M/S. UNICORN INDUSTRIES versus UNION OF INDIA & OTHERS on 6 December 2019

Conclusion

M/S. UNICORN INDUSTRIES

v.

UNION OF INDIA & OTHERS(Civil Appeal No. 9237 of 2019)

DECEMBER 6, 2019

[ARUN MISHRA, M. R. SHAH AND B. R. GAVAI, JJ.]

Central Excise Act, 1944 – Finance Act, 2004 – Finance Act,2007 – Finance Act, 2001 – The High Court held that duties i.e.the levy of education cess, higher education cess and NationalCalamity Contingent Duty (NCCD) are not the part of the exemptionnotification – Appellant contended that the NCCD, education cess,and secondary and higher education cess form part of the exciseduty and hence the decision of the High Court is bad in law – Onappeal, held: Notification dated 09.09.2003 issued in the presentcase makes it clear that exemption was granted u/s. 5A of the Act1944, concurring additional duties under the Act of 1957 andadditional duties of excise under the Act of 1978 – There was noreference to the Finance Act, 2001 by which NCCD was imposed,and the Finance Acts of 2004 and 2007 were not in vogue – Thenotification could not have contemplated the inclusion ofeducation cess and secondary and higher education cess imposedby the Finance Acts of 2004 and 2007 in the nature of the duty ofexcise – In the absence of a notification containing an exemptionto such additional duties in the nature of education cess andsecondary and higher education cess, they cannot be said to havebeen exempted – The High Court rightly relied on the decision ofthe three-Judge Bench of the Supreme Court in Modi Rubber Limited,which was followed by another three-Judge in Rita Textiles PrivateLimited – Therefore, the Judgment and order of the High Courtupheld.

Dismissing the appeals, the Court

HELD: 1. Notification dated 9.9.2003 issued in the presentcase makes it clear that exemption was granted under Section5A of the Act of 1944, concerning additional duties under theAct of 1957 and additional duties of excise under the Act of 1978.It was questioned on the ground that it provided for limited

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Aexemption only under the Acts referred to therein. There is noreference to the Finance Act, 2001 by which NCCD wasimposed, and the Finance Acts of 2004 and 2007 were not invogue. The notification was questioned on the ground that itshould have included other duties also. The notification couldnot have contemplated the inclusion of education cess andBsecondary and higher education cess imposed by the FinanceActs of 2004 and 2007 in the nature of the duty of excise. Theduty on NCCD, education cess and secondary and highereducation cess are in the nature of additional excise duty and itwould not mean that exemption notification dated 9.9.2003Ccovers them particularly when there is no reference to thenotification issued under the Finance Act, 2001. There was noquestion of granting exemption related to cess was not in vogueat the relevant time imposed later on vide Section 91 of the Actof 2004 and Section 126 of the Act of 2007. The provisions of Act of 1944 and the Rules made thereunder shall be applicableDto refund, and the exemption is only a reference to the sourceof power to exempt the NCCD, education cess, secondary andhigher education cess. A notification has to be issued forproviding exemption under the said source of power. In theabsence of a notification containing an exemption to suchEadditional duties in the nature of education cess and secondaryand higher education cess, they cannot be said to have beenexempted. The High Court was right in relying upon thedecision of three-Judge Bench of this Court in Modi RubberLimited, which has been followed by another three-Judge Benchof this Court in Rita Textiles Private Limited. [Para 40] [1045-H;F1046-A-E]

2. The Circular of 2004 issued based on the interpretationof the provisions made by one of the Customs Officers, is of noavail as such Circular has no force of law and cannot be said tobe binding on the Court. Similarly, the Circular issued byGCentral Board of Excise and Customs in 2011, is of no avail asit relates to service tax and has no force of law and cannot besaid to be binding concerning the interpretation of the provisionsby the courts. The reason employed in SRD Nutrients PrivateLimited that there was nil excise duty, as such, additional dutyHcannot be charged, is also equally unacceptable as additional duty can always be determined and merely exemption granted inrespect of a particular excise duty, cannot come in the way ofdetermination of yet another duty based thereupon. Theproposition urged that simply because one kind of duty isexempted, other kinds of duties automatically fall, cannot beaccepted as there is no difficulty in making the computation ofadditional duties, which are payable under NCCD, education cess,secondary and higher education cess. Moreover, statutorynotification must cover specifically the duty exempted. When aparticular kind of duty is exempted, other types of duty or cessimposed by different legislation for a different purpose cannotbe said to have been exempted. [Para 41] [1046-F-H; 1047-A-B]

Union of India v. Modi Rubber Limited (1986) 4 SCC66 : [1986] 3 SCR 587 ; A three-Judge Bench in RitaTextiles Private Limited v. Union of India, (1986) SCCSupp. 557 – relied on.

SRD Nutrients Private Limited v. Commissioner ofCentral Excise, Guwahati, (2018) 1 SCC 105 : [2017]11 SCR 43 ; Bajaj Auto Limited v. Union of India &others, (2019) SCC OnLine SC 421, decided on27.3.2019. [2019] 5 SCALE 325 – per incuriam.

Union of India v. Unicorn Industries (Civil Appeal No.7432 of 2019), decided on 19.9.2019. (2019)10 SCC 575 ; Rajasthan High Court in BanswaraSyntex Ltd. v. Union of India, (2007) SCC OnLine Raj.365 ; Mahanagar Railway Vendors’ Union v. Union ofIndia & Ors. (1994) Suppl. 1 SCC 609 ; State ofMaharashtra & Ors. v. Mana Adim Jamat Mandal, AIR2006 SC 3446 : [2006] 2 SCR 1142 ; State of UttarPradesh & Ors. v. Ajay Kumar Sharma & Ors. (2016)15 SCC 289 ; Subhash Chandra & Ors. v. DelhiSubordinate Services Selection Board & Ors. (2009)15 SCC 458 : [2009] 12 SCR 978 ; DashrathRupsingh Rathod v. State of Maharashtra (2014) 9SCC 129 ; [2014] 11 SCR 921 ; Central Board ofDawoodi Bohra Community & Ors. v. State ofMaharashtra & Ors. (2005) 2 SCC 673 : [2004]6 Suppl. SCR 1054 – referred to.

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Case Law Reference

DCIVIL APPELLATE JURISDICTION : Civil Appeal No. 9237of 2019.

From the Judgment and Order dated 11.05.2012 of the HighCourt of Sikkim at Gangtok in Writ Petition (C) No. 24 of 2007

EWith

Civil Appeal No. 9238 of 2019.

Dhruv Aggarwal, Dr. Ashok Saraf, Nakul Dewan, Balbir Singh,Guru Krishan Kumar, K. V.Viswanathan, S. Ganesh, Tarun Gulati, Sr.Advs., Ms. Nisha Bagchi, Rupesh Kumar, Ms. Aruna Gupta,FDharmendra Gupta, B.K. Prasad, Shriram P. Pingle, Gangdeep Sharma,M.L. Lahoty, Paban K. Sharma, Anchit Sripat, Himanshu Shekhar,Vishal Gupta, M/s. AP & J Chambers, Kaushik Choudhary, MukundaRao, Pawanshree Agrawal, K.J. John, M/s. K J John & Co. Ajoy K.Roy, Shantanu Tyagi, Ms. Nandita Chauhan, Ravinder Nijhawan, S.S.GShroff, Rahul Narayan, Shashwat Goel, Ajay Aggarwal, Ms. MallikaJoshi, Ishan Narain, Rajan Narain, Ms. Kavita Jha, Ms. Swati Agarwal,Ms. Devika Jain, Kumar Visalaksh, Udit Jain, Mahfooz A. Nazki, RanaRanjit Singh, Vivek Kumar Singh, Ms. Akanksha Singh, Shuvodeep Roy,Kabir Shankar Bose, Satropp Das, Ms. Neelima Tripathi, Ms. GunjanSingh, K.V. Mohan, Vishal Gupta, Sumeet Sharma, Diviyanshu Gupta,H

Rakesh Sinha, Partha Sil, Parthiv K. Goswami, Ishan Bisht, VivekGupta, Ms. Palak Mahajan, Ms. Diksha Rai, Raghvendra Kumar,Ms. Aruna Mathur, Sunil Murarka, Kunal Chatterji, Ms. MaitrayeeBanerjee, Supratik Sarkar, V. Lakshmikumaran, Ms. CharanyaLakshmikumaran, Aditya Bhattacharya, Mrs. Ishita Mathur,Ms. Apeksha Mehta, Ms. Monica Kasturi, R.Parthasarthy, KshitijVaibhav, Ms. Bina Gupta, Ms. Sheona Taqvi, R. Jawahar Lal, SiddharthBawa, Shaymal Anand, Mayank Kshirsagar, Nikhil Singhvi, Mohit Seth,Ms. Sonia Dubey, Obhirup Ghosh, M/s. Legal Option, Gaurav Juneja,Aayush Jain, M/s. Khaitan & Co., V.K. Sidharthan, Ramendra LalAuddy, B. Krishna Prasad, M/s. Arputham Aruna & Co., Satya Mitra,Ms. Hemantika Wahi, Gopal Singh, Advs. for the appearing parties.

