Clean Energy Cess leviable even after introduction of GST

Jharkhand High Court held that Clean Energy Cess is leviable even after introduction of GST. Accordingly, demand of Clean Energy Cess upheld.

Facts-

The petitioner is a subsidiary of Coal India Limited and is a Category-I Mini Ratna Company since 2007. Vide the present writ petition, the petitioner has challenged the order passed by respondent no. 3, wherein, the respondent no. 3 has confirmed the demand of Clean Energy Cess amounting to Rs. 470,83,42,400/- u/s. 11(A) of the Central Excise Act, 1944 read with Rule 6(5) of the Clean Environment Cess Rules, 2010 along with interest u/s. 11AA/11AB of the Central Excise Act, 1944 and penalty u/s. 11AC of the Central Excise Act, 1944.

The case of the petitioner is that with the introduction of GST, the levy of clean energy cess was replaced by the GST Compensation Cess under the Goods & Services (Compensation to States) Act, 2017. Accordingly, petitioner has undisputedly paid the GST Compensation Cess on all clearances made post 01.07.2017.

Conclusion-

Held that the Revenue is right is demanding the tax on production which was lying on stock as on the date of amendment and repeal of Clean Energy Cess for the sole reason that the taxable event was production and only the payment was deferred at the time of Removal. We hold that by virtue of Section 83(3) playability is created; and only the payment is deferred to be done in the manner provided in Rule 4 & 6. Accordingly, Issue No.(i) is decided in favour of Revenue.

The present case is an interpretational issue and petitioner was paying GST Compensation Cess with a bona-fide belief that Clean Energy Cess was not payable. Further, the petitioner has been filing regular returns under GST law for all the supplies of coal made after introduction of GST. Petitioner was not filing returns under Clean Energy Cess Rules with a bona fide belief that Clean Energy Cess was not payable. Further, these facts were in the knowledge of the respondents; however, despite said facts being in the knowledge of the respondents, show cause notice was issued almost after two years from the date Clean Energy Cess was repealed. Thus, as aforesaid, since the instant case involves an interpretational issue, therefore in such circumstances, no penalty under Section 11AC can be levied as demand of Cess under the extended period of limitation is unsustainable.

FULL TEXT OF THE JUDGMENT/ORDER OF JHARKHAND HIGH COURT

Heard learned counsel for the parties.

2. The petitioner has prayed for the following reliefs:

(i) For issuance of appropriate writ(s)/order(s)/, direction(s) quashing the order dated 29/09/2020 (Annexure-3) passed by Principal Commissioner, Goods & Services Tax-CX whereby and where under the contentions of the petitioner were rejected and a demand against Clean Environment Cess of Rs. 470,83,42,400 was confirmed by Respondent No.3 and to be recovered from the petitioner along with an equivalent penalty imposed under Section 11AC of the Central Excise Act, 1944 read with Clean Energy Cess Rules, 2010 on the alleged closing stock of coal on June 30, 2017 and all the purported proceedings there under and/or relating thereto and/or in pursuance thereof and to act according to law;

And;

(ii) For issuance of appropriate writ(s)/ order(s), direction(s) for any Injunction restraining the respondents and each of their servants and/or agents and/or assignees to forebear from giving any effect and/or further effect to and/or acting on the basis of and/or in furtherance of the purported order dated 29/09/2 020 and/or any purported proceedings there under and/or relating thereto and/or in pursuance thereof;

And;

(iii) During the pendency of this present writ application, it is humbly prayed that the operation of the order dated 29/09/2020 may be stayed.

3. The brief facts of the case as it appears from the writ application is that the petitioner is a subsidiary of Coal India Limited and is a Category-I Mini Ratna Company since 2007. In the instant writ petition the petitioner has challenged the order dated 29.09.2020 passed by respondent no. 3(Annexure­3). By the said order, respondent no. 3 has confirmed the demand of Clean Energy Cess amounting to Rs. 470,83,42,400/- under Section 11 (A) of the Central Excise Act, 1944 read with Rule 6(5) of the Clean Environment Cess Rules, 2010 (herein after to be referred as Cess Rules) along with interest under Section 1 1AA/1 1AB of the Central Excise Act, 1944 and penalty under Section 1 1AC of the Central Excise Act, 1944.

The case of the petitioner is that with the introduction of GST, the levy of clean energy cess was replaced by the GST Compensation Cess under the Goods & Services (Compensation to States) Act, 2017. Accordingly, petitioner has undisputedly paid the GST Compensation Cess on all clearances made post 01.07.2017.

4. Learned counsel for the petitioner has assailed the impugned order dated 29.09.2020 on following grounds: –

(i) Cess is payable on removal. Since, on the date of removal, the rate of Clean Energy was not prescribed, there was no requirement to pay the Cess.

(ii) The Clean Energy Cess Rules stands repealed and in absence of any saving provision, the levy of Clean Energy Cess is invalid.

(iii) In the absence of any power given to borrow the recovery provision, Cess cannot be recovered.

