VKJ Latest News Update

VKJ Law Offices of Vinay K. Jain Advocates & Solicitors

CX – If Clean Energy Cesss collected is returned to assessee through backdoor in form of CENVAT, same will be a great disservice to country by replacing principle of ‘Polluter pays’ with ‘Pollution pays’: CESTAT

2019-TIOL-2358-CESTAT-HYD

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

Appeal No. E/31292/2018

Arising out of Order-in-Appeal No.HYD-EXCUS-RRC-APP-015-18-19, Dated: 27.08.2018
Passed by CCCE (Appeals-I), Hyderabad

Date of Hearing: 05.07.2019
Date of Decision: 12.07.2019

COMMISSIONER OF CENTRAL TAX
RANGAREDDY-GST POSNETT BHAVAN, RAMKOTI, HYDERABAD
TELANGANA – 500001

Vs

M/s N S L KRISHNAVENI SUGARS LTD
SURVEY NO.82, 83, 85 & 87, RAMAKRISHNAPUR, KOTHAKOTA MANDAL
MAHABUBNAGAR DIST., TELANGANA – 509110

Appellant Rep by: Shri A V L N Chary, AR 
Respondent Rep by: Ms Aparajitha, Adv.

CORAM: P Venkata Subba Rao, Member (T)

CX – Respondent is a manufacturer of sugar and had, during the months of August, 2015 to April, 2016, availed Cenvat credit to the tune of Rs.37,31,046/- on the Clean Energy Cess (CEC) paid on the coal – On being pointed out by the departmental officers, they have reversed the same under protest – SCN issued for recovery of the credit availed and for appropriation of the amount paid along with imposition of penalty etc. – demand confirmed/appropriated and equal penalty imposed – in appeal, Commissioner (A) held that credit is available in view of High Court decision in the case of Shree Renuka Sugars 2014-TIOL-98-HC-KAR-CX wherein Cenvat credit of the sugar cess was allowed holding that the sugar cess was also collected as a duty of excise and is therefore eligible for Cenvat credit under Rule 3 of CCR, 2004 – Revenue in appeal before CESTAT.

Held: A plain reading of Rule 3 of CCR, 2004 shows that it did not provide for Cenvat credit of every duty of excise and cess but only of some and this list does not include CEC imposed in Finance Act, 2010 – It is, however, now held by the Constitutional bench of  Apex Court in the case of Dilip Kumar & Co. and others (Civil Appeal No. 3327/2007) = 2018-TIOL-302-SC-CUS-CB that fiscal statutes must be interpreted strictly as per the letter of word and not the spirit of the law, ignoring any amount of hardship and eschewing any equity in taxation – From a plain reading of Rule 3 of CCR, 2004, Bench does not find any ambiguity – If the intention was to allow credit of all forms of duties of excise and cesses, the Rule would have said so – Instead, it only listed some forms of duties of excise, additional duties of customs and cesses on which credit will be admissible and Clean Energy Cess (CEC) is not one of them – It is evident from Section 83 of Finance Act, 2010 that CEC has been levied on coal to discourage use of the polluting forms of energy and encourage use of cleaner forms of energy – This is based on the principle of ‘Polluter pays’ – If the CEC collected by the Government is returned to the assessee through the backdoor in the form of CCR, 2004, we will be doing a great disservice to the country by replacing the principle of ‘Polluter pays’ with ‘Pollution pays’ – We will be encouraging use of polluting forms of energy by undoing the very purpose for which CEC has been levied – it is evident that this Tribunal can also examine the vires of the Act and Rules with the condition that the Statute under which this Tribunal was created (Customs Act, 1962) cannot be questioned by this Tribunal – Further, the power of this Tribunal to decide on the vires of the Act or Rules is subject to scrutiny by Division Bench of the High Courts – Scope of Tribunal may extend to testing the vires of rules, regulations etc., but certainly does not extend to making the rules or modifying them – In the absence of any explicit provision to give Cenvat credit of Clean Energy Cess (CEC) under Rule 3 of CCR, 2004, it is not for this Tribunal to enlarge its scope – assessee is not entitled to Cenvat credit of CEC under Rule 3 of CCR, 2004: CESTAT [para 12, 13, 15, 18, 19, 20]

CX – CENVAT – Penalty – Dispute is an interpretational one and it is perfectly possible for the assessee to have entertained a belief that they are entitled to Cenvat credit of CEC and, therefore, there is no justification for imposition of penalty under Rule 15 of CCR, 2004 – Further, assessee appellant, on being pointed out, reversed the credit availed by them under protest, therefore, the penalty is liable to be set aside: CESTAT [para 21]