The Judgment of the Court was delivered by ARUN MISHRA, J.

1. Leave granted.

2. The question involved in the appeals is with respect to the levyof education cess, higher education cess, and National CalamityContingent Duty (NCCD) on it. The appeals arise out of commonjudgment. The High Court has held that duties in question are not partof the exemption notification. The writ petitions have been dismissed.Hence, the appeals have been preferred.

3. The Government of India in order to promote industrialdevelopment in the North Eastern Region, announced vide OfficeMemorandum dated 24.12.1997, specific fiscal incentives including totalexemption from tax to the new industrial units and substantial expansionof existing unit in the North Eastern Region for a period of 10 yearsfrom the date of commencement of production. Government of Sikkimvide Notification dated 17.2.2003, notified new industrial policy wherebyall fiscal incentives available to the industries in the North EasternRegion would be available to the units set up in the State of Sikkim.

4. The Central Government issued a Notification dated 9.9.2003,granting exemption from payment of duty of excise for goods specifiedin the notification and cleared from a unit located in the Industrial GrowthCentre or other specified areas within the State of Sikkim. Under thenotification, a manufacturer of specified goods was required to payexcise duty on the goods cleared from its unit. The manufacturer hasto first utilize the Cenvat Credit for discharging duty liability on final AB

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Aproducts, and the remaining amount of duties had to be paid throughPersonal Ledger Account (PLA) or Current Account, i.e., in cash. Thus,the exemption scheme was to discharge the liability on the final productand then claim or avail the refund or re-credit of the duties paid in cash.

5. The Unicorn Industries established a unit in 2006 forBmanufacturing “Indian Mouth Freshener” an excisable commoditycovered under Chapter 21 of the First Schedule of Central Excise TariffAct, 1985. It was registered under the Central Excise Act. In June2006, the appellant had started manufacturing its product.

6. The appellant has submitted that following excise duties wereCrecovered under diverse names/nomenclature and rates on IndianMouth Freshener manufactured and cleared by the appellant:

a. Basic Excise Duty @ 37.5 % ad valorem;

b. National Calamity Contingent Duty (NCCD) @ 23% adValorem (under Section 136 of the Finance Act, 2001); D

c. Additional Excise Duty (Pan Masala & TobaccoProducts) @ 5.5% ad valorem (under Section 85 of theFinance Act, 2005); and

d. Education Cess @ 2% ad valorem (under Section 91Eof the Finance Act, 2004) aggregating to 68% advalorem.

7. As per Notification No.71/2003-CE dated 9.9.2003, theappellant was entitled to refund of the abovesaid duties of excise. Therespondents extended benefits and used to grant refund to the appellantFas per the abovementioned notification. The Excise Authorities usedto issue a certificate of re-utilization of excise duty for the particularmonth. The appellant used to re-credit the amount of excise duty.

8. The Deputy Commissioner of Central Excise issued a showcause notice dated 2.1.2007, requiring the appellant to repay the amountof NCCD for the period July, 2006 to December, 2006, on the groundGthat exemption was not permissible under the notification for the unitslocated in the State of Sikkim. The appellant filed a writ petition beforethe High Court for quashing the abovementioned communication dated2.1.2007. The High Court disposed of the same with liberty to showcause to the said communication. The appellant filed its reply. OnH4.7.2007, the Commissioner, Central Excise issued show cause notice, it was submitted that grounds phrased in the response wereunsustainable. The appellant was asked to show cause why amountshould not be recovered under Section 11-A of the Central Excise Actalong with the interest and penalty.

9. Notification No.71/2003-CE came to be amended on 25.4.2007by Notification No.21/2007, excluding Pan Masala falling under ChapterXXI of the Tariff from the purview of the notification. Thus, theexemption on Pan Masala came to an end vide Notification No.21/2007dated 25.4.2007, which was challenged by way of separate Writ PetitionNo.22 of 2007. The High Court vide judgment and order dated 11.5.2012allowed the Writ Petition (C) No.22 of 2007 and held that the appellantwas entitled to exemption from payment of excise duty on manufactureof Pan Masala for ten years from the date of commencement ofcommercial production, i.e., 27.6.2006.

10. The appellant submitted that 14 separate claims were filedfor refund of additional excise duty and education cess on the groundthese levies are also duties of excise, for which exemption had beengranted for ten years. The appellant filed Writ Petition (C) No.24 of2007 before the High Court of Sikkim at Gangtok for quashingNotification No.71/2003-CE, confining the exemption to “under any ofthe said Acts” mentioned in paragraph 1 of the notification. The prayerwas made for a declaration that the exemption notification wasapplicable to NCCD, additional excise duty (Pan Masala) and educationcess and the Notification No.71/2003-CE was repugnant to the IndustrialPolicy decision declared by Union of India (respondent no.1) and Stateof Sikkim (respondent no.4). The appellant claimed that excise dutyexemption would include all levy in nature of excise duty, levied andcollected on goods manufactured in India.

11. Vide Notifications dated 27.3.2008 and 10.6.2008, the benefitof Cenvat Credit was withdrawn. The appellant challenged thenotification through Writ Petition (C) No.11 of 2008. The High Courtwas pleased to allow the said petition vide judgment and order dated15.11.2010.

12. Akshay Ispat and Ferro Alloys Private Limited, themanufacturer of Ferro Silicon, an excisable commodity, has filed otherappeal. It had obtained permanent registration under the Central ExciseRules 2002 on 11.3.2004. The Government of India introduced educationcess under Chapter VI of Section 91 of the Finance Act, 2004. The A

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Aappellant did not claim the benefit of the education cess for the periodAugust 2004 to March 2006. After that, it started taking the re-creditof the education cess w.e.f. 1.4.2006. On 12.9.2006, the Superintendent,Central Excise, sent a communication directing the appellant to pay theeducation cess with interest and penalty for August, 2006. The appellantsubmitted its reply. After that, show cause notice dated 31.10.2006,Bwas issued to the appellant regarding default in payment of educationcess for August, 2006 and September, 2006 and proceedings wereinitiated for infringement under Section 91(3) of the Finance Act, 2004.The appellant sent a reply; however, on 6.12.2006, another show causenotice was issued. The appellant after that claimed on 19.12.2006Crepayment of education cess for the period August, 2004 to March,2006. In March 2007, the Government of India introduced secondaryand higher education cess under Section 126 of the Finance Act, 2007.Section 128(1) of the Finance Act, 2007 indicated how the said cesswas to be calculated. The respondents demanded by issuance of furthernotice education cess and secondary and higher education cess. TheDappellant filed a writ application in the High Court. By the impugnedjudgment, the same has been dismissed. The High Court dismissedthe Writ Petition (C) No.24 of 2007, and another concerning NCCDand education cess, secondary and higher education cess and held thatthey were not included under exemption Notification No.71/2003-CEEand the appellant had illegally availed the benefits of the exemption inrespect to it. Aggrieved by the dismissal of the writ petitions, theappeals have been preferred.

13. Learned counsel appearing on behalf of the appellantsubmitted that NCCD, education cess, and secondary and higherFeducation cess form part of the excise duty. Hence, the decision ofthe High Court is bad in law. Reliance has been placed on SRDNutrients Private Limited v. Commissioner of Central Excise,Guwahati, (2018) 1 SCC 105 and the decision of this Court in BajajAuto Limited v. Union of India & others, 2019 SCC OnLine SC 421,decided on 27.3.2019. It is submitted that the education cess wasGintroduced by Sections 91 and 93 of the Finance Act, 2004 and highereducation cess by the Finance Act, 2007 and the NCCD was imposedunder Section 136 of the Finance Act, 2001. The imposition is in thenature of a duty of excise and in addition to any other duty of excisechargeable under the Central Excise Act, 1944 (‘the Act of 1944’). ItHis further provided that the provisions of the Act of 1944 and Rules made thereunder relating to refunds and exemptions from duties andimposition of penalty, shall, as far as may be, apply with respect to theabovementioned duties in question. Reliance has also been placed oncirculars dated 10.8.2004 and 8.4.2011, issued by Central Board ofExcise and Customs, on the subject of education cess and secondaryand higher education cess.

