BAJAJ AUTO LIMITED versus UNION OF INDIA & ORS. on 27 March 2019

[2019] 5 S.C.R. 139

BAJAJ AUTO LIMITED

v.

UNION OF INDIA & ORS.

(Civil Appeal No.3239 of 2019)

MARCH 27, 2019

[L. NAGESWARA RAO AND SANJAY KISHAN KAUL, JJ.]

Central Excise Act, 1944 – Central Excise Tariff Act, 1985 –National Calamity Contingent Duty (NCCD), Education Cess andthe Secondary & Higher Education Cess – Liability of – Appellant-limited company was exempted from, inter alia, Central Excise Duty(CENVAT) under the second schedule of the Act, 1985 – Appellantwas not paying National Calamity Contingent Duty, Education Cessand Secondary & Higher Education Cess – Dispute arose pertainingto the liability of the appellant to pay three cesses referred – Anaudit objection report was prepared on account of the failure ofthe appellant to pay the aforementioned three cesses – A show causenotice was given to the appellant – Writ petition filed by the appellantbefore the High Court against the show cause notice was dismissed– On appeal, held: The issue of the Education Cess and theSecondary & Higher Education Cess is covered by the SRD NutrientsPvt. Ltd. case, which held that these cesses are a surcharge leviedand collected on the total value of the excise duty and the exciseduty itself is exempted, there cannot be any question of any recoveryof these cesses, as the substratum does not exist – Therefore,appellant not liable to pay the Education Cess and the Secondary& Higher Education Cess – Insofar as NCCD is concerned, it islevied on the product – However, it is in nature of excise duty – Ithas to bear the same character as those respective taxes to whichthe surcharge is appended – NCCD will not cease to be an exciseduty, but is the same as an excise duty, even if it is levied on theproduct – Once the excise duty is exempted, NCCD, levied as anexcise duty cannot partake a different character and, thus, wouldbe entitled to the benefit of the exemption notification – Thus,appellant not liable to pay NCCD as well – Finance Act, 2001 –s.136 – Finance Act, 2004 – ss. 91 and 93 – Finance Act, 2007 –ss.136 and 138.

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140SUPREME COURT REPORTS

AAllowing the appeal, the Court

HELD: 1. The controversy before this Court is now in anarrow compass, on account of the subsequent judicialpronouncement in SRD Nutrients Pvt. Ltd. v. Commissioner ofCentral Excise, Guwahati. The issue of the Education Cess andBthe Secondary & Higher Education Cess, is covered against theDepartment in view of this judgment and that is how, also, theDepartment appears to have understood now, in view of thewritten synopsis placed before this Court. In the facts of thatcase, there was an initiative for development of industries in theNorth-Eastern States of Assam, Tripura, Meghalaya, Mizoram,CManipur, Nagaland, Arunachal Pradesh, etc. A Notificationexempting goods from payment of excise duties was issued inrespect of those States. Education Cess and Secondary & HigherEducation Cess, as imposed under the Finance Acts of 2004 and2007, respectively were also sought to be levied on the appellantDtherein. The gravamen of the reasoning of this Court is thatsince these cesses are a surcharge levied and collected on thetotal value of the excise duty, and the excise duty itself isexempted, there cannot be any question of any recovery of thesecesses, as the substratum does not exist. Not only that, thisCourt also took into account how the Department itself had viewedEthe situation regarding Education Cess and Secondary & HigherEducation Cess, which are payable as surcharge on the exciseduty, once the excise duty is exempted. The Circular dated10.08.2004 issued by the Department also clarified this position.Therefore, the result of the aforesaid discussion is that theFappellant is not liable to pay Education Cess and Secondary &Higher Education Cess. [Paras 12, 13 and 24] [146-G; 151-A]

3. The real bone of contention which survives forconsideration is the NCCD. The reason for this is that while thetwo cesses discussed aforesaid were in the nature of levy on theGexcise duty payable, the NCCD is levied on the product itself, asper Section 136 of the Finance Act, 2001. It is this aspect, interalia, which was canvassed by the Department to persuade thisCourt to take a different view from the one taken qua the othertwo cesses. [Para 16] [149-A-B]

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4. On a proper appreciation of the judicial pronouncementin SRD Nutrients Pvt. Ltd., this Court is not inclined to take adifferent view from the one taken for Education Cess andSecondary & Higher Education Cess, even while considering theissue of NCCD. [Para 21] [150-C]