(iv) Petitioner is paying Compensation Cess on the coal supplied post 01.07.2017. The levy of cess twice over on the same transaction is ex facie unsustainable and manifestly

(V) The findings of suppression and intent to invade tax is without any basis.

5. In support of ground No. I, learned counsel submitted that as per Rule 4 of the Cess Rules, the Cess is payable on the removal of specified goods in the manner specified in Rule 6. It has been further submitted that Rule 5 of the Central Excise Rules, 2012 provides that the rate of duty applicable to any excisable goods shall be the rate in force on the date such goods are removed from the factory.

In terms of the above Rules, in the event of increase in the rate of Clean Energy Cess, the petitioner was paying the Cess at the increased rate for the coal lying in stock as on the date of rate change. This is explained in the table below:

It has been submitted that each time when the rate increased, petitioner was paying the Cess at the increased rate applicable on the date of removal for the goods lying in stock on the date of rate change. This payment was duly accepted by the revenue and no dispute was ever raised in this regard.

Learned counsel specifically contended that w.e.f. 01.07.2017, no rate of Cess is prescribed since Chapter VII of the Finance Act along with its Tenth Schedule is repealed. Therefore, since no rate is prescribed on the date of removal for the goods lying in stock as on 01.07.2017, no amount of Cess is payable. Thus, the demand of Clean Energy Cess is illegal and unsustainable.

6. For ground No. II, learned counsel contended that Chapter VII of Finance Act, 2010 providing for the levy for clean energy cess was repealed vide Section 18(1) of the Taxation Laws (Amendment) Act, 2017. It has been submitted that once the parent act is repealed, the rules/sub­ordinate legislation ceases to have any validity, unless the repealing act specifically saves the rules. In support of this contention learned counsel referred to the judgment reported in Air India v. Union of India & Ors, (1994) 4 SCC 734, Para 6-8; Watson v. Winch, [1916] 1 K.B. 688].

It has also been submitted that Section 18(2) of the Taxation Laws Amendment Act, 2017 does not specifically save the Cess Rules and Notification No. 2/2010-Clean Energy Cess, dated 22.06.2010 (i.e., the Notification borrowing the provisions of Central Excise Act, 1944 for recovery, interest etc.). Therefore, the Cess Rules and the said Notification ceased to have any validity w.e.f. 01.07.20 17.

Learned counsel further contended that the Cess Rules and Notification No. 2/20 10 would not be saved by virtue of Section 6 of General Clauses Act, 1897 as Section 6 is only applicable to repeal of enactments and it does not save any delegated legislation. In this regard, he referred the judgments rendered in Kolhapur Canesugar Works Ltd. V. Union of India (2000) 2 SCC 536, Para 32; Punjab National Bank v. Union of India, (2022) 7 SCC 260, Paras 41-41.3). Thus, in absence of the Rules, there is no machinery provisions inter alia to demand, collect and recover Cess.

Mr. Laxmi Kumaran contended that the impugned order confirms the demand of Cess under Section 1 1A of Central Excise Act, 1944 and Rule 6(5) of the Cess Rules. Firstly, Notification No. 2/2010-Clean Energy Cess which borrows Section 1 1A of the Central Excise Act, 1944 stood repealed by virtue of repeal of Chapter VII of the Finance Act, 2010. Secondly, the Rule 6(5) of the Cess Rules also stood repealed. Therefore, the impugned order has no legs to stand in the eye of law. The entire demand is without any authority of law and ex facie unsustainable.

It is further submitted that in absence of machinery provisions for payment, collection, demand etc., the levy of Clean Energy Cess is unsustainable. He further relied upon the decision rendered in the case of Commissioner of Income Tax, Bangalore v. B. C. Srinivasa Setty, (1981) 2 SCC 460, Para 10, Tata Sky Ltd. V. State of MP, (2013) 4 SCC 656, Paras 30-31.

7. In support of ground No. III, learned counsel submitted that the demand in the present case has been confirmed under Section 1 1A of the Act read with Rule 6(4) of the Cess Rules. Further, the demand of interest has also been confirmed under Section 1 1AB/present section 1 1AA of the Central Excise Act; which is not sustainable in the eye of law, for the reason that in absence of any power given to borrow the recovery provision, Cess cannot be recovered

8. In support of ground No. IV, learned counsel submitted that for all the supplies made w.e.f. 01.07.2017, petitioner is paying GST Compensation Cess at the rate of Rs. 400 per tonne. The demand in the instant case is on the coal lying on stock as on 30.06.20 17 and removed subsequently. In the event Clean Energy Cess is paid on such coal, this would result in payment of both Clean Energy Cess and GST Compensation Cess on the same transaction twice over.

He further contended that as per Section 83(3) of the Finance Act, 2010, Clean Energy Cess is levied for the purposes of financing and promoting clean energy initiatives, funding research in the area of clean energy; whereas, GST Compensation cess is leviable under the Goods & Services Tax (Compensation to States) Act, 2017 is levied to provide for compensation to States for the loss of revenue arising on account of implementation of GST.