14. Learned counsel appearing on behalf of respondents hassubmitted that the decision of the High Court is appropriate and no casefor interference is made out. The benefit of exemption granted, w.e.f.9.9.2003 from payment of excise duty was withdrawn vide notificationdated 25.4.2007. Tobacco and Tobacco products including cigarettes,cigars and gutkha, were excluded from the benefit of exemption ofthe excise duty. The notification dated 25.4.2007 was set aside by theHigh Court. The decision of the High Court has been reversed by thisCourt in Union of India v. Unicorn Industries (Civil Appeal No. 7432of 2019), decided on 19.9.2019. Apart from that, when exemptionnotifications were issued, the NCCD, education cess and secondaryand higher education cess were not even imposed, as such, it couldnot be said that they were covered under the exemption notification.The duty described above had been imposed by separate legislation,which was not covered under the exemption notification. It was anadditional duty imposed in the nature of excise duty. They were notcovered under the exemption notification. As such, the High Court hasrightly dismissed the writ application filed by the appellants. Hence,no case for interference is made out.

15. It is not disputed that the Government of India took a policydecision, Ministry of Industry, Department of Industrial Policy andPromotion vide Office Memorandum dated 24.12.1997, concerning newindustrial policy and concessions in the North-Eastern region. Thedecision was taken for converting the Growth Centres and IIDCs intototal tax-free zones for the next ten years. All industrial activities inthese zones would be free from income tax and excise duty for tenyears from the commencement of production.

16. The benefit of the said notification was extended to the Stateof Sikkim vide notification dated 17.2.2003. Following benefits wereextended to the new and the existing industrial units:

“i) New industrial units and existing industrial units on theirsubstantial expansion as defined, set up in Growth Center, A

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SUPREME COURT REPORTS

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AIndustrial Infrastructure Development Centers (IIDCs) and otherlocations like Industrial Estates, Export Processing Zones, FoodParks, IT Parks, etc., as notified by the Central Government areentitled to 100% (hundred percent) income tax and excise dutyexemption for a period of 10 years from the date ofcommencement of commercial production. Thrust SectorBIndustries as mentioned in Annexure-II are entitled to similarconcessions in the entire State of Sikkim without arearestrictions.”

17. The Government decided to exempt 100 per cent income taxand excise duty for ten years. In accordance with the policy decisionCthe Notification No.71/2003 was issued on 9.9.2003 by the CentralGovernment in exercise of powers conferred by Section 5A(1) of theAct of 1944 read with Section 3(3) of the Additional Duties of Excise(Goods of Special Importance) Act, 1957 (‘the Act of 1957’) andSection 3(3) of the Additional Duties of Excise (Textiles and TextilesDArticles) Act, 1978 (‘the Act of 1978’), exempted goods specified inthe First Schedule and the Second Schedule to the Central Excise TariffAct, 1985, other than goods specified in Annexure I in the State ofSikkim. The exemption from payment of so much of excise duty oradditional duty of excise, as the case may be, leviable thereon underany of the said Act. The relevant portion is extracted hereunder:E

“Notification No.71/2003 – Central Excise

“Notification No.71/2003 – Central Excise In exercise of the powers conferred by sub-section (1) of section5A of the Central Excise Act, 1944 (1 of 1944), read with sub-section (3) of section 3 of the Additional Duties of Excise (GoodsFof Special Importance) Act, 1957 (58 of 1957) and sub-section(3) of Section 3 of the Additional Duties of Excise (Textiles andTextiles Articles) Act, 1978 (40 of 1978), the Central Government,being satisfied that it is necessary in the public interest so to do,hereby exempts the goods specified in the First Schedule andthe Second Schedule to the Central Excise Tariff Act, 1985 (5Gof 1986), other than goods specified in Annexure I appendedhereto, and cleared from a unit located in the Industrial GrowthCentre or Industrial Infrastructure Development Centre or ExportPromotion Industrial Park or Industrial Estate or Industrial Areaor Commercial Estate or Scheme Area, as the case may be, inHthe State of Sikkim, specified in Annexure – II appended hereto, M/S. UNICORN INDUSTRIES v. UNION OF INDIA & OTHERS1023[ARUN MISHRA, J.]

from so much of the duty of excise or additional duty of excise,as the case may be, leviable thereon under any of the said Actsas is equivalent to the amount of duty paid by the manufacturerof the said goods, other than the amount of duty paid by utilizationof CENVAT credit under the CENVAT Credit Rules, 2002.”

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18. Section 136 of the Finance Act, 2001 provides imposition ofthe NCCD. Section 136 is extracted hereunder:

“136. National Calamity Contingent Duty.-(1) In the case ofgoods specified in the Seventh Schedule, being goodsmanufactured or produced, there shall be levied and collectedfor the purposes of the Union, by surcharge, a duty of excise, tobe called the National Calamity Contingent Duty (hereinafterreferred to as the National Calamity Duty), at the rates specifiedin the said schedule.

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(2) The National Calamity Duty chargeable on the goodsspecified in the Seventh Schedule shall be in addition toany other duties of excisechargeable on such goodsunder the Central Excise Act, 1944 (1 of 1944) or anyother law for the time being in force.

(3) The provisions of the Central Excise Act, 1944 (1 ofE1944) and the rules made thereunder, including thoserelating to refunds and exemptions from duties andimposition of penalty, shall, as far as may be, apply inrelation to the levy and collectionof the NationalCalamity Duty leviable under this section in respect ofFthe goods specified in the Seventh Schedule as theyapply in relation to the levy and collection of the dutiesof excise on such goods under that Act or those rules,as the case may be.”

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19. The education cess came to be imposed vide notificationdated 10.9.2004 issued under the Finance Act, 2004. Sections 91 and93 are extracted hereunder:

“91. Education Cess-(1) Without prejudice to the provisions ofsub-section (11) of Section 2, there shall be levied and collected, H

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in accordance with the provisions of this Chapter as surchargefor purposes of the Union,a cess to be called the Education Cess,to fulfil the commitment of the Government to provide andfinance universalized quality basic education.

(2) The Central Government may, after due appropriation madeBby Parliament by law in this behalf, utilize, such sums of moneyof the Education Cess levied under sub-section (11) of Section2 and this Chapter for the purposes specified in sub-section (1),as it may consider necessary.

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93. Education Cess on Excisable Goods- (1) The Education Cesslevied under Section 81, in the case of goods specified in the FirstSchedule to the Central Excise Tariff Act, 1985 (5 of 1986), beinggoods manufactured or produced, shall be a duty of excise (inthis section referred to as the Education Cess on excisableDgoods), at the rate of two per cent, calculated on the aggregateof all duties of excise (including special duty of excise or anyother duty of excise but excluding Education Cess on excisablegoods) which are levied and collected by the Central Governmentin the Ministry of Finance (Department of Revenue) under theprovisions of the Central Excise Act, 1944 (1 of 1944) or underEany other law for the time being in force.

(2) The Education Cess on excisable goods shall be in additionto any other duties of excise chargeable on such goodsunderthe Central Excise Act, 1944 (1 of 1944) or any other law forthe time being in force.F

(3) The provisionsof the Central Excise Act, 1944 (1 of 1944)and the rules made thereunder, including those relating to refundsand exemptions from duties and imposition of penalty shall, asfar as may be, apply in relation to the levy and collection of theEducation Cesson excisable goods as they apply in relation toGthe levy and collection of the duties of excise on such goods underthe Central Excise Act, 1944 or the rules, as the case may be.”

20. The Central Government introduced the secondary and higherHeducation cess at the rate of 1 per cent of the total excise duty under

M/S. UNICORN INDUSTRIES v. UNION OF INDIA & OTHERS[ARUN MISHRA, J.]

Sections 126 and 128 of the Finance Act, 2007, which are reproducedhereunder:

“126. (1) Without prejudice to the provisions of sub-section (12)of section 2, there shall be levied and collected, in accordancewith the provisions of this Chapter as surcharge for purposes ofthe Union, a cess to be called the Secondary and Higher EducationCess, to fulfil the commitment of the Government to provide andfinance secondary and higher education.

(2) The Central Government may, after due appropriation madeby Parliament by law in this behalf, utilize, such sums of moneyof the Secondary and Higher Education Cess levied under sub-section

(12) of section 2 and this Chapter for the purposes specified insubsection (1) as it may consider necessary.

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128. (1) The Secondary and Higher Education Cess levied undersection 126, in the case of goods specified in the First Scheduleto the Central Excise Tariff Act, 1985, being goods manufacturedor produced, shall be a duty of excise(in this section referred toas the Secondary and Higher Education Cess on excisablegoods), at the rate of one per cent., calculated on the aggregateof all duties of excise(including special duty of excise or anyother duty of excise but excluding Education Cess chargeableunder section 93 of the Finance (No. 2) Act, 2004 and Secondaryand Higher Education Cess on excisable goods) which are leviedand collected by the Central Government in the Ministry ofFinance (Department of Revenue), under the provisions of theCentral Excise Act, 1944 or under any other law for the timebeing in force.