5. In SRD Nutrients Pvt. Ltd. gave its imprimatur to theview expressed by the Rajasthan High Court in Banswara SyntexLtd. The rationale is that while there may be surcharges underdifferent financial enactments to provide the Government withrevenue for specified purposes, the same have been notified asleviable in the nature of a particular kind of duty. In the case ofNCCD, it is in the nature of an excise duty. It has to bear thesame character as those respective taxes to which the surchargeis appended. NCCD will not cease to be an excise duty, but isthe same as an excise duty, even if it is levied on the product.Thus, when NCCD, at the time of collection, takes the characterof a duty on the product, whatever may be the rationale behind it,it is also subject to the provisions relating to excise duty,applicable to it in the manner of collection as well as theobligation of the taxpayer to discharge the duty. Once the exciseduty is exempted, NCCD, levied as an excise duty cannotpartake a different character and, thus, would be entitled to thebenefit of the exemption notification. The exemptionnotification also states that the exemption is from the “whole ofthe duty of excise or additional duty of excise.” Thus, theappellant would not be liable to pay the NCCD. [Paras 22, 23][150-D-G]

SRD Nutrients Pvt. Ltd. v. Commissioner of CentralExcise, Guwahati (2018) 1 SCC 105 : [2017] 11 SCR43 – relied on.

Banswara Syntex Ltd. v. Union of India (2007) SCCOnLine Raj 365 – approved.

Novopan India Ltd., Hyderabad v. CCE and Customs,Hyderabad (1994) 3 Suppl. SCC 606 : [1994] 3 Suppl.SCR 549; Union of India v. Wood Papers Ltd.(1990) 4 SCC 256 : [1990] 2 SCR 659 – referred to.

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[2019] 5 S.C.R.

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CIVIL APPELLATE JURISDICTION: Civil Appeal No.3239 of2019.

From the Judgment and Order dated 16.03.2017 of the High Courtof Uttarakhand, at Nainital in Special Appeal No. 625 of 2014.C

Mukul Rohatgi, Arvind Datar, Sr. Advs., Arshak Hidayatullah,Mahesh Agarwal, Ankul Saigal, Makarand Joshi, Divyang Chandiramani,E. C. Agrawala Advs. for the Appellant.

ANS Nadkarni, ASG, K. Radhakrishna, Sr. Adv., DevashishDBharuka, Ms. Nisha Bagchi, B. Krishna Prasad, Advs. for theRespondents.

The Judgment of the Court was delivered by SANJAY KISHAN KAUL, J. 1. Leave granted.

E2. The appeal raises the legal question of the liability towardsNational Calamity Contingent Duty (for short ‘NCCD’), Education Cessand Secondary & Higher Education Cess of a manufacturingestablishment, which is exempted from payment of Central Excise Duty(for short ‘CENVAT’) under the Central Excise Act, 1944 (hereinafterreferred to as the ‘1944 Act’).F

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3. In order to encourage development of industries and togenerate employment in the States of Uttarakhand and Himachal Pradesh,certain special measures were considered appropriate to be taken bythe Government of India. On the visit of the Prime Minister of India toUttarakhand, in March, 2002, an announcement was made that tax andGCentral Excise concessions, to attract investments in the industrialsector will be worked out for the Special Category States includingUttaranchal (now Uttarakhand). The industries eligible for suchincentives were to be environment friendly, with potential for localemployment generation and use of local resources. Subsequently, an H

Office Memorandum was issued on 7.1.2003, announcing a package ofincentives providing for “New Industrial Policy and other concessionsfor the State of Uttaranchal and the State of Himachal Pradesh.” Para3.1 (I) stipulated the fiscal incentives. It is not necessary to reproducethe complete paragraph, but suffice to reproduce the relevant portion asunder:

“3.1: Fiscal Incentives to new Industrial Units and toexisting units on their substantial expansion:

(I). New industrial units and existing industrial units on theirsubstantial expansion as defined, set up in Growth Centres,Industrial Infrastructure Development Centres (IIDCs), IndustrialEstates, Export Processing Zones, Theme Parks (Food ProcessingParks, Software Technology Parks, etc.) as stated in Annexure-Iand other areas as notified from time to time by the CentralGovernment, are entitled to :

(a) 100% (hundred percent) outright excise duty exemption for aperiod of 10 years from the date of commencement of commercialproduction.

