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CX – Binding precedent – Sugar cess is admissible as CENVAT credit: CESTAT

2019-TIOL-2484-CESTAT-HYD

IN THE CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
REGIONAL BENCH, HYDERABAD
SINGLE MEMBER BENCH
COURT NO. I

Appeal No. E/31054/2018

Arising out of Order-in-Appeal No.GUN-EXCUS-000-APP-042-18-19, Dated: 09.05.2018
Passed by CCT (Audit), Guntur, stationed at Visakhapatnam

Date of Hearing: 05.04.2019
Date of Decision: 12.04.2019

M/s HINDUSTAN COCA COLA BEVERAGES PVT LTD
ATMAKURU VILLAGE, MANGALAGIRI MANDAL
GUNTUR DISTRICT

Vs

COMMISSIONER OF CENTRAL TAX – GUNTUR-GST
C.R. BUILDINGS, KANNAVARITHOTA
GUNTUR, AP – 522004

Appellant Rep by: Shri Mrinal Bharat Ram, Adv.
Respondent Rep by: Shri N Bhanu Kiran, Authorized Representative

CORAM: P Venkata Subba Rao, Member (T)

CX – Whether the assessee is entitled to cenvat credit on sugar cess as the same is not one of the duties allowed for cenvat credit under Rule 3(1) of the CENVAT Credit Rules, 2004 (CCR, 2004).

Held: A plain reading of Rule 3 of the CCR, 2004 would show that all cesses have not been made eligible for cenvat credit but only duties of excise or additional duties of excise or education cess etc., have been made eligible for cenvat credit – sugar cess is clearly not covered in Rule 3 of CCR, 2004 – however, the High Court of Karnataka has allowed cenvat credit on sugar cess which leaves this Bench with no option but to follow this judgment while most respectfully disagreeing with it – in view of the above, the assessee’s appeal needs to be allowed in view of the binding precedent of the judgment of the High Court of Karnataka – the specific question of whether cenvat credit is admissible on sugar cess paid on imported sugar was addressed only by the High Court of Karnataka in the case of Shree Renuka Sugars Ltd. – 2014-TIOL-98-HC-KAR-CX – respectfully following the ratio, it is held that the appellant is entitled to cenvat credit on the sugar cess paid on the imported sugar – the appeal is allowed and the impugned order is set aside : CESTAT [para 7, 8]

Appeal allowed

Case laws cited:

Sahkari Khand Udyog Mandli Ltd – 2010-TIOL-887-HC-AHM-CX… Para 3

Shree Renuka Sugars Ltd – 2014-TIOL-98-HC-KAR-CX… Para 3

FINAL ORDER NO. A/30461/2019

Per: P V Subba Rao:

1. The appeal is filed against Order-in-Appeal No. GUN-EXCUS-000-APP- 042-18-19 dated 09.05.2018.

2. Heard both sides and perused the records.

3. The appellant is a manufacturer of aerated soft drinks and sugar is one of their inputs. They imported sugar after paying appropriate customs duty. When goods are imported they are liable to basic customs duty as per the Customs Act as well as additional duties of customs equivalent to Excise duties leviable on similar products if manufactured in India. One of such Excise duties is the sugar cess levied under Sugar Cess Act, 1982. The substantial question of law is whether the assessee is entitled to CENVAT credit on sugar cess as the same is not one of the duties allowed for CENVAT credit under Rule 3(1) of the CENVAT Credit Rules, 2004 (CCR, 2004). On this substantive question, the Hon’ble High Court of Gujarat in the case of Sahkari Khand Udyog Mandli Ltd [2011 (263) ELT 34 (Guj.)] = 2010-TIOL-887-HC-AHM-CX held that sugar cess cannot be equated with Central Excise duty. However, the Hon’ble High Court of Karnataka in the case of Shree Renuka Sugars Ltd [2014 (302) ELT 33 (Kar.)] = 2014-TIOL-98-HC-KAR-CX held that sugar cess is a duty of excise and a manufacturer or producer of final products is eligible to CENVAT credit of additional duty of customs levied. Therefore, the assessee is entitled to claim CENVAT credit in respect of the cess paid as additional duty on raw sugar imported under Sugar Cess Act of 1982 read with Sec.3 of the Customs Tariff Act, 1975. Revenue’s appeal against this judgment was dismissed by the Hon’ble Supreme court for default on the part of the Revenue. The substantial question of law has not been decided by the Hon’ble Supreme Court. Learned counsel would also submit that in their own case the Principal Bench of CESTAT in appeal E/51048/2018 in Final Order No.52416/2018 relying upon judgment of Hon’ble High Court of Karnataka in the case of Shree Renuka Sugars Ltd (supra) held that the appellant is entitled to CENVAT credit on sugar cess paid on the imported sugar. Therefore their appeal may be allowed and they will be allowed to avail CENVAT credit on sugar cess.

4. On specific query from the bench as to which Rule of CCR, 2004 entitles them to such CENVAT credit, learned counsel for the appellant submits that this was granted by the Hon’ble High Court of Karnataka and is not explicitly covered under CCR, 2004.