(2) The Secondary and Higher Education Cess on excisable goodsshall be in addition to any other duties of excise chargeable onsuch goods,under the Central Excise Act, 1944 or any other lawfor the time being in force and the Education Cess chargeableunder section 93 of the Finance (No. 2) Act, 1944.

(3) The provisionsof the Central Excise Act, 1944 and the rulesmade thereunder, including those relating to refunds and

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Aexemptions from duties and imposition of penalty shall, as far asmay be, applyin relation to the levy and collection of theSecondary and Higher Education Cess on excisable goods as theyapply in relation to the levy and collection of the duties of exciseon such goods under the Central Excise Act, 1944 or the rulesmade thereunder, as the case may be.”B

21. The appellant challenged the exemption Notification No.71/2003 dated 9.9.2003, before the High Court only to the extent that itlimits the exemption only in relation to basic excise duty under the ExciseAct, additional duties under the Act of 1957 and the additional dutiesunder the Act of 1978. It is submitted that though various Finance ActsCimposed these duties, they were recoverable as excise duty,notwithstanding their nomenclature. The notification dated 17.2.2003indicated that 100 per cent income tax and excise duty exemption forten years was granted. The exemption should cover the NCCD,education cess and the secondary and higher education cess imposedDby the notifications issued under Finance Acts of 2001, 2004, and 2007.

22. The main question arising for consideration is when 100 percent exemption had been granted for excise duty for a period of 10years, whether the exemption notification issued for the State of Sikkimon 9.9.2003 shall be confined to the basic excise duty under the Act ofE1944, additional duty under the Act of 1957 and additional duty underthe Act of 1978, which were specifically mentioned in the notificationissued on 9.9.2003, or it also include cess/duty imposed by Finance Actsof 2001, 2004 and 2007.

23. The submission raised on behalf of appellant is that the dutyFand cess in the nature of excise duty cannot be realized, particularly inview of the provisions in the Finance Acts of 2001, 2004 and 2007relating to refund and exemption, which have made applicable, theprovisions of the Act of 1944 and the Rules made thereunder relatingto exemption. As such, in view of the decisions of Division Bench ofthis Court in SRD Nutrients Private Limited (supra) and Bajaj AutoGLimited (supra), the decision of the High Court deserves to be set aside.

24. It is not in dispute that when initial exemption notification wasissued in 1997 for the North-Eastern States, which was later on appliedto the State of Sikkim on 9.9.2003. The benefits from payment of exciseduty and additional excise duty were confined to the basic excise dutyHpayable under the Acts of 1944, 1957 and 1978. There was no reference made to NCCD imposed under the Finance Act, 2001. Apartfrom that, when the notification came to be issued, the education cessand secondary and higher education cess, which came to be imposedby Finance Acts of 2004 and 2007, were not in vogue.

25. A Division Bench of this Court in SRD Nutrients PrivateLimited (supra) has considered the Finance Acts of 2004 and 2007, bywhich education and secondary and higher education cess wereimposed. Under the Industrial Policy dated 1.4.2007 for the North-Eastern States, the notification dated 25.4.2007, issued by the CentralGovernment, came up for consideration before this Court. The saidnotification and the industrial policy, have been dealt with in paragraphs4 and 5 of the SRD Nutrients Private Limited (supra), which areextracted hereunder:

“4. Industrial Policy dated 1-4-2007 for the North-Eastern States,including the State of Assam, was announced by the Ministry ofCommerce and Industry (Department of Industrial Policy andPromotion), Government of India to set up a special package forthe North-Eastern States to accelerate industrial development ofthe State. As per this package, new industrial units were entitledto 100% excise duty exemption for a period of ten years fromthe date of commencement of commercial production. Pursuantto the said Industrial Policy, the Central Government issuedNotification No. 20/2007-Ex. Dated 25-4-2007 granting exemptionfrom duties of excise levied under the Central Excise Act, 1944(hereinafter referred to as “the Act”) read with Section 3(3) ofthe Additional Duties of Excise (Goods of Special Importance)Act, 1957 and Section 3(3) of the Additional Duties of Excise(Textiles & Textile Articles) Act, 1978 to goods cleared from thenotified areas within the North-Eastern States. The saidNotification provided that the assessee would be entitled to refundof duty paid other than the duty paid by way of utilisation ofCENVAT credit under the CENVAT Credit Rules, 2004.

5. Reproduction of the first three paragraphs of this Notificationwould be sufficient, which are as follows:

“NOTIFICATION No.: 20/2007-CE dated 25-4-2007

North-East — Exemption to all goods, except as specified,cleared from Assam, Tripura, Meghalaya, Mizoram, A

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AManipur, Nagaland, Arunachal Pradesh or Sikkim from dutypaid other than by utilisation of CENVAT credit.

In exercise of the powers conferred by sub-section (1) of Section5-A of the Central Excise Act, 1944 (1 of 1944), the CentralGovernment, being satisfied that it is necessary in the publicinterest so to do, hereby exempts the goods specified in the FirstSchedule to the Central Excise Tariff Act, 1985 (5 of 1986) otherthan those mentioned in the Annexure and cleared from a unitlocated in the States of Assam or Tripura or Meghalaya orMizoram or Manipur or Nagaland or Arunachal Pradesh orSikkim, as the case may be, from so much of the duty of exciseleviable thereon under the said Act as is equivalent to the amountof duty paid by the manufacturer of goods other than the amountof duty paid by utilisation of CENVAT credit under the CENVATCredit Rules, 2004.

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2. In cases where all goods produced by a manufacturer areDeligible for exemption under this Notification, the exemptioncontained in this Notification shall be available subject to thecondition that, the manufacturer first utilises whole of theCENVAT credit available to him on the last day of the monthunder consideration for payment of duty on goods cleared duringEsuch month and pays only the balance amount in cash.

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3. The exemption contained in this notification shall be giveneffect to in the following manner, namely—

(a) the manufacturer shall submit a statement of the dutypaid other than the amount of duty paid by utilisation ofCENVAT credit under the CENVAT Credit Rules, 2004,to the Assistant Commissioner or the DeputyCommissioner of Central Excise, as the case may be,by the 7th of the next month in which the duty has beenpaid other than the amount of duty paid by utilisation ofCENVAT credit under the CENVAT Credit Rules, 2004; F

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(b) the Assistant Commissioner of Central Excise or theDeputy Commissioner of Central Excise, as the casemay be, after such verification, as may be deemednecessary, shall refund the amount of duty paid otherthan the amount of duty paid by utilisation of CENVAT

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credit under the CENVAT Credit Rules, 2004, during themonth under consideration to the manufacturer by the15th of the next month:

Provided that in cases, where the exemption contained in thisNotification is not applicable to some of the goods produced bya manufacturer, such refund shall not exceed the amount of dutypaid less the amount of the CENVAT credit availed of, in respectof the duty paid on the inputs used in or in relation to themanufacture of goods cleared under this Notification;

(c) if there is likely to be any delay in the verification,Assistant Commissioner of Central Excise or the DeputyCommissioner of Central Excise, as the case may be,shall refund the amount on provisional basis by the 15thof the next month to the month under consideration andthereafter may adjust the amount of refund by suchamount as may be necessary in the subsequent refundsadmissible to the manufacturer.”

Circulars have also been referred to in the decision of this Courtin SRD Nutrients Private Limited (supra). The same is extractedhereunder:

“17. It is clear from the arguments of the counsel for the partiesthat divergent views are expressed by the CESTAT as well asHigh Courts. Even one Bench of the same Tribunal has differedfrom its earlier Division Bench decision. In this scenario, itbecomes important as to how the Department has viewed theposition regarding education cess and higher education cess whichis payable as a surcharge on the excise duty, once the exciseduty is exempted. Two circulars are relevant in this behalf, oneis Circular dated 10-8-2004 which clarifies that education cessis part of excise duty. In this circular, certain clarifications aregiven by the Ministry of Finance (Department of Revenue),Government of India and the relevant portion thereof reads asunder:

“Subject: Issues relating to imposition of education cess onexcisable goods and on imported goods, as pointed out bythe trade and the field formations—Reg.

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The undersigned is directed to state that subsequent to Budget2004 announcements, a number of representations/referenceshave been received from the trade as well as from the fieldformations pertaining to imposition of education cess on excisablegoods and on imported goods. The points raised and theclarifications thereon are as follows:

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Issue (1): Whether education cess on excisable goods is leviableon goods manufactured prior to imposition of cess but clearedafter imposition of such cess?

Clarification: Education cess on excisable goods is a new levy.In similar cases, it has been held by the Supreme Court that if alevy is not there at the time the goods are manufactured orproduced in India, it cannot be levied at the stage of removal ofthe said goods. Thus, education cess is not leviable on excisablegoods manufactured prior to imposition of cess but cleared afterimposition of such cess.