In this regard, it is submitted that the amount collected as Clean Energy Cess has been diverted for the purposes of compensating the States for the loss on account of implementation of GST. It is noted that National Clean Energy Fund (‘NCEF’) was constituted for the purposes of collecting the amount of Clean Energy Cess. It is submitted that Ministry of Environment, Forest and Climate Change in its Thirtieth Report presented to the Lok Sabha on 13.12.20 18 raised concerns that amount collected as Clean Energy Cess has been made part of GST Compensation Fund to compensate the States resulting in shortfall with the NCEF. Learned counsel further referred relevant pages from the Ministry of Environment, Forest and Climate Change’s Thirtieth Report dated 13.12.2018.

It is further submitted that had the legislature intended to levy Clean Energy Cess and GST Compensation Cess on the same transaction, the legislature would not have repealed the Chapter VII of the Finance Act, 2010. Therefore, the intention of legislature was to replace Clean Energy Cess with GST Compensation Cess. This is evidenced from the fact that the amount collected as Clean Energy Cess has been diverted for the objectives of GST Compensation Cess. Thus, GST Compensation Cess and Clean Energy Cess cannot be levied on the same transaction.

9. In support of ground No. V, learned counsel submitted that the respondent no. 3 has confirmed the demand by invoking extended period of limitation. The impugned order notes that there was a deliberate intent to evade the taxes. Learned counsel contended that the present case is an interpretational issue and petitioner was paying GST Compensation Cess with a bona-fide belief that Clean Energy Cess was not payable. Further, the petitioner has been filing regular returns under GST law for all the supplies of coal made after introduction of GST. Petitioner was not filing returns under Clean Energy Cess Rules with a bona fide belief that Clean Energy Cess was not payable. It has been submitted that these facts were in the knowledge of the respondents; however, despite said facts being in the knowledge of the respondents, show cause notice was issued almost after two years from the date Clean Energy Cess was repealed. Therefore, issuance of show cause notice dated 15.03.2019 is clearly an afterthought. Since, the instant case involves an interpretational issue, therefore in such circumstances, no penalty under Section 1 1AC can be levied. Therefore, demand of Cess under the extended period of limitation is unsustainable.

Further, as the allegation of suppression and wilful intent to evade tax is baseless and incorrect, penalty under Section 1 1AC(1)(c) of the Central Excise Act, 1944 cannot be imposed.

Relying upon the aforesaid submissions, Mr. Kumaran, learned counsel for the petitioner submits that the impugned order is unsustainable and deserves to be quashed and set aside.

10. Mr. Anil Kumar, learned ASGI appearing for the respondents has made the following submissions:

(i) As per Section 83, the levy of duty is on the production of Rules 4 & Rule 6 of Cess Rules specifies the procedure that the Cess is payable by 5^th of the second month. The Rule does not specify that the Cess is to be paid at the rate applicable at the time of removal. Therefore, respondent had the power to levy and collect Clean Energy Cess on the coal lying in stock as on 30.06.20 17. Learned ASGI further relied upon the judgment rendered in the case of MOHIT MINERALS PVT LTD. Versus UNION OF INDIA 2017 (4) G.S.T.L. 114 (Del.) pronounced by the Hon’ble HIGH COURT OF DELHI. He has fairly submitted that though this case was regarding constitutional validity of Compensation Cess Act’ 2017 but on going through this case law, it can be gathered that there is no ambiguity regarding live ability of Clean Energy Cess (Clean Environment Cess) on the coal lying in stock on 30.06.20 17.

(ii) He further submits that Section 6 of the General Clauses Act will save the Cess Rules as Regulation include Rules, inasmuch as, levy is already created by section 83(3) of finance act, 2010 on production of coal before 01-07-2017. Learned counsel for the respondents also relied on the decision of Hon’ble Supreme Court in the case of Gammjon India Ltd. V. Spl. Chief Secretary and (2006) 3 SCC 354

(iii) Learned ASGI further contended that Section 18(2) of the Taxation Laws (Amendment) Act, 2017 would save the liabilities already acquired, accrued or incurred. Therefore, the Cess will be payable on coal produced before 01.07.2017. Since the repeal of Clean Energy Cess (Chapter VII of Finance Act, 2010) was effective from 01-07-2017, any liability of CEC accrued on the production of Coal as on 30-06-20 17 was payable in terms of the saving clause mentioned above. Therefore, the contention of the petitioner that the interpretation placed on the Act of 2017 [Taxation Law (Amendment) Act, 2017] saving clean energy cess is inherently faulty, is not sustainable in eye of law. The issue of payment of Clean Energy Cess on the stocks of coal as on 30-06- 2017 has been settled by the Hon’ble Apex Court in the case of (Mohit Minerals) Pvt Ltd 2018(17) GSTL 561 (SC).

He further contended that the exemption Notification No. 12/2017-Central Excise dated 30-06-2017 exempts all excisable goods [except petroleum crude, high speed diesel, motor spirit, natural gas, aviation turbine fuel, tobacco and tobacco products] from the whole of the duty of excise leviable thereon under the said Central Excise Act 1944 that have been manufactured on or before 30^th June, 2017 but not cleared from the factory of production before the 1^st July, 2017. But the Clean Energy Cess is a ‘Cess’ leviable under Section 83(3) of the Finance Act, 2010 and it is not a duty of excise leviable under Central Excise Act, 1944. The Clean Energy Cess was neither exempted vide notification No. 12/2017- CE dated 30-06-20 17 nor vide any other notification.

