Tobacco products attracted National Calamity Contingent Duty (NCCD) under erstwhile Central Excise duty regime. CBIC has clarified that NCCD shall continue to be levied on tobacco and tobacco products at the rates as applicable prior to 1st July, 2017. This paper is an attempt to understand the legality of imposition of NCCD on products which have been shifted to GST regime.
Nature of NCCD:
NCCD was imposed under Section 136 of the Finance Act, 2001. The relevant provision reads as,
“(1) In the case of goods specified in the Seventh Schedule, being goods manufactured or produced, there shall be levied and collected for the purposes of the Union, by surcharge, a duty of excise, to be called the National Calamity Contingent duty (hereinafter referred to as the National Calamity duty), at the rates specified in the said Schedule.
(2) The National Calamity duty chargeable on the goods specified in the Seventh Schedule 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 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 levy and collection of the National Calamity duty leviable under this section in respect of goods specified in the Seventh Schedule as they apply in relation to levy and collection of the duties of excise on such goods under that Act or those rules, as the case may be.”
Whether NCCD is an Excise Duty:
The question arises earlier in Excise regime, that if Central Excise Duty is exempted, whether NCCD can be levied? If NCCD is in the nature of Central Excise Duty; exemption from CE Duty will result in exemption from NCCD. If NCCD is not in the nature of Excise Duty, exemption from excise duty shall not result in exemption from NCCD.
Uttarakhand High Court, in Bajaj Auto v. Union of India [2017 (352) E.L.T. 147 (Uttarakhand)] and Sikkim High Court in Unicorn Industries v. Union of India [2015 (324) E.L.T. 498 (Sikkim)] took the view that mere exemption from Excise Duty will not result in exemption from NCCD as it held,
“This further clarifies that the Excise duty envisaged under the exemption Notification No. 71/2003-C.E., dated 9-9-2003 as also under IPR, 1997 and Notification dated 17-2-2003 could not be expanded to include the duties that may be levied, subsequently under any finance act or special duty levied by the Parliament for a different purpose. The petitioners are availing the benefit in respect to the exemption under the impugned notification itself since 2003. They illegally availed the benefit of exemption in respect to NCCD, Education Cess and Secondary and Higher Education Cess levied under the Finance Acts, 2001, 2004 and 2007 respectively without any exemption notification having been issued pursuant to these Finance Acts meaning thereby that the benefits secured by them was without any sanction of law. The respondents rightly raised demand of duties levied under the Finance Acts.”
The judgments were challenged in Supreme Court, and the court held in case of Bajaj Auto Limited v. Union of India [Civil Appeal No.3239 of 2019 arising out of SLP(C) No.21968 of 2017], vide judgment dated 27.03.2019 held that when Excise Duty is exempted, it shall result in exemption from NNCD. The Apex Court held,
“The rationale is that while there may be surcharges under different financial enactments to provide the Government with revenue for specified purposes, the same have been notified as leviable in the nature of a particular kind of duty. In the case of NCCD, it is in the nature of an excise duty. It has to bear the same character as those respective taxes to which the surcharge is appended. NCCD will not cease to be an excise duty, but is the same as an excise duty, even if it is levied on the product.
Thus, when NCCD, at the time of collection, takes the character of a duty on the product, whatever may be the rationale behind it, it is also subject to the provisions relating to excise duty, applicable to it in the manner of collection as well as the obligation of the taxpayer to discharge the duty. Once the excise duty is exempted, NCCD, levied as an excise duty cannot partake a different character and, thus, would be entitled to the benefit of the exemption notification.”
Can NCCD be levied when Excise Duty is not leviable:
Under GST regime the question is- can NCCD be levied when Central Excise Duty itself cannot be levied or are not being levied?
It is clear from Section 136 of the Finance Act, 2001 that NCCD has been levied as surcharge on Excise Duty. When the basic excise duty is itself not leviable, surcharge cannot be levied. In view of this, as NCCD is a surcharge on Excise duty and is in the nature of excise duty; supply of Goods or services on which Central Excise Duty is not leviable, NCCD cannot be levied. In view of this, as no excise duty is leviable on tobacco products, no NCCD can be levied on products which are in GST regime.
As NCCD is in the nature of Excise Duty, Can parliament make law imposing NCCD in the GST regime? Entry 84 of the union list [List I of the Seventh Schedule of the Constitution] was amended vide 101st amendment of the Constitution and the entry reads as,
“Duties of excise on following goods manufactured or produced in India, namely;
(a) Petroleum Crude
(b) High Speed Diesel
(c) Motor Spirit (Commonly known as petrol)
(d) Natural Gas
(e) Aviation Turbine Fuel and
(f) Tobacco and Tobacco Products.”
Thus, union can impose Excise Duty on the above said products under the said entry. Imposing Excise Duty, and by necessary implication NCCD, on any other product is not possible.
Union laws are made under Article 246 of the Constitution of India, whereas GST is imposed under Article 246A of the Constitution. Article 246 is subject to Article 246A of the Constitution, and thus if any repugnancy is there, law enacted under Article 246A shall prevail. Section 9(2) of the CGST Act excludes product (a) to (e) from the purview of GST. However, tobacco and tobacco products are covered under GST regime.