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Issue (2): Whether goods that are fully exempted from exciseduty/customs duty or are cleared without payment of excise duty/customs duty (such as clearance under bond or fulfilment ofcertain conditions) would be subjected to cess.

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Clarification: The education cess is leviable at the rate of twoper cent of the aggregate of all duties of excise/customs(excluding certain duties of customs like anti-dumping duty,safeguard duty, etc.), levied and collected. If goods are fullyexempted from excise duty or customs duty, are chargeable toNIL duty or are cleared without payment of duty under specifiedprocedure such as clearance under bond, there is no collectionof duty. Thus, no education cess would be leviable on suchclearances. In this regard, letter D.O. No. 605/54/2004-DBKdated 21-7-2004 issued by Member (Customs) may also bereferred to.”

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(emphasis in original)”

In the circular dated 10.8.2004, reference has been made to thenotification issued by Member (Customs), wherein it is stated that thereis no collection of excise duty; hence, no education cess would beHleviable on such clearances.

Circular dated 8.4.2011 had been issued by the Central Boardof Excise and Customs with respect to service tax. In case servicetax stands exempted, education cess and secondary and higher educationcess shall not be levied.

26. This Court in SRD Nutrients Private Limited (supra) hasobserved that the circulars bind department. When there is no exciseduty, the education cess and secondary and higher education cess couldnot have been demanded. This Court observed thus:

“21. One aspect that clearly emerges from the reading of thesetwo circulars is that the Government itself has taken the positionthat where whole of excise duty or service tax is exempted, eventhe education cess as well as secondary and higher educationcess would not be payable. These circulars are binding on theDepartment.

22. Even otherwise, we are of the opinion that it is more rationalto accept the aforesaid position as clarified by the Ministry ofFinance in the aforesaid circulars. Education cess is on exciseduty. It means that those assessees who are required to payexcise duty have to shell out education cess as well. Thiseducation cess is introduced by Sections 91 to 93 of the Finance(No. 2) Act, 2004. As per Section 91 thereof, education cess isthe surcharge which the assessee is to pay. Section 93 makes itclear that this education cess is payable on “excisable goods,”i.e., in respect of goods specified in the First Schedule to theCentral Excise Tariff Act, 1985. Further, this education cess isto be levied @ 2% and calculated on the aggregate of all dutiesof excise which are levied and collected by the CentralGovernment under the provisions of the Central Excise Act, 1944or under any other law for the time being in force. Sub-section(3) of Section 93 provides that the provisions of the Central ExciseAct, 1944 and the Rules made thereunder, including those relatedto refunds and duties, etc. shall as far as may be applied inrelation to levy and collection of education cess on excisablegoods. A conjoint reading of these provisions would amplydemonstrate that education cess as a surcharge is levied @ 2%on the duties of excise, which are payable under the Act. It can,therefore, be clearly inferred that when there is no excise dutypayable, as it is exempted, there would not be any education cess A

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as well, inasmuch as education cess @ 2% is to be calculatedon the aggregate of duties of excise. There cannot be anysurcharge when basic duty itself is NIL.

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24. We are in agreement with the aforesaid reasons accordedBby the Rajasthan High Court since it is in consonance with thelegal principle enunciated by this Court. For this purpose, we mayrefer to the judgment in CCE v. TELCO (1997) 5 SCC 275. Inthat case, issue pertained to valuation of cess which was levied@ 1/8 per cent of ad valorem “value” of the Central excise duty.CThe Court held that the calculation of 1/8 per cent ad valoremof the motor vehicle for the purposes of the levy and collectionof the automobile cess must be made that was being calculatedsince automobile cess was to be levied and calculated as if itwas excise duty. As a fortiori, the education cess and highereducation cess levied @ 2% of the excise duty would partakeDthe character of excise duty itself.”

27. In Bajaj Auto Limited (supra), a Division Bench of this Courtconsidered the question of liability towards NCCD, education cess andsecondary and higher education cess on manufacturing establishmentwhich is exempted from payment of central excise duty under the ActEof 1944. The matter arose from the State of Uttarakhand; an OfficeMemorandum dated 7.1.2003 was issued, by which 100 per cent outrightexcise duty exemption for ten years was granted from the date ofcommencement of the commercial production. Notification dated10.6.2003 issued under Section 5A has been reproduced in the decisionFmentioned above, the same is extracted hereunder:

“GENERAL EXEMPTION NO. 41

Exemption to goods other than specified goods cleared from unitslocated in the Industrial Growth Centre or IndustrialInfrastructure Development Centre or Export Promotion IndustrialGPark or Industrial Estate or Industrial Area or Commercial Estateor Scheme Area of Uttarakhand and Himachal Pradesh.—Inexercise of the powers conferred by sub-section (1) of section5A of the Central Excise Act, 1944 (1 of 1944) read with sub-section (3) of section 3 of the Additional Duties of Excise (GoodsHof Special Importance) Act, 1957 (58 of 1957) and sub-section

(3) of section 3 of the Additional Duties of Excise (Textiles andTextiles Articles) Act, 1978 (40 of 1978), the Central Government,being satisfied that it is necessary in the public interest so to do,hereby exempts the goods specified in the First Schedule andthe Second Schedule to the Central Excise Tariff Act, 1985 (5of 1986), other than the goods specified in Annexure-I appendedhereto, and cleared from a unit located in the Industrial GrowthCentre or Industrial Infrastructure Development Centre or ExportPromotion Industrial Park or Industrial Estate or Industrial Areaor Commercial Estate or Scheme Area, as the case may be,specified in [Annexure-II and Annexure III] appended hereto,from the whole of the duty of excise or additional duty of excise,as the case may be, leviable thereon under any of the said Acts.”

The Division Bench has relied upon the decision of SRDNutrients Private Limited (supra). The decision of the Rajasthan HighCourt in Banswara Syntex Ltd. v. Union of India, 2007 SCC OnLineRaj. 365, which was considered in SRD Nutrients Private Limited(supra), was also referred to, besides the circular of 2004. This Courthas observed thus:

“21. We may notice that the primary reasoning contained in theimpugned order is common for the three cesses, i.e., NCCD;Education Cess and Secondary & Higher Education Cess. Thesewere in the nature of surcharges levied in other Acts, which havenot been specifically excluded under the Notification in question.That reasoning does not prevail, more so because of the judgmentin SRD Nutrients Pvt. Ltd. The question, thus, is whether, eventhough the NCCD is in the nature of an excise duty, its incidencebeing on the product, rather than on the value of the excise duty,that itself would make any difference to the applicability of theNCCD to excise exempt units.

22. On a proper appreciation of the judicial pronouncement inSRD Nutrients Pvt. Ltd., we are not inclined to take a differentview from the one taken for Education Cess and Secondary &Higher Education Cess, even while considering the issue ofNCCD.

23. We may notice that this Court, in SRD Nutrients Pvt. Ltd.gave its imprimatur to the view expressed by the Rajasthan HighCourt in Banswara Syntex Ltd. The rationale is that while there

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Amay be surcharges under different financial enactments to providethe Government with revenue for specified purposes, the samehave been notified as leviable in the nature of a particular kindof duty. In the case of NCCD, it is in the nature of an exciseduty. It has to bear the same character as those respective taxesto which the surcharge is appended. NCCD will not cease to beBan excise duty, but is the same as an excise duty, even if it islevied on the product. Thus, when NCCD, at the time ofcollection, takes the character of a duty on the product, whatevermay be the rationale behind it, it is also subject to the provisionsrelating to excise duty, applicable to it in the manner of collectionCas well as the obligation of the taxpayer to discharge the duty.Once the excise duty is exempted, NCCD, levied as an exciseduty, cannot partake a different character and, thus, would beentitled to the benefit of the exemption notification. The exemptionnotification also states that the exemption is from the “whole ofthe duty of excise or additional duty of excise.” We may alsoDnote that the exemption itself is for a period of ten years fromthe date of commercial production of the unit.

24. We are, thus, of the view that the appellant would not beliable to pay the NCCD.”

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28. The Division Bench of this Court has rendered both the abovedecisions. The most unfortunate part is that the binding decision of largerbench consisting of three-Judges of this Court in Union of India v.Modi Rubber Limited, (1986) 4 SCC 66, dealing with the similar issue,was not placed for consideration before this Court when theFabovementioned decisions came to be rendered.

29. This Court in Modi Rubber Limited (supra) has consideredthe similar question in the backdrop of the facts that what is the meaningof the expression ‘duty of excise’ employed in the notifications dated1.8.1974 and 1.3.1981, issued by the Government of India under RuleG8(1) of the Central Excise Rules. A question arose whether expression‘duty of excise’ is limited in its connotation only to basic duty leviedunder the Central Excises and Salt Act, 1944 or it also covers specialduties of excise levied under the various Finance Bills and Acts,additional duty of excise levied under the Act of 1957 and other kindHof duty of excise levied under the Central enactments.