5. Rule 3 of CCR, 2004 which deals with the matter reads as follows:

“Rule 3. CENVAT credit. –

(1) A manufacturer or producer of final products or a provider of taxable service shall be allowed to take credit (hereinafter referred to as the CENVAT credit) of –

(i) the duty of excise specified in the First Schedule to the Excise Tariff Act, leviable under the Excise Act;

(ii) the duty of excise specified in the Second Schedule to the Excise Tariff Act, leviable under the Excise Act;

(iii) the additional duty of excise leviable under section 3 of the Additional Duties of Excise (Textile and Textile Articles) Act,1978 ( 40 of 1978);

(iv) the additional duty of excise leviable under section 3 of the Additional Duties of Excise (Goods of Special Importance) Act, 1957 ( 58 of 1957);

(v) the National Calamity Contingent duty leviable under section 136 of the Finance Act, 2001 (14 of 2001);

(vi) the Education Cess on excisable goods leviable under section 91 read with section 93 of the Finance (No.2) Act, 2004 (23 of 2004);

(via) the Secondary and Higher Education Cess on excisable goods leviable under section 136 read with section 138 of the Finance Act, 2007 (22 of 2007);

(vii) the additional duty leviable under section 3 of the Customs Tariff Act, equivalent to the duty of excise specified under clauses (i), (ii), (iii), (iv), (v)

(vi) and (via);

(viia) the additional duty leviable under sub-section (5) of section 3 of the Customs Tariff Act,

Provided that a provider of taxable service shall not be eligible to take credit of such additional duty;

(viii) the additional duty of excise leviable under section 157 of the Finance Act, 2003 (32 of 2003);

(ix) the service tax leviable under section 66 of the Finance Act;

(x) the Education Cess on taxable services leviable under section 91 read with section 95 of the Finance (No.2) Act, 2004 (23 of 2004); and

(xa) the Secondary and Higher Education Cess on taxable services leviable under section 136 read with section 140 of the Finance Act, 2007 (22 of 2007); and

(xi) the additional duty of excise leviable under section 85 of Finance Act, 2005 (18 of 2005)

Provided that the CENVAT credit shall be allowed to be taken of the amount equal to central excise duty paid on the capital goods at the time of debonding of the unit in terms of the para 8 of notification No. 22/2003-Central Excise, published in the Gazette of India, part II, Section 3, sub-section(i),vide number G.S.R. 265(E), dated, the 31st March,2003.

paid on-

(i) any input or capital goods received in the factory of manufacture of final product or premises of the provider of output service on or after the 10th day of September, 2004; and

(ii) any input service received by the manufacturer of final product or by the provider of output services on or after the 10th day of September, 2004, including the said duties, or tax, or cess paid on any input or input service, as the case may be, used in the manufacture of intermediate products, by a jobworker availing the benefit of exemption specified in the notification of the Government of India in the Ministry of Finance (Department of Revenue), No. 214/86- Central Excise, dated the 25th March, 1986, published in the Gazette of India vide number G.S.R. 547 (E), dated the 25th March, 1986, and received by the manufacturer for use in, or in relation to, the manufacture of final product, on or after the 10th day of September, 2004.”

6. As may be seen, Rule 3 of CCR, 2004 provided for CENVAT credit of:

(a) Duties of excise specified in the first schedule of Excise Tariff Act leviable under the Central Excise Act.

(b) The duties of excise specified in the second schedule of Excise Tariff Act.

(c) Additional duty of Excise leviable under Sec.3 of Additional duties of Excise (Textiles and textile articles) Act, 1978.

(d) Additional duty of Excise leviable under Sec.3 of Additional Duty of Excise (Goods of special importance) Act, 1975.

(e) National Calamity contingency duty leviable under Sec.136 of Finance Act, 2001.

(f) Education Cess on excisable goods leviable under Sec.91 read with Sec.93 of Finance Act, 2004.

(g) Secondary Higher Education Cess on excisable goods leviable under Sec.136 read with Sec.138 of Finance Act, 2007.

(h) Additional duty leviable under Sec.3 of the Customs Tariff Act equivalent to the duty specified in (a), (b), (c), (d), (e) and (f) above.

7. It is evident from the rule that as per Rule 3 of CCR, 2004, CENVAT credit is not permissible on everything which has been paid but only such duties as are specified in it. Every Cess is levied under some specific Act and since there is no separate mechanism for collection etc., of such cesses, cess is deemed to be a duty of excise under Central Excise Act and correspondingly all provisions of the Central Excise Act will apply. A plain reading of Rule 3 would show that all cesses have not been made eligible for CENVAT credit but only duties of excise or additional duties of excise or education cess etc., have been made eligible for CENVAT credit. Sugar cess is clearly not covered in Rule 3 of CCR, 2004. However, I find that the Hon’ble High Court of Karnataka has allowed CENVAT credit on sugar cess which leaves me with no option but to follow this judgment while most respectfully disagreeing with it. In view of the above, I find that the assessee’s appeal needs to be allowed in view of the binding precedent of the judgment of the Hon’ble High Court of Karnataka. I have also considered the judgment of the Hon’ble High Court of Gujarat which was on the question of whether cess can be equated with the Central Excise duty and the Hon’ble High Court held otherwise. The specific question of whether CENVAT credit is admissible on sugar cess paid on imported sugar was addressed only by the Hon’ble High Court of Karnataka in the case of Shree Renuka Sugars Ltd (supra). Respectfully following the ratio, I hold that the appellant is entitled to CENVAT credit on the sugar cess paid on the imported sugar.

8. The appeal is allowed and the impugned order is set aside.

(Order pronounced in open court on 12.04.2019)

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