From perusal of Section 18(2), it is clear that such repeal, as laid down in Section 18(1), shall not affect obligations and liabilities. The non-obstante clause used in Section 18(2) of the Taxation Laws (Amendment) Act, 2017 clearly establishes its overriding effect over any other Law particularly repeal made under Sub Section (1) of Section 18. It signifies that in spite of repeal made in Sub Section (1) the validity, invalidity, effect or consequences of anything already done or suffered or any right, title, obligation or liability already acquired, accrued or incurred or any remedy or proceeding in respect thereof, or any release or discharge of or from any debt, penalty, obligation, liability, claim or demand, or any indemnity already granted, or the proof of any past act or thing under the repealed enactment. On 30-06-20 17, the coal has already been produced and as such liability has already been accrued for payment towards clean energy cess and the same has been protected/saved under the non-obstante clause used under Section 18(2) Taxation Laws (Amendment) Act, 2017. Accordingly, there is no illegality in passing the impugned order. As the clean environment cess was already levied on the coal being produced and held in stock on 30.06.20 17; and hence the demand of clean environment cess on the closing stock of specified goods as on 30.06.20 17 is legal and sustainable and the contention of the petitioner is incorrect.

(iv) Further, the Notification No. 2/2010-Clean Energy Cess Borrows Section 1 1A and Section 1 1AA. Therefore, provisions pertaining to interest and recovery have been borrowed.

(v) Learned ASGI also contended that the Cess is distinguishable from excise duty. Therefore, exemption under Notification No. 12/2017-Central Excise will not be applicable to the petitioner. In this regard he relied upon the decision of learned CESTAT in the case of M/s. ACC Ltd. V. Commissioner of C.G.ST & CE. 2019 (31) G.S.T.L 103 (Tri-Del).

(vi) He lastly submits that Section 5 of the Central Excise Act, 1944 provides for remission of duty on excisable goods which are found deficient in quality or destroyed due to natural causes. As there is a provision for remission for goods lost or destroyed within factory. Petitioner’s argument that duty is payable on removal of goods cannot sustain.

Relying upon the aforesaid submissions, learned ASGI prays for dismissal of the instant writ application.

11. Having heard learned counsel for the rival parties and after going through the documents annexed with the respective affidavits and the averments made therein following issues arise for consideration before us:-

(i) Whether the Revenue is entitled to levy Cess under Clean Energy Cess’2010 which has been repealed by the GST Compensation Cess under the Goods & Services (Compensation to States) Act, 2017 ?

(ii) If the Revenue is entitled to levy Cess under Clean Energy Cess’2010 then as to whether in the facts and circumstance of this case the Revenue can take recourse of first proviso to section 11A(1)/ section 11A(4) on the ground of suppression, fraud etc. ?

(iii) If the Assessee is liable to pay Cess under Clean Energy Cess’2010 then as to whether he is also liable to pay interest & penalty over the Cess amount ?

12. At the outset, it is specified that as per Article 265 of the Constitution, no tax shall be levied or collected except by the authority of law. It may be noted that Entry 84, List 1 of the Constitution was amended by Section 17 of the Constitution (101^st Amendment) Act, 2016. Prior to the 101^st Amendment Act Entry 84, List I empowered Union to levy and collect duties of excise on tobacco and other goods manufactured in India.

However, subsequent to the amendment to the Constitution, Entry 84, List I was amended to include duties of excise only on petroleum crude, high speed diesel, motor spirit, natural gas, aviation turbine fuel, tobacco and tobacco products. Chapter VII of Finance Act, 2010 providing for the levy for clean energy cess was repealed vide Section 18(1) of the Taxation Laws (Amendment) Act, 2017. Thus, to decide the issues involved in the instant writ application it is necessary to examine Section 83 of the Finance Act’2010. For ready reference, the same is quoted herein below: –

“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 the 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).”

13. From bare perusal of the aforesaid section, it appears that Section 83(3) of Chapter VII of Finance Act, 2010 itself provides for “Levy , “Collection” and “Rates of Tax” at Tenth Schedule. As per Section 83, the levy of duty is on the production of Coal. The taxable event is production of coal and not its removal. Further, the Finance Act, 2010 itself provides for “Collection” and “Rates of Tax”. Rules 4 & Rule 6 of Cess Rules specifies the procedure that the Cess is payable by 5^th of the second month. The Rule does not specify that the Cess is to be paid at the rate applicable at the time of removal. Therefore, prima-facie it appears that respondent

had the power to levy and collect Clean Energy Cess on the coal already produced and lying in stock as on 30.06.2017.

To substantiate the aforesaid view, few aspects is to be seen. Section-3 of the Central Excise Act, 1948 stipulates about levy of duty. In other words, levy is created by section-3 of the Central Excise Act itself and the collection of the same is regulated by the Rules. Thus, taxable event for Central Excise is manufacture or production of Goods and not the removal of Goods. In other words, the moment the goods are manufactured, the levy becomes payable; thus, in the case at hand, the Coal produced on or before 01.07.2017 but cleared thereafter, would be liable for Tax.

