Introduction:The issue involved in this piece was dealt by us in an earlier article titled “Controversy on Education Cess and Secondary & Higher Education Cess in SS cold rolled Patta/Patti Industries”. Now we are writing another piece discussing the continuing controversy on the issue of inclusion of or non inclusion of Education cess and SHE cess in excise duty under compound levy on SS Patta/patti & Aluminium circles.
Brief History of Compound Levy Scheme: –
Briefly stating the developments, the compound levy was first introduced vide Notification No. 34/2001-CE dated 28.06.2001 for SS patta/patti units. The levy was calculated on the basis of the production capacity of the unit and fixed duty was levied at Rs. 15, 000/- per cold rolling machine per month. At the said time neither Education cess nor SHE cess had been levied.
Education cess at the rate of 2% of the aggregate duties of excise was levied with effect from 09.07.2004. The units operating under compound levy scheme also started to pay the Education cess over and above the excise duty under compound levy scheme.
Thereafter, in the year 2007 the said Notification 34/2001-Ce was superseded by Notification No. 17/2007-CE dated 01.03.2001 and the amount of fixed duty was raised from Rs. 15, 000/- to Rs. 30, 000/-. At that time levy of Education cess was in force.
Secondary & Higher Education cess (SHE cess) was introduced at the rate of 1% of the aggregate duties of excise leviable on the goods. This cess was also paid by the SS Patta/patti units under compound levy scheme over and above the excise duty under compound levy and Education cess levied at the rate of 2%.
Thereafter, in December, 2007, the compound levy scheme for Pan masala and gutkha was floated vide Notification No. 38/2007-CE, dated 19.12.2007. In this Notification, the Central Government specified that the excisable goods, namely, pan masala and pan masala containing tobacco, commonly known as gutkha, which are subjected to the process of filling and packing in pouches with the aid of pouch filling and packing machine, in respect of which an assessee shall have an option to pay the duty of excise on the basis of number of packing machine installed for packing of these pan masala products in his premises and fixed the rate of duty per packing machine per month, based on retail sale price printed on such pouches.
As per the Instructions issued by the Government of India vide F. No. 81/17/2007-Cx. Dated 19-12-2007 for Compounded Levy Scheme on Pan Masala or Pan Masala containing tobacco units, it was clarified that “The duty of excise payable under the scheme includes all duties of excise leviable on the said products like BED, Additional duty of excise, NCCD, Education Cess, etc.”.
Controversy raised: –
Thus, the controversy arose that whether the SS Patta/patti and Aluminium circle units which were paying duty under compound levy and were paying education cess and SHE cess over and above the excise duty fixed under compound levy, where not required to pay the same as the said cesses were included in the excise duty under compound levy. Even the wordings in both the notifications viz. for patta patti and pan masala are identically worded. The para 3 of the Notification no. 17/2007-CE reads as follows:-
“3. Discharge of duty liability on payment of certain sum – (1) A manufacturer whose application has been granted under paragraph 2 shall pay a sum calculated at the rate specified in this notification, subject to the conditions herein laid down, and such payment shall be in full discharge of his liability for duty leviable on his production of such cold re-rolled stainless pattas/patties, or aluminium circles during the period for which the said sum has been paid:”
Thus, it says it is payment of lump sum amount is full discharge of duty liability.
The words in para 2 of the Notification no. 38/2007-CE are as under:-
2. Manner of calculation and discharge of duty liability on payment of certain sum. – (i) The manufacturer to whom permission has been granted under paragraph 1 shall pay a sum calculated at the rate specified in this notification, subject to the conditions herein laid down, and such payment shall be in full discharge of his liability for duty leviable on manufacture of specified goods from the said premises during the period for which the said sum has been paid:
Hence, the wordings in both the notifications are same and as such they will convey the same meaning. Many assessees then took recourse of claiming refund of the education cess. Later on SHE cess paid by them from the time these cesses were levied. They also have refused to pay the said cesses in future. But the Board was not readily going to accept the said stand of the assessee and issued the following Circular.
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The Board then issued Circular No. 27/16/2008-CX.1 dated 28.08.2008 clarifying that
“the rate of duty under the optional compounded levy scheme for stainless steel patta patti and aluminium circles vide Notification no. 17/2007-CE dated 01.03.2007 covers only basic excise duty and does not include the education cess and higher education cess, which are payable over and above the rate of basis excise duty notified by the said notification.”
The Board had relied upon the TRU clarification that increase in amount payable under the compounded levy scheme subsequently is on account of increase in price of stainless steel and aluminium and not because of inclusion of any other levy within the scheme.
Thus, the Board has sought to deny inclusion of Education cess and SHE cess in the excise duty payable under compound levy scheme. However, the circular cannot be said to be applicable to the assessee and they have the liberty to disagree and challenge such Circulars. This has been held in the case of Birla Jute and Industries Ltd. v/s Assistant Collector of C. Ex. [1992 (57) E.L.T. 674 (Cal.)].The Hon’ble High Court of Calcutta had held as under: –
“Departmental circulars and trade notices – Binding on departmental officers but not binding on quasi-judicial authorities and assessees – Court can compel Central Excise officers to comply with such instructions as are for benefit of assessee – Section 37B of Central Excises and Salt Act, 1944 – Rule 233 of Central Excise Rules, 1944.”
