) of the Taxation Amendment Act, 2017, particularly in view of the decision of the Hon’ble Supreme Court in Collector of C. Ex, Hyderabad v Vazir Sultan Tobacco Co Ltd, 1996 (83) ELT 3 (SC).
The Assessee Appellant contended that the liability of CEC did not crystallize till the date of repeal of the CEC and, therefore, the question of it being saved by the savings clause is misconceived. Reliance was placed on a catena of judgments to emphasize that Removal of Excisable Goods is the essence of crystallization of the duty charge which was evident from Rule 4 of the CEC Rules. It was submitted that the judgment of Apex Court in Vazir Sultan Tobacco Co was not applicable to the facts of the case.
The Hon’ble Bench while extensively dealing with the provisions of Section 83 of the Finance Act, 2010, whereby the CEC was introduced, the CEC Rules, Section 3 and 4 of the Central Excise Act, 1944, the Section 18 and 19 of the Taxation Amendment Act and a catena of judgments observed that the test to determine whether the liability has been incurred or not would be to see whether there is a corresponding right available to enforce such liability. The Hon’ble Bench further observed that manufacture or production solely would not be sufficient to say that liability of Excise has been incurred, removal of goods is also equally important and it is the point of time of removal of excisable goods when the liability to pay duty is incurred resulting in a corresponding right to the Department to take steps for recovery, if the same is not discharged. The Hon’ble Bench distinguished the judgment of Vazir Sultan Tobacco Co Ltd on facts of the case in hand and held that neither Section 18(2) nor Section 19 of the Taxation Amendment Act 2017 would be of any help to the Revenue.
Conclusion: The CESTAT Delhi’s ruling clarified that Clean Energy Cess on coal closing stock as of June 30, 2017, was not leviable post-GST, emphasizing the significance of goods’ removal for duty liability. The decision provides clarity on the interpretation of relevant legal provisions, setting a precedent for similar cases. The above detailed judgment, in our view, would be useful for entities which are facing similar demand of Clean Energy Cess as well as other Cess and special levies like – National Calamity Contingent Duty (Automobile sector), etc. on closing stock of Excisable Goods as on 30.06.2017.
FULL TEXT OF THE CESTAT DELHI ORDER
South Eastern Coalfields Limited1 has sought the quashing of the order dated 20.04.2022 passed by the Commissioner (Audit), CGST & C. Ex., Raipur2 confirming the demand of Clean Energy Cess3 and ordering for its recovery from the appellant with interest and penalty.
2. The appellant is engaged in the business of mining and selling of coal. Prior to the introduction of Goods and Service Tax4 w.e.f. 01.07.2017 on ‘supply’ of goods under the provisions of the Central Goods and Services Tax Act, 20175, the appellant was discharging the levy of CEC @ Rs. 400 per M.T. on coal under section 83 of Chapter VII of the Finance Act, 20106 read with the Clean Environment Cess Rules, 20107, in addition to the central excise duty which was payable @ 6% ad valorem. Clean Energy Cess was renamed as Clean Environment Cess by the 2016 Finance Act.
3. Section 18(1) of the Taxation Laws (Amendment) Act, 20178 repealed enactments specified in the third column of the Third Schedule w.e.f. 01.07.2017. Chapter VII of the 2010 Finance Act was also included in the Third Schedule. Thus, on repeal of the 2010 Finance Act w.e.f. 01.07.2017, the 2010 Cess Rules that had been framed under the said Act also stood repealed w.e.f. 01.07.2017. However, a new levy of cess, namely, GST Compensation Cess @ Rs. 400 per M.T. was made leviable w.e.f. 01.07.2017 under the provisions of the Goods and Service Tax (Compensation to States) Act, 20179.
4. The appellant claims that it had been paying central excise duty and CEC on the coal removed from the mines till 30.06.2017, and the statutory returns in ER-1 and Form-I were also filed for the month of June 2017. This is not disputed by the department. The dispute in the present case is whether CEC would be payable on the stock of coal lying with the appellant on 30.06.2017. The appellant claims that since on 30.06.2017 no ‘removal’ of coal took place within the meaning of rule 4 of the 2010 Cess Rules, the appellant was not required to pay CEC. The appellant also did not pay the central excise duty on the said stock of coal. There is, however, no dispute with regard to non-payment of central excise duty. According to the appellant, when the coal was removed from the mines on or after 01.07.2017, rule 4 of the 2010 Cess Rules stood repealed with the repeal of the 2010 Finance Act, 2017. The appellant, however, paid the applicable GST and GST Compensation Cess, as and when the coal was supplied within the meaning of the CGST Act.