In this regard, reference may be made to the Judgment rendered in the case of CCE v. Vazir Sultan Tobacco Co. Ltd., (1996) 3 SCC 434. Relevant paragraphs are extracted herein below:-

“7. The expression ‘prescribed’ is defined in clause (g) of Section 2 to mean prescribed by Rules made under the Act.

8. It is evident that the words “in such manner as may be prescribed” qualify the word ‘collected’ and not the word ‘levied’. While the levy is created by Section 3 itself, the collection of the duty is left to be regulated by the Rules made under the Act.

11. Shri Vellapally contended that if the above interpretation is adopted, it may lead to an enigmatic situation. He explains his apprehension thus: the special excise duty is levied only for the period 1-3-1978 to 28-2 -1979. Take a case where the goods are manufactured on or before 28-2-1979 are removed on or after 1-3-1979, what would be the rate of duty (and which would be relevant date for valuation purposes); the assessee may say that on the date of removal, neither the levy is in force nor are Rules 9 and 9-A and, hence, he need not pay any special excise duty on such goods. We do not see any valid basis for this apprehension. In the situation contemplated by Shri Vellapally, the date of removal has to be taken as 28-2-1979. It cannot be otherwise. If Rules 9 and 9-A are held inapplicable, it would logically follow that the moment the goods are manufactured, the levy becomes payable and,  in the circumstances, the last date of levy can reasonably be taken to be the date of Of course, an absurd consequence would follow if it is held that in the above situation, no special excise duty is payable if the removal is on or after 1-3- 19 79. Such an absurd consequence could not be presumed to have been intended by Parliament.

12. We are of the opinion that Section 3 cannot be read as shifting the levy from the stage of manufacture or production of goods to the stage of removal. The levy is and remains upon the manufacture or production alone. Only the collection part of it is shifted to the stage of removal. Once this is so, the fact that the provisions of the Central Excise Act are applied in the matter of levy and collection of special excise duty cannot and does not mean that wherever the Central excise duty is payable, the special excise duty is also payable automatically. That is so as an ordinary rule. But insofar as the goods manufactured or produced prior to 1-3-19 78 are concerned, the said rule cannot apply for the reason that there was no levy of special excise duty on such goods at the stage and at the time of their manufacture/production. The removal of goods is not the taxable event. Taxable event is the manufacture or production of goods.

13. In our opinion, the decision in Wallace Flour Mills [(1989) 4 SCC 592 : 1990 SCC (Tax) 10 : (1989) 44 ELT 598] does not lay down a contrary proposition neither does it support the contention of Shri Vellapally. That was a case where the goods were excisable goods prior to 1-3-1987, though by virtue of an exemption notification, the rate of duty was nil. This does not mean that they were not excisable goods. They were excisable goods. Nil rate of duty is also a rate of duty. With effect from 1-3-1987, the said goods became excisable to duty at the rate of fifteen per cent ad valorem. It is in the above circumstances that the Court held, on the basis of Section 3 and Rule 9-A, that though the goods were produced or manufactured prior to 1-3-1987, still they attracted duty at the rate prevailing on the date of their removal, i.e., fifteen per cent. Para 4 clearly brings out the ratio of the said decision. The relevant portion reads: (SCC pp. 594-95, para 4)

“Excise is a duty on manufacture or production. But the realisation of the duty may be postponed for administrative convenience to the date of removal of goods from the factory. Rule 9-A of the said rules merely does that. That is the scheme of the Act. It does not, in our opinion, make removal the taxable event. The taxable event is the manufacture. But the liability to pay the duty is postponed till the time of removal under Rule 9-A of the said Rules. In this connection, reference may be made to the decision of the Karnataka High Court in Karnataka Cement Pipe Factory Industrial Estate v. Superintendent of Central Excise [(1986) 23 ELT 313 (Kant)] where it was decided that the words ‘as being subject to a duty of excise’ appearing in Section 2(d) of the Act are only descriptive of the goods and not to the actual levy. ‘Excisable goods’ it was held, do not become non-excisable goods merely by the reason of the exemption given under a notification. This view was also taken by the Madras High Court in Tamil Nadu (Madras State) Handloom Weavers Cooperative Society Ltd. v. Assistant Collector of Central Excise [(1978) 2 ELT (J) 57 (Mad)] . On the basis of Rule 9-A of the said rules, the Central Excise authorities were within the competence to apply the rate prevailing on the date of removal. we are of the opinion that even though the taxable event is the manufacture or the production of an excisable article, the duty can be levied and collected at a later date for administrative convenience.”