Appeal disposed of

Case laws cited:

Shree Renuka Sugars – 2014-TIOL-98-HC-KAR-CX… Para 4

Ramco Cements Ltd – 2018-TIOL-3553-CESTAT-BANG… Para 5

NANDAN SYNTHETICS PVT LTD – 2014-TIOL-107-SC-CX… Para 7

Dilip Kumar & Co. and others – 2018-TIOL-302-SC-CUS-CB… Para 13

L. Chandra Kumar Vs Union of India – 2002-TIOL-159-SC-CB… Para 17

FINAL ORDER NO. 30642/2019

Per: P V Subba Rao:

1. This appeal is filed by the revenue against Order-in-Appeal No. HYDEXCUS- RRC-APP-015-18-19 dated 27.08.2018.

2. The respondent herein is a manufacturer of sugar and had, during the months of August, 2015 to April, 2016, availed Cenvat credit to the tune of Rs.37,31,046/- on the Clean Energy Cess (CEC) paid on the coal. On being pointed out by the departmental officers, they have reversed the same under protest. Thereafter, a show cause notice was issued to the respondent stating that they had wrongly availed Cenvat credit of CEC as the same is not eligible for Cenvat credit in terms of Rule 3(1) of Cenvat Credit Rules (CCR), 2004. Accordingly, it was proposed to recover the same under Rule 14 of CCR, 2004 read with Section 11A(1) of Central Excise Act, 1944. Further, it was also proposed to impose a penalty under Rule 15(1) of CCR, 2004 upon the assessee for contravening the provisions of CCR, 2004.

3. After following due process, the Asst. Commissioner confirmed the demand as proposed and appropriated the amount already reversed by them towards this demand. He further imposed a penalty of equal amount under Rule 15 of CCR, 2004 read with Section 11AC of Central Excise Act, 1944.

4. Aggrieved, the assessee appealed to the first appellate authority who set aside the order of the original authority and allowed the assessee’s appeal. The reasoning given by the first appellate authority in allowing Cenvat credit of CEC to the assessee, although the same is not eligible for Cenvat credit as per Rule 3 of CCR, 2004, was that in the case of Shree Renuka Sugars [2014 (302) ELT 33 (Kar.)] = 2014-TIOL-98-HC-KAR-CX the Hon’ble High Court of Karnataka allowed the Cenvat credit of the sugar cess holding that the sugar cess was also collected as a duty of excise and is therefore eligible for Cenvat credit under Rule 3. The ratio of this decision of the Hon’ble High Court of Karnataka was followed despite the fact that sugar cess was clearly not covered by Rule 3 of CCR, 2004.

5. Aggrieved by the decision of the first appellate authority the present appeal has been filed by the revenue. I have heard both sides and perused the records. Learned counsel for the respondent reiterates the findings of the first appellate authority and submits that they are entitled to Cenvat credit of the CEC on coal paid by them as sugar cess which was also not listed in Rule 3 of CCR, 2004 was allowed by the Hon’ble High Court of Karnataka. She also submits that in the case of Ramco Cements Ltd [2018 (10) TMI 10 (CESTAT-Bangalore)] = 2018-TIOL-3553-CESTAT-BANG Cenvat credit of Clean Energy Cess was allowed. Hence, they should also be allowed credit of Clean Energy Cess.

6. Learned departmental representative forcefully argued that no Cenvat credit is admissible with respect to CEC under CCR, 2004 for the following reasons:

(1) A plain reading of Rule 3 of CCR, 2004 shows that the manufacturer or producer of final products or a provider of output service shall be allowed to take credit only of the following duties and cesses:

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,

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;

ixa. the service tax leviable under section 66A of the Finance Act;

ixb. 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 )

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 job-worker 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.