(b) 100% income tax exemption for initial period of five years andthereafter 30% for companies and 25% for other than companiesfor a further period of five years for the entire states of Uttarakhandand Himachal Pradesh from the date of commencement ofcommercial production.”

4. In order to implement the aforesaid policy initiative, the CentralBoard of Excise & Customs (for short ‘CBEC’) issued NotificationNo.50/2003-Central Excise, dated June 10, 2003, in exercise of powersconferred under Section 5A of the 1944 Act. The relevant portion of theNotification reads as under:

“GENERAL EXEMPTION NO. 41

Exemption to goods other than specified goods cleared from unitslocated in the Industrial Growth Centre or Industrial InfrastructureDevelopment Centre or Export Promotion Industrial Park orIndustrial Estate or Industrial Area or Commercial Estate orScheme Area of Uttarakhand and Himachal Pradesh.—In A

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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 (Goodsof 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 and theSecond Schedule to the Central Excise TariffAct, 1985 (5 of1986), 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 IndustrialAreaor 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 saidActs.

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5. Once again, for the controversy in question, it is not necessaryto refer to the notification further, which stipulates other conditions to befulfilled, to avail of the benefit of the exemption notification, since thereEis no dispute that the appellant satisfies those conditions.

6. The appellant, a limited company, established a manufacturingunit of two wheeler vehicles in the year 2007. The appellant wasexempted from, inter alia, CENVAT, by virtue of its manufacturedproducts falling under the Second Schedule of the Central Excise TariffAct, 1985.

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7. The appellant was apparently paying an automobile cess, butthe NCCD, Education Cess and Secondary & Higher Education Cesswere not being paid. The dispute arose on account of an auditconducted on 27/28.2.2009. The dispute pertains to the liability of theGappellant to pay the unpaid three cesses referred to aforesaid.

8. Now turning to the three cesses in question, NCCD wasimposed under Section 136 of the Finance Act, 2001, in the nature of aduty of excise, in addition to any other duties of excise chargeable underthe 1944 Act. The relevant portion is extracted as under:

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“S. 136- National Calamity Contingent Duty

(1) In the case of goods specified in the Seventh Schedule, beinggoods manufactured 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.

(2) The National Calamity duty chargeable on the goods specifiedin the Seventh Schedule shall be in addition to any other duties ofexcise chargeable on such goods under the Central Excise Act,1944 or any other law for the time being in force.

(3) The provisions of the Central ExciseAct, 1944 and the rulesmade thereunder, including those relating to refunds andexemptions from duties and imposition of penalty, shall, as far asmay be, apply in relation to the levy and collection of the NationalCalamity duty leviable under this section in respect of the goodsspecified in the Seventh Schedule as they apply in relation to thelevy and collection of the duties of excise on such goods underthat Act or those rules, as the case may be.”

9. Sections 91 & 93 of the Finance Act, 2004 introduced theEducation Cess as a duty of excise calculated on the aggregate of allduties of excise. Sections 136 & 138 of the Finance Act of 2007similarly imposed Secondary & Higher Education Cess, on the samepattern as the Education Cess.

10. As noticed above, on account of the audit conducted of theappellant, an audit objection report was prepared on account of thefailure of the appellant to pay the aforementioned three cesses, andconsequent queries were raised vide letter dated 27.2.2009, by theSuperintendent (Audit), Central Excise Meerut-II on the appellant. Thesewere responded to, by the appellant. This was followed by a show causenotice dated 26.8.2011. It is relevant to note that in terms of the showcause notice, the cesses were being so demanded on account of the factthat they had not been specifically exempted, even though they were aduty in the nature of excise, whether leviable on the product (NCCD) oron the amount of excise duty payable (Education Cess and Secondary A

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A& Higher Education Cess). The Department took a legal stand that theexemption notification had to be construed strictly and that there hadbeen wilful suppression of facts. The demand raised was alsospecified.

11. The appellant filed a writ petition under Article 226 of theBConstitution of India, before the High Court of Uttarakhand on 13.10.2011,assailing the show cause notice. This endeavour, however, did notsucceed and the writ petition was dismissed by the learned Single Judge,vide order dated 9.10.2014. The appeal preferred before the DivisionBench also met the same fate, vide impugned order dated 16.3.2017.

C12. The controversy before us is now in a narrow compass, onaccount of the subsequent judicial pronouncement in SRD NutrientsPvt. Ltd. v. Commissioner of Central Excise, Guwahati[1]. The issueof the Education Cess and the Secondary & Higher Education Cess, inour view, is covered against the Department in view of this judgmentand that is how, also, the Department appears to have understood now,Din view of the written synopsis placed before us.