16. Before we conclude, it is necessary to notice a few facts having a bearing upon the relief to be granted in these matters. The special excise duty was being levied from 1963 up to 1971 by various Finance Acts passed from time to time. It was discontinued from 1972 until 1978 when it was revived by the Finance Act, 1978. Thereafter, it was being levied from year to year by annual Finance Acts. The provisions of these Finance Acts, insofar as the levy of special excise duty is concerned, are identical. In the Finance Acts of 1987 and 1988, however, the rate of special excise duty was raised to ten per cent but then notifications were issued exempting the duty on all goods in toto. In other words, with effect from 1-3-1986, there was, in effect, no special excise duty until 28-2-1988. With effect from 1-3- 1988, the duty was again imposed @ 5%, while exempting certain essential commodities and other priority items from the said impost. We have held hereinabove that the goods manufactured/produced before 1 -3-1978 but cleared on or after 1 -3-1978 are not exigible to special excise duty. At the same time, we have also expressed the view that the goods manufactured/produced on or before 28-2- 1979 but cleared thereafter would be liable to pay the said duty at the rate and valuation in force as on 28-2-1979. In the light of the fact that the duty was continued from 1978 to 1986, indeed up to 28-2-1989 and also in view of the principle behind the presumption incorporated in Section 12-B of the Central Excise Act inserted by the Central Excises and Customs Law (Amendment) Act, 1991 which is but a legislative recognition of a widely accepted presumption we think it appropriate to direct that the assessees shall not be entitled to refund of any amount collected from them by way of special excise duty on or after 1 -3-1978 in respect of goods manufactured prior to the said date. Looked at from the standpoint of avoidance of multiplicity of proceedings and of unending legal quibbling also, it is desirable to give a quietus to this controversy. To avoid any discriminatory consequences, it is further directed that if any amounts are due and are yet to be recovered in respect of such goods on account of special excise duty, the same can be recovered according to law.”

14. Thus, we see that the law has been laid down by the aforesaid judgment that while the levy is created by Section 3 itself, the collection of the duty is left to be regulated by the Rules made under the Act. The moment the goods are manufactured, the levy becomes payable and, in the circumstances, the last date of levy can reasonably be taken to be the date of removal.

At the cost of repetition, Section 83(3) of chapter VII of Finance Act, 2010 itself provides for “levy”, “collection” and “rates of tax” at tenth  schedule. As per Section 83, the levy of duty is on the production of Coal. Rules 4 & Rule 6 of Cess Rules specifies the procedure that the Cess is payable by 5^th of the second month. The Rule does not specify that the Cess is to be paid at the rate applicable at the time of removal. The rate is already provided in Section 83(3) itself unlike Section 3 of the Central Excise Act, 1944. Section 83(3) creates the levy, provides for its collection and also provides the rate. Therefore, respondent had the power to levy and collect Clean Energy Cess on the coal lying in stock as on 30.06.20 17 at the specified rates which were produced when the said cess was in force.

15. Learned counsel for the Assessee contended that Cess Rules and Notification No. 2/20 10 would not be saved by virtue of Section 6 of General Clauses Act, 1897 as Section 6 is only applicable to repeal of enactments and it does not save any delegated legislation. The aforesaid contention of of the Assessee’s counsel is not applicable in the given facts and circumstances of this case, inasmuch as, Section 83(3) of chapter VII of Finance Act, 2010 itself provides for “levy”, “collection” and “rates of tax” at tenth schedule. Thus, the judgment cited by learned counsel for the Assessee rendered in the case of Air India v. Union of India & Ors, (1994) 4 SCC 734, Para 6-8; Watson v. Winch, [1916] 1 K.B. 688] is not applicable in the given facts and circumstances of the case.

At this stage, it is also pertinent to mention here that the decision relied upon by the learned counsel for the petitioner rendered in the case of Kolhapur Canesugar Works Ltd. V. Union of India (2000) 2 SCC 536 has been declared per in curium by the Hon’ble Apex Court in the case of Fibre Bords Pvt. Ltd., Banglore versus CIT Banglore, reported in (2015)10 SCC 333.

16. Further, the contention of the Assessee that Section 18(2) of the Taxation Laws Amendment Act, 2017 does not specifically save the Cess Rules and Notification No. 2/2010-Clean Energy Cess, dated 22.06.20 10 (i.e., the Notification borrowing the provisions of Central Excise Act, 1944 for recovery, interest etc.); therefore, the Cess Rules and the said Notification ceased to have any validity w.e.f. 01.07.2017 and thus, in absence of the Rules, there is no machinery provisions inter alia to demand, collect and recover Cess; is misconceived and not sustainable in view of the fact that levy is already created and rate is specified by section 83(3) of Finance Act, 2010 on production of coal before 01-07-2017 and also said Section (3) itself provides for collection also.

It is reiterated that though as per Rule 4 of the Cess Rules, the Cess is payable on the removal of specified goods in the manner specified in Rule 6 and Rule 5 of the Central Excise Rules, 2012 provides that the rate of duty applicable to any excisable goods shall be at the rate in force on the date such goods are removed from the factory but as aforesaid the Rate of Cess is already fixed under section 83(3) read with tenth schedule.