5.The department believed that although the provisions relating to levy of CEC were repealed w.e.f. 01.07.2017 by virtue of section 18(1) of the Taxation Amendment Act, the liability of CEC @ 400 per M.T. had accrued on the stock of coal lying on 30.06.2017 by virtue of the savings clause contained in section 18(2) of the 2017 Taxation Amendment Act. Thus, CEC was recoverable on the stock of coal that was lying in balance with the appellant as on 30.06.2017.
6. Accordingly, a show cause notice dated 25.06.2019 was issued to the appellant on the grounds that:
(i) The leviability of CEC accrued on the stock of coal held by the appellant on 30.06.2017 as the taxable event of production of coal had happened on the said date, and by virtue of savings clause under section 18(2) of the 2017 Taxation Amendment Act, CEC would be recoverable on the removal of coal stock available as on 30.06.2017;
(ii) The appellant did not file the return in Form I for the period after June 2017 onwards showing details of the coal removed that was produced on or prior to 30.06.2017. The appellant was obligated to comply with the procedure of payment of CEC on removal of such coal on or after 01.07.2017; and
(iii) No exemption parallel or similar to Notification No. 12/2017-CE has been issued to exempt CEC.
7. The appellant filed a detailed reply denying the allegations made in the show cause notice.
8. The Commissioner, however, confirmed the demand holding that:
(i) CEC is leviable at the time of production of coal and there is no ambiguity in the provisions contained in section 83(3) of the 2010 Finance Act;
(ii) The contention of the appellant that CEC is leviable on removal of coal as per rule 4 of the 2010 Cess Rules is not correct. The provisions of section 83(3) of the 2010 Finance Act shall prevail over the 2010 Cess Rules. CEC is leviable on the incidence of production of coal, though it is payable on its removal;
(iii) The saving clause under section 18(2) of the 2017 Taxation Amendment Act provides that the leviability of CEC accrued on the production of coal lying in stock on 30.06.2017 shall not be affected despite the repeal by section 18(1) of the said Act; and
(iv) The appellant failed to file periodical returns under rule 11 of the 2010 Cess Rules and also failed to assess the liability towards CEC on stock of coal as on 30.06.2017.
9. Shri Rajeev Kumar Agarwal, learned counsel appearing for the appellant made the following submissions:
(i) Liability to pay CEC did not accrue on 30.06.2017. Hence, saving clause under section 18(2) of the 2017 Taxation Amendment Act would not be applicable. CEC is payable only at the time of removal of coal in terms of rule 4 of the 2010 Cess Rules. It is an admitted position that the demand of CEC has been raised on coal stock lying on 30.06.2017 which had not been removed on that date;
(ii) The savings clause contained in section 18(2) of the 2017 Taxation Amendment Act is also of no relevance. When CEC itself has not crystallized/accrued, the question of it being saved by the savings clause is misconceived. On the date when the coal was subsequently removed on or after 01.07.2017 from the mines, the statutory provisions for levy of CEC stood repealed. In other words, when rule 4 and rule 6 of the 2010 Cess Rules were not in existence in July 2017, no liability for payment of CEC arose in the GST regime;
(iii) The provisions contained in the savings clause are only relevant to enforce the recovery of the duty amount which has already accrued, but had not been paid by the appellant;
(iv) Even otherwise, the charging section under 83(3) of the 2010 Finance Act is not attracted in the case of the appellant as coal was neither produced nor manufactured. Coal is formed naturally without any human intervention and the appellant cannot, therefore, be said to have produced coal. The only act done by the appellant is to have raised the coal;
(v) A reasonable conclusion that can, therefore, be drawn is that the appellant was legally not required to take support of the Notification No. 12/2017-CE to claim any exemption from payment of central excise duty liability, as no liability had actually arisen under the Central Excise Act as on 30.06.2017 in the absence of removal of goods; and
(vi) Penalty is not imposable.