13. In the facts of that case, there was an initiative fordevelopment of industries in the North-Eastern States of Assam, Tripura,Meghalaya, Mizoram, Manipur, Nagaland, Arunachal Pradesh, etc. ANotification exempting goods from payment of excise duties was issuedEin respect of those States. Education Cess and Secondary & HigherEducation Cess, as imposed under the Finance Acts of 2004 and 2007,respectively were also sought to be levied on the appellant therein. Thegravamen of the reasoning of this Court is that since these cesses are asurcharge levied and collected on the total value of the excise duty, andFthe excise duty itself is exempted, there cannot be any question of anyrecovery of these cesses, as the substratum does not exist. Not onlythat, this Court also took into account how the Department itself hadviewed the situation regarding Education Cess and Secondary & HigherEducation Cess, which are payable as surcharge on the excise duty,once the excise duty is exempted. The Circular dated 10.8.2004 issuedGby the Department clarified the position in this behalf as under:

“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.

Clarification: The education cess is leviable at the rate of two percent of the aggregate of all duties of excise/customs (excludingcertain duties of customs like anti-dumping duty, safeguard duty,etc.), levied and collected. If goods are fully exempted from exciseduty or customs duty, are chargeable to nil duty or are clearedwithout payment of duty under specified procedure such asclearance under bond, there is no collection of duty.Thus, noeducation cess would be leviable on such clearances. In this regard,letter D.O. No. 605/54/2004-DBK, dated 21-7-2004 issued byMember (Customs) may also be referred to.”

14. It was observed by this Court as under:

“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 pay exciseduty have to shell out education cess as well. This education cessis introduced by Sections 91 to 93 of the Finance (No. 2) Act,2004. As per Section 91 thereof, education cess is the surchargewhich the assessee is to pay. Section 93 makes it clear that thiseducation cess is payable on “excisable goods” i.e. in respect ofgoods specified in the First Schedule to the Central Excise TariffAct, 1985. Further, this education cess is to be levied @ 2% andcalculated on the aggregate of all duties of excise which are leviedand collected by the Central Government under the provisions ofthe Central Excise Act, 1944 or under any other law for the timebeing in force. Sub-section (3) of Section 93 provides that theprovisions of the Central Excise Act, 1944 and the Rules madethereunder, including those related to refunds and duties, etc. shallas far as may be applied in relation to levy and collection ofeducation cess on excisable goods. A conjoint reading of theseprovisions would amply demonstrate that education cess as asurcharge, is levied @ 2% on the duties of excise which are A

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148SUPREME COURT REPORTS

Apayable under the Act. It can, therefore, be clearly inferred thatwhen there is no excise duty payable, as it is exempted, therewould not be any education cess as well, inasmuch as educationcess @ 2% is to be calculated on the aggregate of duties of excise.”There cannot be any surcharge when basic duty itself is nil.

(emphasis supplied)emphasis supplied)d))

B (emphasis supplied)emphasis supplied)d))15. A reference was also made to the judgement of the RajasthanHigh Court, in Banswara Syntex Ltd. v. Union of India[2], where it hasbeen observed as under:

“15. The very fact that the surcharge is collected as part of levyCunder three different enactments goes to show that scheme oflevy of education cess was by way of collecting special funds forthe purpose of Government project towards providing and financinguniversalised quality of basic education by enhancing the burdenof Central excise duty, customs duty, and service tax by way ofDcharging surcharge to be collected for the purpose of the Union.But, it was made clear that in respect of all the three taxes, thesurcharge collected along with the tax will bear the same characterof respective taxes to which surcharge was appended and was tobe governed by the respective enactments under which educationcess in the form of surcharge is levied and collected.

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16. Apparently, when at the time of collection, surcharge has takenthe character of parent levy, whatever may be the object behindit, it becomes subject to the provision relating to the excise dutyapplicable to it in the manner of collecting the same obligation ofthe tax payer in respect of its discharge as well as exemptionFconcession by way of rebate attached with such levies. Thisaspect has been made clear by combined reading of sub-sections(1), (2) and (3) of Section 93.”