17. The argument of learned counsel for the Assessee is that for all the supplies made w.e.f. 01.07.2017, petitioner is paying GST Compensation Cess at the rate of Rs. 400/- per tonne. The demand in the instant case is on the coal lying on stock as on 30.06.20 17 and removed subsequently. In the event Clean Energy Cess is paid on such coal, this would result in payment of both Clean Energy Cess and GST Compensation Cess on the same transaction twice over.

This argument has also not impressed us in view of the fact that Cess & Tax are two different components or aspects. A Cess is a form of Tax levied by the Government on Tax with specific purpose till the time the Government gets enough money for that purpose. It is different form usual Tax like excise and income Tax. In other words, a Cess is imposed as an additional Tax besides the existing Tax. Thus, the Cess on a particular commodity cannot come under the purview of double taxation and will not hit by Article 265 of the Constitution of India.

In this regard, reference may be made to the Judgment rendered in the case of Mohit Minerals (Supra) wherein the Hon’ble Apex Court has held in para-60 to 64 which is quoted herein below:

60. We, thus, answer Issue 2 and Issue 3 in following manner:

Answer 2.-The Compensation to States Act, 2017 does not violate Constitution (One Hundred and First Amendment) Act, 2016 nor is against the objective of the Constitution (One Hundred and First Amendment) Act, 2016.

Answer 3.-The Compensation to States Act is not a colourable legislation.

Issue 4 : Whether levy of Compensation to States Cess and GST on the same taxing event is permissible in law?

61. The petitioner elaborating his contention submits that as per Section 8 of the impugned legislation there shall be levied a cess on intra­ State supply of goods and services as provided in Section 9 of the CGST Act whereas CGST Act has been enacted to levy tax as provided under Article 246-A of the Constitution. This is also true in respect of the cesses imposed on inter-State supplies of goods and services covered by Section 5 of the IGST Act, 2017. Therefore, on the same very transaction there cannot be two levies, one under CGST Act and another under impugned legislation as it would amount to double taxation as levy is on the same taxable event and same subject. Thus, there is an overlapping on law which is not permissible. The petitioner contends that goods and services tax being already imposed by three enactments of 2017 as noticed above imposition of States Compensation Cess is levied on the same taxing event and has overlapping effect.

62. The principle is well settled that two taxes/imposts which are separate and distinct imposts and on two different aspects of a transaction are permissible as “in law there is no overlapping”.

63. A Constitution Bench of this Court in Federation of Hotel & Restaurant Assn. of India v. Union of India [Federation of Hotel & Restaurant Assn. of India v. Union of India, (1989) 3 SCC 634] , held that a law with respect to a subject might incidentally affect another subject in some way, but that is not the same thing. There might be overlapping but the overlapping must be in law. The fact that there is an overlapping does not detract from the distinctiveness of the aspects. Therefore, if the taxes are separate and distinct imposts and levied on the different aspects, then there is no overlapping in law. Following was laid down in para 31 : (SCC pp. 652-53)

“31. Indeed, the law ‘with respect to’ a subject might incidentally affect’ another subject in some way; but that is not the same thing as the law being on the latter subject. There might be overlapping; but the overlapping must be in law. The same transaction may involve two or more taxable events in its different aspects. But the fact that there is an overlapping does not detract from the distinctiveness of the aspects, Lord Simonds in Governor General in Council v. Province of Madras [Governor General in Council v. Province of Madras, 1945 SCC OnLine FC 5 : (1944- 45) 72 IA 91 : (1945) 7 FCR 179 at p. 193] , in the context of concepts of Duties of Excise and Tax on Sale of Goods said:

‘…The two taxes, the one levied on a manufacturer in respect of his goods, the other on a vendor in respect of his sales, may, as is there pointed out, in one sense overlap. But in law there is no overlapping. The taxes are separated and distinct imposts. If in fact they overlap, that may be because the taxing authority, imposing a duty of excise, finds it convenient to impose that duty at the moment when the excisable article leaves the factory or workshop for the first time on the occasion of its sale….’ ”

64. Krishna Iyer, J. in Avinder Singh v. State of Punjab [Avinder Singh v. State of Punjab, (1979) 1 SCC 137] , laid down that if on the same subject-matter the legislature chooses to levy tax twice over there is no inherent invalidity in the fiscal adventure unless there are some other prohibitions. In the above case the Government of Punjab had issued a notification under Section 90(4) of the Punjab Municipal Corporation Act, 1976 imposing tax at the rate of Rupee 1 per bottle on Indian made foreign liquor within the Municipal Corporation of Ludhiana. One of the contentions raised was that tax imposed is on sale, hence, beyond the Government power. In para 4 following was laid down : (SCC p. 144)

“4… A feeble plea hat the ax is bad because of the vice of double taxation and is unreasonable because there are heavy prior levies was also voiced. Some of these contentions hardly merit consideration, but have been mentioned out of courtesy to counsel. The last one, for instance, deserves the least attention. There is nothing in Article 265 of the Constitution from which one can spin out the constitutional vice called double taxation. (Bad economics may be good law and vice versa). Dealing with a somewhat similar argument, the Bombay High Court gave short shrift to it in Western India Theatres [Cantonment Board, Poona v. Western India Theatres Ltd., 1953 SCC OnLine Bom 13 : AIR 1954 Bom 261] . Some undeserving contentions die hard, rather survive after death. The only epitaph we may inscribe is : Rest in peace and don’t be reborn! If on the same subject-matter the legislature chooses to levy tax twice over there is no inherent invalidity in the fiscal adventure save where other prohibitions exist”

15. It is reiterated that liability to pay cess only accrues at the time of production and its payment is scheduled when the coal is removed in view of Rule 4 and 6 of Cess Rules since, as per section 83(3) of Finance Act, 2010 levy is on production of coal. Rule 4 and 6 deals only with time and manner of payment/discharge of cess and not the rate. In this regard, reference may be placed on the dictionary meanings of the words ‘accrued’ and ‘acquired’.