30. In Modi Rubber Limited (supra), the company was themanufacturer of tyres, which product was subject to a duty of exciseunder the Central Excises and Salt Act, 1944. The word ‘duty’ underthe said Act is defined in Rule 2(v) to mean “the duty payable underSection 3 of the Act”. The exemption is dealt with under Rule 8 ofCentral Excise Rules, exempting various categories of excisable goodsfrom the whole or any part of the duty of excise leviable on such goods.The notification dated 1.8.1974, came up for consideration before thisCourt in Modi Rubber Limited (supra), which is extracted hereunder:

“3…..

Notification No. 123/74-C.E. dated August 1, 1974

In the exercise of the powers conferred by sub-rule (1) of Rule8 of the Central Excise Rules, 1944, the Central Governmenthereby exempts tyres for motor vehicles falling under sub-item(1) of Item No.16 of the First Schedule to the Central Excisesand Salt Act, 1944 (1 of 1944), from so much of the duty of exciseleviable thereon as is in excess of fifty-five per cent advalorem.”

The notification was confined to the exemption of duty of exciseunder the Act of 1944 in excess of 55 per cent ad valorem.Subsequently, the notification dated 1.3.1981, was issued by the CentralGovernment exempting specified goods from so much of the duty ofexcise leviable thereon as is more than the duty specified in thecorresponding entry in column 5.

31. This Court in Modi Rubber Limited (supra) considered thequestion that since 1963, the special duty of excise was levied interalia on the manufacture of tyres from year to year up to 1971 by variousFinance Acts passed from time to time. It was discontinued from 1972to 1978, and the Finance Act, 1978, again revived it. After that, itcontinued to be levied from year to year right up to the period. Thespecial duties of excise came to be imposed under Section 32 of theFinance Act, 1979, which came up for consideration before this Courtin Modi Rubber Limited (supra). The same is extracted hereunder:

“32. Special Duties of Excise.— (1) In the case of goodschargeable with a duty of excise under the Central Excises Actas amended from time to time, read with any notification for thetime being in force issued by the Central Government in relation AB

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Ato the duty so chargeable there shall be levied and collected aspecial duty of exciseequal to five per cent of the amount sochargeable on such goods.

(2) Sub-section (1) shall cease to have effect after the 31stday of March, 1980, except as respects things done orBomitted to be done before such cesser; and Section 6of the General Clauses Act, 1897, shall apply upon suchcesser as if the said sub-section had then been repealedby a Central Act.

(3) The Special duties of excise referred to in sub-sectionC(1) shall be in addition to any duties of excise chargeableon such goods under the Central Excises Actor anyother law for the time being in force.

(4) The provisions of the Central Excises Act and the rulesmade thereunder, including those relating to refunds andDexemptions from duties, shall,as far as may be, applyin relation to the levy and collection of the special dutiesof excise leviable under this section in respect of anygoods as they apply in relation to the levy and collectionof the duties of excise on such goods under that Act orthose rules as the case may be.”

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32. The provisions of Section 32 are pari materia to theabovementioned provisions of the Finance Act(s) in question. Thespecial duty under Section 32 of Finance Act, 1979 imposed was inFaddition to any duties of excise chargeable on such goods under theprovisions of the Central Excises Act and the Rules made thereunder,with respect to refunds and exemptions from duties, shall, as far asmay be, apply to the levy and collection of special duties of exciseleviable under the provisions of Section 32 of the Finance Act, 1979.

33. The assessee Modi Rubber Limited (supra) claimed thatGin view of the notification dated 1.8.1974, assessee was exempted frompayment not only in respect of basic excise duty levied under the CentralExcises and Salt Act, 1944, but also in respect of special duty of exciselevied under the relevant Finance Acts, because the language used inthe notification was not restrictive and it referred generally to ‘duty ofHexcise’ without any qualification, therefore, it covered all duties of excise whether levied under the Central Excises and Salt Act, 1944 or underany other Central enactments. The dispute pertained to the period fromNovember 1979 to October 1982.

34. The Assistant Collector of Excise, in the case of ModiRubber Limited (supra), held that exemption granted under thenotification dated 1.8.1974, was not available in respect of special dutyof excise levied under the Finance Acts. The assessee thereupon fileda writ petition in the Delhi High Court, challenging the order of theAssistant Collector of Excise. The Delhi High Court upheld the claimof the assessee. It took the view that the expression ‘duty of excise’included not only basic duty of excise levied under the Central Excisesand Salt Act, 1944, but also the special duty of excise levied under thevarious Finance Acts and any other duties of excise levied under Centralenactment. Meanwhile, Parliament also enacted the Central ExciseLaws (Amendment and Validation) Act, 1982 laying down statutory ruleswhich should guide the court in interpreting notifications grantingexemption from payment of duty of excise and prescribing the conditionson which a notification granting exemption from payment of duty ofexcise can be construed as applicable to duty of excise levied underany Central law making the provisions of the Central Excises and SaltAct, 1944 and the Rules made thereunder applicable to the levy andcollection of duty of excise under such Central Law.

35. The question arose for consideration before this Court as towhat is the real import of the expression ‘duty of excise’ in thenotifications dated 1.8.1974 and 1.3.1981 and whether it includes theduties of excise leviable not only under the Central Excises and SaltAct, 1944, but also under any other enactment.

36. This Court in Modi Rubber Limited (supra) has consideredthe purport of the notifications and the specific provisions mentionedtherein and held that exemption has to be considered in the light ofprovisions of Central Excise Rules, 1944, as envisaged under Rule 2(v)of Central Excise Rules, 1944. It cannot, in the circumstances, bearan extended meaning to include special excise duty and auxiliary exciseduty. This Court observed thus:

“6. The first question that arises for consideration on these factsis as to what is the true import of the expression “duty of excise”in the notifications dated August 1, 1974, and March 1, 1981. Itis only if this expression is held to include duties of excise leviable A

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not only under the Central Excises and Salt Act, 1944 but alsounder any other enactments that the question would arise whetherthe Central Laws (Amendment and Validation) Act, 1982 isconstitutionally invalid. We, therefore, asked the learned counselappearing on behalf of the parties to confine their arguments onlyto the first question of interpretation of the expression ‘duty ofexcise’ in the notifications dated August 1, 1974 and March 1,1981.

7. Both these notifications, as the opening part shows, are issuedunder Rule 8(1) of the Central Excise Rules, 1944 and since thedefinition of ‘duty’ in Rule 2, clause (v) must necessarily beprojected in Rule 8(1) and the expression “duty of excise” in Rule8(1) must be read in the light of that definition, the sameexpression used in these two notifications issued under Rule 8(1)must also be interpreted in the same sense, namely, duty of excisepayable under the Central Excises and Salt Act, 1944 and theexemption granted under both these notifications must be regardedas limited only to such duty of excise. But the respondentscontended that the expression ‘duty of excise’ was one of largeamplitude and in the absence of any restrictive or limitative wordsindicating that it was intended to refer only to duty of exciseleviable under the Central Excises and Salt Act, 1944, it must beheld to cover all duties of excise whether leviable under theCentral Excises and Salt Act, 1944 or under any other enactment.The respondents sought to support this contention by pointing outthat whenever the Central Government wanted to confine theexemption granted under a notification to the duty of exciseleviable under the Central Excises and Salt Act, 1944, the CentralGovernment made its intention abundantly clear by usingappropriate words of limitation such as “duty of excise leviable... under Section 3 of the Central Excises and Salt Act, 1944”or “duty of excise leviable ... under the Central Excises and SaltAct, 1944” or “duty of excise leviable ... under the said Act” asin the Notification No. CER-8(2)/55-C.E. dated September 17,1955, Notification No. 255/77-C.E. dated July 20, 1977,Notification No. CER-8(1)/55-C.E. dated September 2, 1955,Notification No. CER-8(9)/55-C.E. dated December 31, 1955,Notification No. 95/61-C.E. dated April 1, 1961, Notification No.23/55-C.E. dated April 29, 1955, and similar other notifications.