Applying the ratio of aforementioned decision, it is ample clear that the Circulars are not binding on the assessees. Similar decision was given in the case of Commissioner of Central Excise v/s Eswaran & Sons Engineers Ltd. [2005 (179) E.L.T. 272 (S.C.). Even the latest decision of Apex Court in Commissioner of Central Excise, Bolpur v/s Ratan Melting and Wire Industries [2008 (231) ELT 0022 (SC)] has held that even the Board circular are not binding on departmental officers also if they are going against statutory provisions.
Thus, the dispute was going on. Even the Commissioner (Appeal), Jaipur-II vide its order-in-appeal No. 12 (DK) CE/JPR/2009 has allowed the refund on merit in favour of assessee but remanded the matter to the adjudication officer to decide about the unjust enrichment as well as time barred issue. As usual, the department has filed the appeal against the same before the tribunal and matter is still pending before the tribunal.
The Board has issued Circular No. 921/11/2010-CX on 10.05.2010 clarifying again that –
“the education cess and higher education cess would be required to be paid on SS Patta Patti and Aluminium Circles, covered by the compound levy over and above the notified Central Excise duty as the same has not specifically been included in the compound levy amount specified in the relevant notification. Moreover, there is no exemption provided for the same. The comparison with compound levy scheme in respect of PanMasala/Gutkha etc. is erroneous as the two schemes are covered under different notifications. Whereas the notification No. 42/2008-CE dated 1.7.2008 in respect of Pan Masala/Gutkha specifically includes the Education Cess and Higher Education Cess in the amount fixed under compound levy scheme, there is no such stipulation in the scheme in respect of Stainless Steel Patta Patti and Aluminium Circles in the Notification No. 17/2007-CE dated 1-3-2007.”
Thus, it was clarified that the Education cess and SHE cess will be payable over and above the duty fixed under Compound Levy Scheme by the SS Patta/Patti and Aluminium Circles.
It was also clarified that the compound levy scheme in respect of PanMasala/Gutkha etc. was not comparable to compound levy scheme in respect of SS Patta/Patti and Aluminium Circles.
Further, it was clarified that the Education cess and SHE cess was included in the total duty chargeable under compound levy only for PanMasala/Gutkha manufacturing units. But no such stipulation was there in the scheme floated for SS Patta/Patti and aluminium circle manufacturing units.
This is the second circular issued by the Board denying the inclusion of Education cess and SHE cess amount in duty payable under compound levy scheme in respect of SS Patta/Patti and aluminium circle manufacturing units.
These circulars cannot be said to be having binding effect was they are contrary to the clear provisions of the Notification governing the compound levy scheme for SS Patta/Patti and aluminium circle. Moreover, the circular will not be binding on the departmental officers also as per Apex Court clear verdict cited supra.
Issues involved: –
First Issue – It is required to be seen as to what it means by compound levy? The dictionary meaning of the word ‘Compound’ is amalgam or composite. Thus, the compound levy is required to be an amalgamation of all the duties leviable but the stand taken by the Department in interpreting the Notification relating to compound levy on patta/patti and aluminium circles is not bearing the same meaning. Then why was there a need to introduce such compound levy scheme when it does not cover all the duties of excise leviable on the said products.
Second Issue – Both the Notifications i.e. the Notification in respect of SS Patta/patti & Aluminium circles and the Notification in respect of Pan Masala & Gutkha have the same language. There is not a difference of any kind in the said provisions. Then how can it be said that the interpretation applicable to one Notification can not employed for interpreting the other Notification.
Third Issue – The next issue involved is that at the time of supercession of Notification No. 34/2001-CE by Notification No. 17/2007-CE when the fixed duty under Compound levy was increased from Rs. 15, 000/- to Rs. 30, 000/-, why was not the issue of inclusion of the Education cess in the duty under compound levy was not considered by the Board.
Before Parting: –
The Department is not ready to accept the clear and unambiguous language contained in Notification No. 17/2007-CE. The Board in the Circular No. 921/11/2010-CX dated 10.05.2010 has clarified that there is no stipulation of including Education cess and SHE cess in the duty levied under Compound levy for SS patta/patti & Aluminium circles. Except for the name of the goods, every word in the Notifications No. 17/2007-CE and Notification No. 42/2008-CE are the same. There is no change. Then how can the same notifications be interpreted in two different ways by the Department and by the Board is not clear.
It is clear from the above the dispute will go on and it will not finalized before Apex Court. Even the authors fear that if the same is settled by Apex Court then the Board may come up with the retrospective amendment. But we should not comment on future as we have seen that we have been proved wrong on issue of Cenvat credit of building materials. But we pray to God that we must be proved wrong so that dispute is resolved amicably in favour of assessee.
CA Pradeep Jain,
Sukhvinder Kaur, LLB [FYIC]