Can GST and Excise Duty be Levied Simultaneously:
GST is a tax on “supply” of goods. Excise duty is a tax on “Manufacture or production” of goods. These taxes are not directly tax on goods and are of very different in nature. The Supreme Court held in Sea Customs Act, S. 20(2), In re, [(1964) 3 SCR 787: AIR 1963 SC 1760]
“23. This will show that the taxable event in the case of duties of excise is the manufacture of goods and the duty is not directly on the goods but on the manufacture thereof. We may in this connection contrast Sales Tax which is also imposed with reference to goods sold, where the taxable event is the act of sale. Therefore, though both excise duty and Sales Tax are levied with reference to goods, the two are very different imposts; in one case the imposition is on the act of manufacture or production while in the other it is on the act of sale. In neither case therefore can it be said that the excise duty or Sales Tax is a tax directly on the goods for in that event they will really become the same tax.
24. Similarly in the case of duties of customs including export duties though they are levied with reference to goods, the taxable event is either the import of goods within the customs barriers or their export outside the customs barriers. They are also indirect taxes like excise and cannot in our opinion be equated with direct taxes on goods themselves.”
Applying the principle, it can be safely said that GST and Excise duty are two different taxes and there is nothing in law which bars the simultaneous imposition of GST and Excise Duty. There is no prohibition against double taxation. The Supreme Court held in Jain Bros. v. Union of India, [(1969) 3 SCC 311], at page 315
“6. It is not disputed that there can be double taxation if the legislature has distinctly enacted it. It is only when there are general words of taxation and they have to be interpreted they cannot be so interpreted as to tax the subject twice over to the same tax (vide Channell, J., in Stevens v. Durban-Roddepoort Gold Mining Co. Ltd. [5 TC 402]. The Constitution does not contain any prohibition against double taxation. If any double taxation is involved the Legislature itself has, in express words, sanctioned it. It is not open to any one thereafter to invoke the general principles that the subject cannot be taxed twice over.”
Thus, NCCD, which are in the nature of Excise Duty can be imposed upon goods on which union is empowered to impose Excise Duty. As Excise duty can be imposed on tobacco and tobacco products, union is empowered to impose NCCD on these goods. However, NCCD or any tax in the nature of Excise Duty cannot be imposed upon goods not mentioned in entry 84 of the List I of seventh schedule of the Constitution.
NCCD in the present form is a surcharge:
NCCD in the present form has been imposed as a surcharge on Excise Duty. Section 136(1) of the Finance Act, 2001 states that there shall be levied and collected for the purposes of the Union, by surcharge, a duty of excise, to be called the National Calamity Contingent duty. In SRD Nutrients v. Commissioner of Central Excise [(2018) 1 SCC 105], it was held by Supreme Court that there cannot be any surcharge when basic duty itself is nil. Thus, when basic tax is not payable surcharge is also not payable.
In case of Education cess and Higher education cess, which was quantified as percentage of the basic tax, the issue is clear. Vide Circular No. 134/3/2011-S.T., dated 8-4-2011 F. No. 354/42/2011-Tru, CBIC clarified that the policy intention of the Government to exempt education cess in addition to service tax, where ‘whole of Service Tax’ stands exempted. According to section 95(1) of Finance (No. 2) Act, 2004 and section 140(1) of Finance Act, 2007, Education Cess and Secondary and Higher Education Cess are leviable and collected as service tax, and when whole of service tax is exempt, the same applies to education cess as well. Since Education Cess is levied and collected as percentage of Page 1 of 2 service tax, when and wherever service tax is NIL by virtue of exemption, Education Cess would also be NIL.
Though NCCD can be imposed, and parliament is empowered to impose NCCD or any tax in the nature of Excise duty, NCCD in the present form is in the nature of a surcharge on excise duty and cannot be imposed when the basic tax itself is not being imposed. Tobacco products are not attracting any excise duty, and thus NCCD cannot be levied, which is in the nature of a surcharge on excise duty.
The Supreme Court held in Bajaj Auto Limited v. Union of India [CIVIL APPEAL No.3239 of 2019]
“The rationale is that while there may be surcharges under different financial enactments to provide the Government with revenue for specified purposes, the same have been notified as leviable in the nature of a particular kind of duty. In the case of NCCD, it is in the nature of an excise duty. It has to bear the same character as those respective taxes to which the surcharge is appended. NCCD will not cease to be an excise duty, but is the same as an excise duty, even if it is levied on the product. Thus, when NCCD, at the time of collection, takes the character of a duty on the product, whatever may be the rationale behind it, it is also subject to the provisions relating to excise duty, applicable to it in the manner of collection as well as the obligation of the taxpayer to discharge the duty. Once the excise duty is exempted, NCCD, levied as an excise duty cannot partake a different character and, thus, would be entitled to the benefit of the exemption notification.”
Thus, NCCD in the present form has been imposed as a surcharge on Excise duty. When the goods are covered under GST, and Excise duty is not levied on those goods; no surcharge can be levied. This no NCCD can be levied on tobacco and tobacco products, which are covered under GST regime.
[Views expressed are person views of the author. The author may be contacted on [email protected]]