But, here said the respondents, no such words of limitation areused in the two notifications in question and the expression “dutyof excise” must, therefore, be read according to its plain naturalmeaning as including all duties of excise, including special dutyof excise and auxiliary duty of excise. Now, it is no doubt truethat in these various notifications referred to above, the CentralGovernment has, while granting exemption under Rule 8(1), usedspecified language indicating that the exemption, total or partial,granted under each such notification is in respect of excise dutyleviable under the Central Excises and Salt Act, 1944. But, merelybecause, as a matter of drafting, the Central Government has insome notifications specifically referred to the excise duty inrespect of which exemption is granted as “duty of excise”leviable under the Central Excises and Salt Act, 1944, it doesnot follow that in the absence of such words of specificity, theexpression “duty of excise” standing by itself must be read asreferring to all duties of excise. It is not uncommon to find thatthe legislature sometimes, with a view to making its intention clearbeyond doubt, uses language ex abundanti cautela though itmay not be strictly necessary and even without it the sameintention can be spelt out as a matter of judicial construction andthis would be more so in case of subordinate legislation by theexecutive. The officer drafting a particular piece of subordinatelegislation in the Executive Department may employ words witha view to leaving no scope for possible doubt as to its intentionor sometimes even for greater completeness, though these wordsmay not add anything to the meaning and scope of the subordinatelegislation. Here, in the present notifications, the words duty ofexcise leviable under the Central Excises and Salt Act, 1944’ donot find a place as in the other notifications relied upon by therespondents. But, that does not necessarily lead to the inferencethat the expression “duty of excise’ in these notifications wasintended to refer to all duties of excise including special andauxiliary duties of excise. The absence of these words does notabsolve us from the obligation to interpret the expression “dutyof excise” in these notifications. We have still to construe thisexpression — what is its meaning and import — and that has tobe done, bearing in mind the context in which it occurs. We havealready pointed out that these notifications having been issued A

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Aunder Rule 8(1), the expression ‘duty of excise’ in thesenotifications must bear the same meaning which it has in Rule8(1) and that meaning clearly is — excise duty payable underthe Central Excises and Salt Act, 1944 as envisaged in Rule 2clause (v). It cannot in the circumstances bear an extendedmeaning so as to include special excise duty and auxiliary exciseBduty.”

37. This Court in Modi Rubber Limited (supra) furtherconsidered the question when the notification was issued on 1.8.1974,there was no special duty of excise leviable on tyres, it came to beintroduced in 1978 under various Finance Acts. It was held that theCnotification could not be read as comprehending the special duty ofexcise on the date of the notification and came to be levied four yearslater. This Court also laid down that the presumption is that when theCentral Government issues a notification granting exemption frompayment of excise duty under Rule 8(1) of Rules of 1944, the CentralDGovernment would have considered whether exemption should begranted and if so, to what extent and can only be with reference to theduty of excise which is then leviable, not a duty to be imposed in future.This Court in Modi Rubber Limited (supra) strongly repelled theargument that it would cover the duties to be imposed in the future notprevailing at the relevant time thus:E

“8. Moreover, at the date when the first notification was issued,namely, August 1, 1974, there was no special duty of exciseleviable on tyres. It came to be levied on tyres with effect fromthe financial year 1978 under various Finance Acts enacted fromyear to year. It is therefore difficult to understand how theFexpression “duty of excise” in the notification dated August 1,1974 could possibly be read as comprehending special duty ofexcise which did not exist at the date of this notification and cameto be levied almost four years later. When special duty of excisewas not in existence at the date of this notification, how couldthe Central Government, in issuing this notification, have intendedGto grant exemption from payment of special excise duty? Thepresumption is that when a notification granting exemption frompayment of excise duty is issued by the Central Governmentunder Rule 8(1), the Central Government would have applied itsmind to the question whether exemption should be granted andHif so, to what extent. And obviously, that can only be with reference to the duty of excise, which is then leviable. TheCentral Government could not be presumed to have projectedits mind into the future and granted exemption in respect of exciseduty which may be levied in the future, without considering thenature and extent of such duty and the object and purpose forwhich such levy may be made and without taking into accountthe situation which may be prevailing then. It is only when a newduty of excise is levied, whether special duty of excise or auxiliaryduty of excise or any other kind of duty of excise, that a questioncould arise whether any particular article should be exemptedfrom payment of such duty of excise and the Central Governmentwould then have to apply its mind to this question and havingregard to the nature and extent of such duty of excise and theobject and purpose for which it is levied and the economicsituation including supply and demand position then prevailing,decide whether exemption from payment of such excise dutyshould be granted and if so, to what extent. It would be absurdto suggest that by issuing the notification dated August 1, 1974the Central Government intended to grant exemption not only inrespect of excise duty then prevailing but also in respect of allfuture duties of excise which may be levied from time to time.”

38. This Court in Modi Rubber Limited (supra) also consideredthe provisions of Section 32 of the Finance Act, 1979, levying specialduty making applicable to the provisions of the Act of 1944 and theRules made thereunder, relating to refunds and exemptions from duties.They shall, as far as may be, apply in relation to the levy and collectionof the special duty of excise as they apply to the levy and collection ofthe duty of excise under the Act of 1944. It was held that referenceto the provisions under section 32 of the Finance Act as to the sourceof power under which notifications dated 1.8.1974 and 1.3.1981 wereissued, it could not be held that exemption granted under these twonotifications was extendable to Finance Act, 1979. It was limited onlyto the duty of excise payable under the Act of 1944. The expression‘duty of excise’ in these two notifications could not legitimately beconstrued as comprehending special duty of excise. Merely referenceto the source of power is not enough to attract the exemption and whatexemption has been granted to be read from the notification issuedtherein. This Court has further laid down that in case notificationgranting exemption issued under the Central Excise Rules, 1944 withoutreference to any other statute, the exemption must be read as limited AB

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Ato the duty of excise payable under the Central Excises and Salt Act,1944. It cannot cover such special or another kind of duty of excise.This Court in Modi Rubber Limited (supra) has discussed theprovisions of the Finance Act, 1979 thus:

“9. We have already pointed out, and this is one of the principalBarguments against the contention of the respondents, that byreason of the definition of “duty” in clause (v) of Rule 2 whichmust be read in Rule 8(1), the expression “duty of excise” inthe notifications dated August 1, 1974 and March 1, 1981 mustbe construed as duty of excise payable under the Central Excisesand Salt Act, 1944. The respondents sought to combat thisCconclusion by relying on sub-section (4) of Section 32 of theFinance Act, 1979 — there being an identical provision in eachFinance Act levying special duty of excise — which providedthat the provisions of the Central Excises and Salt Act, 1944 andthe rules made thereunder including those relating to refunds andexemptions from duties shall, as far as may be, apply in relationDto the levy and collection of special duty of excise as they applyin relation to the levy and collection of the duty of excise underthe Central Excises and Salt Act, 1944. It was urged on behalfof the respondents that by reason of this provision, Rule 8(1)relating to exemption from duty of excise became applicable inErelation to the levy and collection of special duty of excise andexemption from payment of special duty of excise could thereforebe granted by the Central Government under Rule 8(1) in thesame manner in which it could be granted in relation to the dutyof excise payable under the Central Excises and Salt Act, 1944.The argument of the respondents based on this premise was thatFthe reference to Rule 8(1) as the source of the power under whichthe notifications dated August 1, 1974 and March 1, 1981 wereissued could not therefore be relied upon as indicating that theduty of excise from which exemption was granted under thesetwo notifications was limited only to the duty of excise payableGunder the Central Excises and Salt Act, 1944 and the expression“duty of excise” in these two notifications could legitimately beconstrued as comprehending special duty of excise. Thisargument is, in our opinion, not well-founded and cannot besustained. It is obvious that when a notification granting exemptionfrom duty of excise is issued by the Central Government inHexercise of the power under Rule 8(1) simpliciter, without

anything more, it must, by reason of the definition of ‘duty’contained in Rule 2 clause (v) which according to the wellrecognised canons of construction would be projected in Rule8(1), be read as granting exemption only in respect of duty ofexcise payable under the Central Excises and Salt Act, 1944.Undoubtedly, by reason of sub-section (4) of Section 32 of theFinance Act, 1979 and similar provision in the other FinanceActs, Rule 8(1) would become applicable empowering the CentralGovernment to grant exemption from payment of special dutyof excise, but when the Central Government exercises thispower, it would be doing so under Rule 8(1) read with sub-section(4) of Section 32 or other similar provision. The reference to thesource of power in such a case would not be just to Rule 8(1),since it does not of its own force and on its own language applyto granting of exemption in respect of special duty of excise, butthe reference would have to be to Rule 8(1) read with sub-section(4) of Section 32 or other similar provision. It is significant tonote that during all these years, whenever exemption is soughtto be granted by the Central Government from payment of specialduty of excise or additional duty of excise, the recital of the sourceof power in the notification granting exemption has invariablybeen to Rule 8(1) read with the relevant provision of the statutelevying special duty of excise or additional duty of excise, bywhich the provisions of the Central Excises and Salt Act, 1944and the rules made thereunder including those relating toexemption from duty are made applicable. Take for example, theNotification bearing No. 63/78 dated August 1, 1978 whereexemption is granted in respect of certain excisable goods “fromthe whole of the special duty of excise leviable thereon undersub-clause (1) of clause 37 of the Finance Bill, 1978”. Thesource of the power recited in this notification is “sub-rule (1)of Rule 8 of the Central Excise Rules, 1944 read with sub-clause(5) of clause 37 of the Finance Bill, 1978”. So also in theNotification bearing No. 29/79 dated March 1, 1979 exemptingunmanufactured tobacco “from the whole of the duty of exciseleviable thereon both under the Central Excises and Salt Act,1944 and Additional Duties of Excise (Goods of SpecialImportance) Act, 1957”, the reference to the source of powermentioned in the opening part of the notification is “sub-rule (1)of Rule 8 of the Central Excise Rules, 1944 read with sub-section AB