7. Therefore, every form of cess or tax paid by the assessee is not admissible for Cenvat credit under CCR, 2004. He conceded that CEC is collected as a duty of excise. However, he pointed out that various other forms of cesses are also collected by the Government and all Cesses are collected as if they are a form of duty of excise. If the intention of the Legislature/ Government was to provide credit of any duty of excise or any cess paid by the assessee, Rule 3 would have been worded so, instead of listing a few specific forms of duty of excise and cesses as eligible for credit. Therefore, simply because a particular tax is collected as a duty of excise, it does not automatically entitle the assessee to avail Cenvat credit on such duty. He further argued that the case of Shree Renuka Sugars (supra) does not apply to present case as that was in the context of sugar cess and not in respect of CEC. Although sugar cess was also not explicitly covered in CCR, 2004, the Hon’ble High Court of Karnataka had allowed such credit against which they filed an SLP which is pending before the Hon’ble Apex Court as reported in 2015 (319) ELT A.119 (SC) = 2014-TIOL-107-SC-CX. Even the reasoning given by the Hon’ble High Court of Karnataka for allowing Cenvat credit of sugar cess does apply to this case. In the case of sugar cess, all provisions of Central Excise Act and Rules were made applicable to sugar cess as well. However, with respect to the CEC, Notification No. 02/2010 has been issued making some provisions of the Central Excise Act, 1944 applicable to the CEC. These Sections are 5A, 6, 9, 9A, 9AA, 9C, 9D, 9E, 11, 11A, 11AA, 11AB, 11AC, 11B, 11BB, 11C, 11D, 11DD, 11DDA, 12A, 12B, 12C and 12D; Chapters III, VI, VIA and VIB. From the above, it is evident that other provisions of Central Excise Act do not apply to the CEC. The CCR, 2004 have been framed under Section 37 (Chapter VII) of the Central Excise Act, 1944. Neither Chapter VII nor Section 37 has been made applicable for CEC at all. Therefore, any rule that has been framed under Section 37 including CCR, 2004 cannot, by any stretch of imagination, be made applicable to CEC. Therefore, the ratio of the judgment of the Hon’ble High Court of Karnataka in the case of Shree Renuka Sugars (supra) with respect to sugar cess for which the entire Central Excise Act and Rules were made applicable, will not apply to the present case.

8. He further argued that the CEC has been levied by the Parliament for a specific purpose. It is based on the principle “Polluter pays” which is a well established principle in the field of environment and has been emphasized by the Hon’ble Apex Court in several cases related to the environment. This principle states that if any activity is causing pollution, the polluter has to pay for the cleanup. Coal is a cheaper but a polluting form of energy. Therefore, cess has been levied on it so as to increase the cost of such form of energy. The amounts so collected from the CEC are to be used for development of cleaner forms of energy. Thus, it is a case of environment protection and those who are using dirty forms of energy such as coal have to pay for it. If the assessee is allowed Cenvat credit of CEC, it would amount to returning with one hand what has been collected from them with the other to discourage use of dirty polluting fossil fuels. This defeats the purpose of levying CEC. Therefore, no Cenvat credit should be given for the CEC paid by the respondent.

9. He, futher argued that Cenvat credit, the erstwhile Modvat credit and the present day GST input tax credit system are all based on the principle of avoiding cascading effect of taxes. The tax is levied at several stages and the tax paid at each stage is given as credit to the next stage payer. Thus, the tax paid gets set off against the tax paid at the next stage. Ultimately, the consumer bears the full burden of tax on the full value. Therefore, where there is only levy of one tax at one point, no Cenvat credit is given. If Cenvat credit or any other form of refund of the tax is given with respect to taxes levied at single point, there is no point in collecting taxes at all. In the present case, the CEC is levied at one and only one stage. There is no CEC again on the sugar or other products manufactured by the assessee. This is similar to the basic customs duty which is also levied at one point and no Cenvat credit is given on such duty.

10. I have considered the arguments on both sides and perused the records. The short point to be decided is whether the respondent is entitled to Cenvat credit of CEC on the coal or otherwise. The CEC was levied under Section 83 of the Finance Act, 2010 which reads as follows:

“83. (1) This Chapter extends to the whole of India.

(2) …………………………………….

(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 there to.

…………………………………………”

11. The purpose of levying the CEC is evidently to promote and finance clean energy initiatives by taxing the coal.

12. A plain reading of Rule 3 of CCR, 2004 shows that it did not provide for Cenvat credit of every duty of excise and cess but only of some and this list does not include CEC imposed in Finance Act, 2010. It is the case of the assessee that since CEC is also a form of excise, they are entitled to Cenvat credit even in the absence of an explicit provision under Rule 3 of CCR, 2004. I proceed to decide this issue on merits. It is undisputed that a plain reading of Rule 3 of CCR, 2004 shows that Cenvat credit is admissible only in respect of some cesses and not in respect of all the cesses and duties of excise. The Hon’ble High Court of Karnataka gave benefit of credit of sugar cess in respect of Shree Renuka Sugars (supra) expanding the scope of Cenvat Credit Rules by taking a broader view and holding that sugar cess also being duty of excise Cenvat credit may not be denied.