This Court gave its imprimatur to the aforesaid judgment of theGRajasthan High Court, in para 24 of the judgment in SRD Nutrients Pvt.Ltd.[3]

2 2007 SCC OnLine Raj 365 :: (2007) 216 ELT 16

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16. The real bone of contention which survives for considerationis the NCCD. The reason for this is that while the two cesses discussedaforesaid were in the nature of levy on the excise duty payable, theNCCD is levied on the product itself, as per Section 136 of the FinanceAct, 2001. It is this aspect, inter alia, which was canvassed by theDepartment to persuade this Court to take a different view from the onetaken qua the other two cesses.

17. On behalf of the appellant, Mr. Mukul Rohatgi and Mr. ArvindDatar, learned Senior Advocates sought to persuade us to apply thesame principles qua NCCD as the other two cesses and, thus, go alongwith the view taken in SRD Nutrients Pvt. Ltd.,[4] even insofar as NCCDis concerned.

18. On the other hand, on behalf of the Department, Ms. NishaBagchi, Advocate sought to contend otherwise by seeking to point outthe difference in the nature of incidence, since NCCD was to be calcu-lated on the value of the product and not on the value of the excise dutypayable.

19. We may note that in terms of the impugned judgment, oneprinciple which clearly emerges, and over which there is no dispute be-fore us, also, is that exemption notifications, like the one in question mustbe read in a manner that give them a liberal interpretation, provided thatno violence is done to the language employed. The rationale for thesame is well enunciated in Novopan India Ltd., Hyderabad v. CCEand Customs, Hyderabad,[5] apart from in other judicial pronouncements.In such cases, it is not as if the principle of strict interpretation of tax lawhas been given a complete go by, but that rule of interpretation wouldapply at a different stage, i.e., to determine whether the exemption isapplicable to the assessee or not. Once such exemption is indeed foundto be applicable to the assessee in question, a liberal approach is to beadopted by the Court in construing the language, such as to allow thebenefit to be reaped by the beneficiary in question (Union of India v.Wood Papers Ltd.[6]).

20. We may notice that the primary reasoning contained in theimpugned order is common for the three cesses, i.e., NCCD; Education 4 (supra)

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ACess and Secondary & Higher Education Cess. These were in thenature of surcharges levied in other Acts, which have not been specifi-cally excluded under the Notification in question. That reasoning doesnot prevail, more so because of the judgment in SRD Nutrients Pvt.Ltd.[7] The question, thus, is whether, even though the NCCD is in thenature of an excise duty, its incidence being on the product, rather thanBon the value of the excise duty, that itself would make any difference tothe applicability of the NCCD to excise exempt units.

21. On a proper appreciation of the judicial pronouncement inSRD Nutrients Pvt. Ltd.,[8] we are not inclined to take a different viewfrom the one taken for Education Cess and Secondary & Higher Edu-Ccation Cess, even while considering the issue of NCCD.

22. We may notice that this Court, in SRD Nutrients Pvt. Ltd.[9]gave its imprimatur to the view expressed by the Rajasthan High Courtin Banswara Syntex Ltd.[10] The rationale is that while there may besurcharges under different financial enactments to provide the Govern-Dment with revenue for specified purposes, the same have been notifiedas leviable in the nature of a particular kind of duty. In the case ofNCCD, it is in the nature of an excise duty. It has to bear the samecharacter as those respective taxes to which the surcharge is appended.NCCD will not cease to be an excise duty, but is the same as an exciseEduty, even if it is levied on the product. Thus, when NCCD, at the timeof collection, takes the character of a duty on the product, whatevermay be the rationale behind it, it is also subject to the provisions relatingto excise duty, applicable to it in the manner of collection as well as theobligation of the taxpayer to discharge the duty. Once the excise duty isexempted, NCCD, levied as an excise duty cannot partake a differentFcharacter and, thus, would be entitled to the benefit of the exemptionnotification. The exemption notification also states that the exemption isfrom the “whole of the duty of excise or additional duty of excise.” Wemay also note that the exemption itself is for a period of ten years fromthe date of commercial production of the unit.G23. We are, thus, of the view that the appellant would not be liableto pay the NCCD.

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BAJAJ AUTO LIMITED v. UNION OF INDIA & ORS.[SANJAY KISHAN KAUL, J.]

24. The result of the aforesaid discussion is that the impugnedorders are set aside and the show cause notice dated 26.8.2011 is quashedwhile holding that the appellant is not liable to pay NCCD, EducationCess and Secondary & Higher Education Cess.

25. The appeal is allowed, leaving the parties to bear their owncosts.

Ankit Gyan

Appeal allowed.

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