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A(3) of Section 3 of the Additional Duties of Excise (Goods ofSpecial Importance) Act, 1957”. The respondents have in factproduced several notifications granting exemption in respect ofspecial duty of excise or additional duty of excise and in each ofthese notifications, we find that the source of power is describedas sub-rule (1) of Rule 8 of the Central Excise Rules, 1944 readBwith the relevant provision of the statute levying special duty ofexcise or additional duty of excise by which the provisions ofthe Central Excises and Salt Act, 1944 and the Rules madethereunder including those relating to exemption from duty aremade applicable. Moreover, the exemption granted under all theseCnotifications specifically refers to special duty of excise oradditional duty of excise, as the case may be. It is, therefore,clear that where a notification granting exemption is issued onlyunder sub-rule (1) of Rule 8 of the Central Excise Rules, 1944without reference to any other statute making the provisions ofthe Central Excises and Salt Act, 1944 and the Rules madeDthereunder applicable to the levy and collection of special, auxiliaryor any other kind of excise duty levied under such statute, theexemption must be read as limited to the duty of excise payableunder the Central Excises and Salt Act, 1944 and cannot coversuch special, auxiliary or other kind of duty of excise. Thenotifications in the present case were issued under sub-rule (1)Eof Rule 8 of the Central Excise Rules, 1944 simpliciter withoutreference to any other statute and hence the exemption grantedunder these two notifications must be construed as limited onlyto the duty of excise payable under the Central Excises and SaltAct, 1944.”FThis Court in Modi Rubber Limited (supra) has also consideredwhen the exemption is granted under the particular provision; it wouldnot cover any other kind of duty of excise imposed under separate Acts.This Court observed thus:

“10. We may incidentally mention that in the appeals a questionGof interpretation was also raised in regard to the Notificationbearing No. 249/67 dated November 8, 1967 exempting tyres fortractors from “so much of the duty leviable thereon under item16 of the First Schedule to the Central Excises and Salt Act, 1944as is in excess of 15 per cent”. The argument of the respondentsHin the appeals was that the exemption granted under this notification was not limited to the duty of excise payable underthe Central Excises and Salt Act, 1944 but it also extended tospecial duty of excise, additional duty of excise and auxiliary dutyof excise leviable under other enactments. This argument plainlyruns counter to the very language of this notification. It is obviousthat the exemption granted under this notification is in respectof “so much of the duty leviable thereon under item 16 of theFirst Schedule to the Central Excises and Salt Act, 1944 as is inexcess of 15 per cent” and these words describing the natureand extent of the exemption on their plain natural construction,clearly indicate that the exemption is in respect of duty of exciseleviable under the Central Excises and Salt Act, 1944 and doesnot cover any other kind of duty of excise. No more discussionis necessary in regard to this question beyond merely referringto the language of this notification.”

The appeals were allowed, and it was held that exemption wasnot available in respect of special duty of excise or additional duty ofexcise or auxiliary duty of excise. A three-Judge Bench in Rita TextilesPrivate Limited v. Union of India, 1986 SCC Supp. 557, has followedthe decision of Modi Rubber Limited (supra). The decision in ModiRubber Limited (supra) squarely covers the issue and is rendered bya Co-ordinate Bench.

39. Rule 8 of Central Excise Rules, 1944, authorises the CentralGovernment to grant an exemption to any excisable goods from thewhole or any part of duty leviable on such goods. Rule 8 is extractedhereunder:

“8. Power to authorise an exemption from duty in specialcases.—(1) The Central Government may from time to time, bynotification in the official Gazette, exempt (subject to suchconditions as may be specified in the notification) any excisablegoods from the whole or any part of duty leviable on such goods.

(2) The Central Board of Excise and Customs may by specialorder in each case exempt from the payment of duty, undercircumstances of an exceptional nature, any excisable goods.”

The word ‘duty’ is defined under Rule 2(v) to mean the duty aslevied under the Act.

40. Notification dated 9.9.2003 issued in the present case makesit clear that exemption was granted under Section 5A of the Act of

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A1944, concerning additional duties under the Act of 1957 and additionalduties of excise under the Act of 1978. It was questioned on the groundthat it provided for limited exemption only under the Acts referred totherein. There is no reference to the Finance Act, 2001 by which NCCDwas imposed, and the Finance Acts of 2004 and 2007 were not in vogue.The notification was questioned on the ground that it should haveBincluded other duties also. The notification could not have contemplatedthe inclusion of education cess and secondary and higher education cessimposed by the Finance Acts of 2004 and 2007 in the nature of theduty of excise. The duty on NCCD, education cess and secondaryand higher education cess are in the nature of additional excise dutyCand it would not mean that exemption notification dated 9.9.2003 coversthem particularly when there is no reference to the notification issuedunder the Finance Act, 2001. There was no question of grantingexemption related to cess was not in vogue at the relevant time imposedlater on vide Section 91 of the Act of 2004 and Section 126 of the Actof 2007. The provisions of Act of 1944 and the Rules made thereunderDshall be applicable to refund, and the exemption is only a reference tothe source of power to exempt the NCCD, education cess, secondaryand higher education cess. A notification has to be issued for providingexemption under the said source of power. In the absence of anotification containing an exemption to such additional duties in thenature of education cess and secondary and higher education cess, theyEcannot be said to have been exempted. The High Court was right inrelying upon the decision of three-Judge Bench of this Court in ModiRubber Limited (supra), which has been followed by another three-Judge Bench of this Court in Rita Textiles Private Limited (supra).

41. The Circular of 2004 issued based on the interpretation ofFthe provisions made by one of the Customs Officers, is of no avail assuch Circular has no force of law and cannot be said to be binding onthe Court. Similarly, the Circular issued by Central Board of Exciseand Customs in 2011, is of no avail as it relates to service tax and hasno force of law and cannot be said to be binding concerning theGinterpretation of the provisions by the courts. The reason employed inSRD Nutrients Private Limited (supra) that there was nil excise duty,as such, additional duty cannot be charged, is also equally unacceptableas additional duty can always be determined and merely exemptiongranted in respect of a particular excise duty, cannot come in the wayof determination of yet another duty based thereupon. The propositionHurged that simply because one kind of duty is exempted, other kinds of

duties automatically fall, cannot be accepted as there is no difficulty inmaking the computation of additional duties, which are payable underNCCD, education cess, secondary and higher education cess.Moreover, statutory notification must cover specifically the dutyexempted. When a particular kind of duty is exempted, other types ofduty or cess imposed by different legislation for a different purposecannot be said to have been exempted.

42. The decision of larger bench is binding on the smaller benchhas been held by this Court in several decisions such as MahanagarRailway Vendors’ Union v. Union of India & Ors. (1994) Suppl. 1SCC 609, State of Maharashtra & Ors. v. Mana Adim JamatMandal, AIR 2006 SC 3446 and State of Uttar Pradesh & Ors. v.Ajay Kumar Sharma & Ors. (2016) 15 SCC 289. The decisionrendered in ignorance of a binding precedent and/or ignorance of aprovision has been held to be per incuriam in Subhash Chandra &Ors. v. Delhi Subordinate Services Selection Board & Ors. (2009)15 SCC 458, Dashrath Rupsingh Rathod v. State of Maharashtra(2014) 9 SCC 129, and Central Board of Dawoodi Bohra Community& Ors. v. State of Maharashtra & Ors. (2005) 2 SCC 673. It washeld that a smaller bench could not disagree with the view taken by alarger bench.

43. Thus, it is clear that before the Division Bench deciding SRDNutrients Private Limited and Bajaj Auto Limited (supra), theprevious binding decisions of three-Judge Bench in Modi Rubber(supra) and Rita Textiles Private Limited (supra) were not placed forconsideration. Thus, the decisions in SRD Nutrients Private Limitedand Bajaj Auto Limited (supra) are clearly per incuriam. Thedecisions in Modi Rubber (supra) and Rita Textiles Private Limited(supra) are binding on us being of Co-ordinate Bench, and werespectfully follow them. We did not find any ground to take a differentview.

44. Resultantly, we have no hesitation in dismissing the appeals.The judgment and order of the High Court are upheld, and the appealsare dismissed. No costs.

Ankit Gyan

Appeals dismissed.

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