As per P. Ramanatha Aiyar’s The Law Lexicon. 2nd Edition. Reprint 2007 “Accrue” means to arise (as) cause of action accruing: to grow: or to be added to (as) accruing rent, accruing debt, accruing dividend. In the past tense the word “accrued” is used in the sense of due and payable; vested; and existed (as, rights accrued). Acquired: falling due; made or executed: matured; occurred; received: vested: was created: was incurred. But there is difference between payable and payment. By virtue of Section 83(3), pay ability is created only payment is to be done in the manner provided in Rule 4 & 6.

16. Thus, we are of the considered opinion that the Revenue is right is demanding the tax on production which was lying on stock as on the date of amendment and repeal of Clean Energy Cess for the sole reason that the taxable event was production and only the payment was deferred at the time of Removal. We hold that by virtue of Section 83(3) playability is created; and only the payment is deferred to be done in the manner provided in Rule 4 & 6. Accordingly, Issue No.(i) is decided in favour of Revenue.

17. Now coming on to the next issue as to whether in the facts and circumstance of this case the Revenue can take recourse of first proviso to section 11A(1)/section 11A(4) on the ground of suppression, fraud etc.; certain facts are required to be indicated here.

The show cause issued by the Respondent in the instant case is dated 15^th March 2019 taking recourse of 1^st proviso to Section 11A(1) of the Central Excise Act, 1948. The reply to Show Cause notice was submitted on 29^th April 2019 and the Adjudication Order has been passed on 29^th February 2020.

Since, the present case is an interpretational issue and petitioner was paying GST Compensation Cess with a bona-fide belief that Clean Energy Cess was not payable. Further, the petitioner has been filing regular returns under GST law for all the supplies of coal made after introduction of GST. Petitioner was not filing returns under Clean Energy Cess Rules with a bona fide belief that Clean Energy Cess was not payable. Further, these facts were in the knowledge of the respondents; however, despite said facts being in the knowledge of the respondents, show cause notice was issued almost after two years from the date Clean Energy Cess was repealed. Thus, as aforesaid, since the instant case involves an interpretational issue, therefore in such circumstances, no penalty under Section 11AC can be levied as demand of Cess under the extended period of limitation is unsustainable.

Further, as the allegation of suppression and wilful intent to evade tax is baseless and incorrect, penalty under Section 11AC(1)(c) of the Central Excise Act, 1944 cannot be imposed. Reference in this regard may be made to the judgment rendered in the case of M/s. International Merchandising Company, LLC (Earlier known as International Merchandising Corporation) Vrs. Commissioner, Service Tax, New Delhi reported in 2022 (12) TMI 556 SC wherein the Hon’ble Apex Court has held in 24 & 25 as under:-

“24. We are of the considered view that the Tribunal having come to the conclusion that the issue turned upon an interpretation of the provisions of Section 65(68) and Section 65(86b) of the Finance Act 1994, there was no warrant to allow the invocation of the extended period of limitation and to direct the determination of the penalty following the re-quantification of the demand. The extended period of limitation would clearly not stand attracted in respect of the first show cause notice dated 20 October 2009. The show cause notice shall hence have to be confined to the normal period of limitation excluding the extended period.

25. As far as the penalty is concerned, we are of the considered view that there was no warrant for the imposition of the penalty as the dispute in the present case essentially turned on the interpretation of the statutory provisions and their inter play with the circular issued by the CBEC. Finally, we also order and direct that the view of the Tribunal on the applicability of the provisions of Section 65(86b) of the Finance Act 1994 as amended has been reversed by this Curt. On remand in pursuance of the impugned order of the Tribunal, the adjudicating officer shall abide by the above directions.”

22. In view of the aforesaid discussions, Issue no. (ii) and Issue No.(iii) (part) is decided in favour of Assessee, inasmuch as, no penalty under Section 1 1AC can be levied as demand of Cess and further extended period of limitation can not be invoked. However, the Assessee is liable to pay Cess for the normal period including interest over the same.

23. Having regard to the aforesaid discussion and the judicial pronouncements the adjudication order dated 2 9/09/2020 (Annexure-3), is hereby, quashed and set aside to the above extent.

The matter is remitted back to the adjudicating authority: respondent no. 3 to recalculate the amount of clean environment cess confirming the demand to normal period of limitation.

24. As a result, the instant writ application stands partly allowed and pending I.A., if any, also stands disposed of.