10. Shri Ajay Jain, learned special counsel and Shri Rakesh Agarwal, learned authorized representative appearing for the department, however, made the following submissions:
(i) CEC was a cess which was leviable under the 2010 Finance Act on production of coal. The incidence of levy and the incidence of collection are two different events. The leviability accrues with the production of coal by virtue of section 83 of the 2010 Finance Act and the liability to pay cess accrues on the removal of goods from the mine by virtue of rule 4 of the 2010 Cess Rules. Thus, in respect of the coal lying in stock on 30.06.2017, the leviability of CEC had already accrued;
(ii) By virtue of section 18(1) the 2017 Taxation Amendment Act, the provisions contained in Chapter VII of the 2010 Finance Act relating to levy of CEC were repealed, but under section 18(2) the liability that had already accrued and the proceedings for collection of these liabilities would not be affected;
(iii) The procedural requirements of assessing the liability under rule 5 of the 2010 Cess Rules and to pay cess at the time of clearance under rule 4 of the 2010 Cess Rules and to file a return under rule 11 will continue in terms of the savings clause contained in section 18(2) of the 2017 Taxation Amendment Act. To support this contention, reliance has been placed on the decision of the Supreme Court in Collector of C. Ex., Hyderabad vs. Vazir Sultan Tobacco Co. Ltd.10; and
(iv) The appellant is not justified in claiming exemption under the notification dated 30.06.2017 as the exemption is only with respect to duty of excise which is leviable under the Central Excise Act. CEC is leviable under the 2010 Finance Act under which CEC leviable as a duty of excise. CEC is, therefore, different from the duties of excise leviable under section 3 of the Central Excise Act, 194411.
11. The submissions advanced by the learned counsel for the appellant and the learned special counsel appearing for the department have been considered.
12. As noticed above, the appellant was discharging CEC @ 400 per M.T. on coal under the provisions of section 83 of the 2010 Finance Act read with the provisions of the 2010 Cess Rules, in addition to the central excise duty which was paid @ 6% ad valorem. GST was introduced w.e.f. 01.07.2017 and in view of the provisions of the section 18(1) of the 2017 Taxation Amendment Act, the levy of CEC under the 2010 Finance Act stood repealed w.e.f 01.07.2017. The 2010 Cess Rules, therefore, also stood repealed. However, GST Compenstation Cess @ 400 per M.T. was made leviable w.e.f. 01.07.2017 under the provisions of the 2017 Compensation Act.
13. The dispute in the present appeal relates to the stock of coal of the appellant as on 30.06.2017, which was subsequently removed by the appellant on or after 01.07.2017. According to the appellant, as the coal was removed on or after 01.07.2017, the appellant would have to pay the applicable CGST and GST Compensation Cess when the coal was supplied. According to the department, as the relevant date for determining the dutiability is the date of production, though the relevant date for payment of duty liability may be the date of clearance, the appellant would have to pay CEC on the stock of coal as on 30.06.2017, even though the stock of coal may have been removed on or after 01.07.2017.
14. To appreciate the contentions, it would be appropriate to reproduce section 83 of the 2010 Finance Act which deals with CEC. It is as follows:
“83. Clean Energy Cess. – (1) This Chapter extends to the whole of India.
(2) It shall come into force on such date as the Central Government may, by notification in the Official Gazette, appoint.
(3) There shall be levied and collected in accordance with the provisions of this Chapter, a cess to be called the Clean Energy Cess, as duty of excise, on goods specified in the Tenth Schedule, being goods produced in India, at the rates set forth in the said Schedule for the purposes of financing and promoting clean energy initiatives, funding research in the area of clean energy or for any other purpose relating thereto.
(4) The proceeds of the cess levied under sub‑ section (3) shall first be credited to the Consolidated Fund of India and the Central Government may, after due appropriation made by Parliament by law in this behalf, utilise such sums of money of the cess for the purposes specified in sub-section (3), as it may consider necessary.
(5) The cess leviable under sub-section (3) shall be in addition to any cess or duty leviable on the goods specified in the Tenth Schedule under any other law for the time being in force.
(6) The cess leviable under sub-section (3) shall be for the purposes of the Union and the proceeds thereof shall not be distributed among the States and the manner of assessment, collection, utilisation and any other matter relating to cess shall be such as may be prescribed by rules.
(7) The Central Government may, by notification in the Official Gazette, declare that any of the provisions of the Central Excise Act, 1944(1 of 1944), relating to levy of and exemption from duty of excise, refund, offences and penalties, confiscation and procedure relating to offences and appeals shall, with such modifications and alterations as it may consider necessary, be applicable in respect of cess levied under sub-section (3).”
15. By a Notification dated 22.06.2010, the Central Government notified 01.07.2010 as the appointed date for coming into force of the provisions of Chapter VII of the 2010 Finance Act.
16. The Tenth Schedule referred to in section 83 is reproduced below:
“The Tenth Schedule
[See section 83(3) and (5)]
Notes:
1. In this Schedule, “Chapter”, “heading”, “sub‑ heading” and “tariff item” mean respectively a Chapter, heading, sub-heading and tariff item of the First Schedule to the Central Excise Tariff Act.
2. The rules for the interpretation of the First Schedule to the Central Excise Tariff Act, the Section and Chapter Notes and the General Rules for the Interpretation of the First Schedule shall apply to the interpretation of this Schedule.