13. It is, however, now held by the Constitutional bench of Hon’ble Apex Court in the case of Dilip Kumar & Co. and others (Civil Appeal No. 3327/2007) = 2018-TIOL-302-SC-CUS-CB that fiscal statutes must be interpreted strictly as per the letter of word and not the spirit of the law, ignoring any amount of hardship and eschewing any equity in taxation. However, in the event of ambiguity in taxation liability statute, the benefit should go to the assessee. From a plain reading of Rule 3 of CCR, 2004, I do not find any ambiguity. If the intention was to allow credit of all forms of duties of excise and cesses, the Rule would have said so. Instead, it only listed some forms of duties of excise, additional duties of customs and cesses on which credit will be admissible and CEC is not one of them.

14. I have also considered the argument of the respondent that the ratio of judgment of Hon’ble High Court of Karnataka in the case of Shree Renuka Sugars (supra) not being overturned by any superior judicial forum, must apply. On going through the judgment of the Hon’ble High Court of Karnataka, I find that in that case the entire Central Excise Act and Rules were applicable to sugar cess but in the case of CEC, only some provisions of Central Excise Act have been made applicable. Section 37 of the Central Excise Act under which the CCR, 2004 as well as other Rules are framed are not made applicable to the CEC. Therefore, the Finance Act itself does not conceive of applying Cenvat Credit Rules to the CEC. In the absence of any explicit provision, they cannot be made applicable to the CEC. In other words, neither does Rule 3 of CCR provide for credit of CEC nor do the provisions of CEC make CCR and any other Rules under Central Excise Act applicable to it. Therefore, this is clearly distinguishable from the case of the Hon’ble High Court of Karnataka in the case of Shree Renuka Sugars (supra).

15. Although it is now settled that taxing statutes must be literally interpreted, I have also examined the spirit and purpose of levying the CEC. It is evident from Section 83 of Finance Act, 2010 that CEC has been levied on coal to discourage use of the polluting forms of energy and encourage use of cleaner forms of energy. This is based on the principle of ‘Polluter pays’. If the CEC collected by the Government is returned to the assessee through the backdoor in the form of CCR, 2004, we will be doing a great disservice to the country by replacing the principle of ‘Polluter pays’ with ‘Pollution pays’. We will be encouraging use of polluting forms of energy by undoing the very purpose for which CEC has been levied.

16. I also proceed to examine the matter in the larger context of our legal system. The Constitution of India has divided the powers between Legislature, Executive and Judiciary. The law making power has been given to the Legislature which frames the Acts. Subordinate legislations in the form of rules, regulations, notifications (including CCR, 2004) are notified by the Government and are then placed before the Parliament whose Committee of subordinate legislation examines them to see whether they reflect the intent of the Act and get modifications made, if necessary. Thus the legislative power delegated to the Government is again subject to control of the legislature. It is for this reason the rule making power is not delegated to any other arm of State but only to Government which is answerable to the legislature.

17. However, where there is a conflict between the constitutional provisions and the laws made or the parent act and the subordinate legislations vires of such act and rules are tested and decided by the Hon’ble Supreme Court and Hon’ble High Courts under Article 32 and 226 of the Constitution of India. The Tribunals (including this Tribunal) are created under Article 323B of the Constitution of India which was inserted by the 42nd amendment to the Constitution. The Jurisdiction of the Tribunals and their powers have been examined by the Five Member Constitutional Bench of the Supreme Court in the case of L. Chandra Kumar Vs Union of India in Civil Petition No. 481/1980 2002-TIOL-159-SC-CB vide judgment dated 18.03.1997. Paras 94 and 100 of which are reproduced below:

“94. Before moving on to other aspects, we may summarise our conclusions on the jurisdictional powers of these Tribunals. The Tribunals are competent to hear matters where the vires of statutory provisions are questioned. However, in discharging this duty, they cannot act as substitutes for the High Courts and the Supreme Court which have, under our constitutional setup, been specifically entrusted with such an obligation. Their function in this respect is only supplementary and all such decisions of the Tribunals will be subject to scrutiny before a Division Bench of the respective High Courts. The Tribunals will consequently also have the power to test the vires of subordinate legislations and rules. However, this power of the Tribunals will be subject to one important exception. The Tribunals shall not entertain any question regarding the vires of their parent statutes following the settled principle that a Tribunal which is a creature of an Act cannot declare that very Act to be unconstitutional. In such cases alone, the concerned High Court may be approached directly. All other decisions of these Tribunals, rendered in cases that they are specifically empowered to adjudicate upon by virtue of their parent statutes, will also be subject to scrutiny before a Division Bench of their respective High Courts. We may add that the Tribunals will, however, continue to act as the only courts of first instance in respect of the areas of law for which they have been constituted. By this, we mean that it will not be open for litigants to directly approach the High Courts even in cases where they question the vires of statutory legislations (except, as mentioned, where the legislation which creates the particular Tribunal is challenged) by overlooking the jurisdiction of the concerned Tribunal.

……………

100. In view of the reasoning adopted by us, we hold that Clause 2(d) of Article 323A and Clause 3(d) of Article 323B, to the extent they exclude the jurisdiction of the High Courts and the Supreme Court under Articles 226/227 and 32 of the Constitution, are unconstitutional. Section 28 of the Act and the “exclusion of jurisdiction” clauses in all other legislations enacted under the aegis of Articles 323A and 323B would, to the same extent, be unconstitutional. The jurisdiction conferred upon the High Courts under Articles 226/227 and upon the Supreme Court under Article 32 of the Constitution is part of the inviolable basic structure of our Constitution. While this jurisdiction cannot be ousted, other courts and Tribunals may perform a supplemental role in discharging the powers conferred by Articles 226/227 and 32 of the Constitution. The Tribunals created under Article 323A and Article 323B of the Constitution are possessed of the competence to test the constitutional validity of statutory provisions and rules. All decisions of these Tribunals will, however, be subject to scrutiny before a Division Bench of the High Court within whose jurisdiction the concerned Tribunal falls. The Tribunals will, nevertheless, continue to act like Courts of first instance in respect of the areas of law for which they have been constituted. It will not, therefore, be open for litigants to directly approach the High Courts even in cases where they question the vires of statutory legislations (except where the legislation which creates the particular Tribunal is challenged) by overlooking the jurisdiction of the concerned Tribunal. Section 5(6) of the Act is valid and constitutional and is to be interpreted in the manner we have indicated.”

18. From the above, it is evident that this Tribunal can also examine the vires of the Act and Rules with the condition that the Statute under which this Tribunal was created (Customs Act, 1962) cannot be questioned by this Tribunal. Further, the power of this Tribunal to decide on the vires of the Act or Rules is subject to scrutiny by Division Bench of the High Courts.

19. It may be seen that the scope of this Tribunal may extend to testing the vires of rules, regulations etc., but certainly does not extend to making the rules or modifying them. In the absence of any explicit provision to give Cenvat credit of CEC under Rule 3 of CCR, 2004, it is not for this Tribunal to enlarge its scope. To sum up:

a) Rule 3 of CCR, 2004 does not provide for Cenvat credit of CEC.

b) Rules under Central Excise Act including CCR, 2004 or Section 37 under which they are framed are not made applicable to CEC under the Finance Act, 2010.

c) It is not open for this Tribunal to enlarge or modify the scope of Act or rules and they should be interpreted as they are drafted without any intendment.

d) If Cenvat credit of CEC is allowed, it will undo the very purpose for which it is levied and vitiate ‘polluter pays’ principle.

e) The ratio of the judgment of the Hon’ble High Court of Karnataka in the case of Shree Renuka Sugars (supra) does not apply to CEC.

20. Hence, I find that the assessee is not entitled to Cenvat credit under Rule 3 of CCR, 2004. I respectfully disagree with the Order of the Hon’ble Single Member in the case of The Ramco Cements Ltd (supra) in view of the above, especially the inapplicability of Section 37 and by implication, the CCR, 2004 framed thereunder to the Clean Energy Cess.

21. As far as the imposition of penalty is concerned, I find that the dispute is an interpretational one and it is perfectly possible for the assessee to have entertained a belief that they are entitled to Cenvat credit of CEC and therefore, there is no justification for imposition of penalty under Rule 15 of CCR, 2004. Further, they have also, on being pointed out, reversed the credit availed by them under protest. Therefore, the penalty is liable to be set aside. The appeal is disposed of as below:

The impugned order is modified to the extent of denying Cenvat credit of Clean Energy Cess to the respondent but not interfering with setting aside of penalty imposed by the original authority.

(Order pronounced in the open court on 12.07.2019)

Leave a Reply

Close Menu
%d bloggers like this: