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2013 (9) TMI 614 - AT - Central ExciseArea based exemption - Exemption under Notification No.56/2002 - Whether an assessee availing of exemption under Notification No. 56/2002-C.E. can pay education cess and S & H Cess through BED Credit - Held that - A unit availing of exemption under Notification No. 56/2002-C.E. cannot utilize BED credit for payment of education cess and S & H cess which were not exempted under the notification - Extra BED paid through PLA on account of diversion of BED credit for payment of education cess and S & H cess would not be refundable under Notification No. 56/2002-C.E. A manufacturer availing of Notification No. 56/2002-C.E. cannot utilize BED credit for payment of education cess and S & H cess - it will amount to the indirect refund of education cess and S & H cess, which was not permissible - The payment of education cess and S & H cess through BED credit was in conflict with the scheme of this exemption which does not exempt the education cess and S & H cess and which was available only in respect of the duties mentioned in it subject to following of condition of the notification - CCE, Shillong v. Dharampal Satyapal Ltd. 2011 (8) TMI 99 - GAUHATI HIGH COURT - the notification does not exempt education cess. These two education cess were not covered by Notification No. 56/2002-C.E. the same cannot be paid by the respondent in the manner they seek to pay the same i.e. by utilizing BED credit before utilizing the BED credit to the extent possible for payment of BED as doing so would result in refund of education cess also. A manufacturer availing of exemption under Notification No. 56/2002-C.E., while the restriction on utilisation of Cenvat credit of duties/taxes as mentioned in Rule 3(7)(b) would be applicable, there would be one more additional restriction on utilization of credit of duties/taxes other than those mentioned in Rule 3(7)(b), i.e. credit of BED, AED (GSI) etc. and this restriction was that this credit cannot be used for payment of duties not exempted under this notification if this was permitted, this would result in refund of duties like education cess, S & H cess, NCCD etc. which was not permitted under this notification, while it is well settled law that what was not permissible directly cannot be allowed indirectly. Therefore, in order to ensure that an assessee availing of exemption under this notification does not end up availing this exemption in respect of education cess and S & H cess also, he cannot be allowed to use BED credit for payment of education cess and S & H cess, though this may be permitted under the provision of Rule 3(4) of the Cenvat Credit Rules, 2004 - The orders were set aside Decided in favour of Revenue.
Issues Involved:
1. Eligibility of exemption under Notification No. 56/2002-C.E. 2. Utilization of Basic Excise Duty (BED) credit for payment of Education Cess and Secondary and Higher Education Cess (S & H Cess). 3. Refund of duty paid through PLA (Personal Ledger Account) under Notification No. 56/2002-C.E. 4. Interpretation of relevant provisions of Cenvat Credit Rules, 2004. 5. Applicability of judicial precedents and interpretations. Detailed Analysis of the Judgment: 1. Eligibility of Exemption under Notification No. 56/2002-C.E.: The respondents are units located in specified areas eligible for exemption under Notification No. 56/2002-C.E. They manufacture goods not listed in Annexure-I of the notification and avail the exemption. The notification exempts certain duties equivalent to the amount of duty paid by the manufacturer, excluding the duty paid by utilizing Cenvat credit. 2. Utilization of BED Credit for Payment of Education Cess and S & H Cess: The core issue is whether the respondents can use BED credit to pay Education Cess and S & H Cess before fully utilizing it for BED. The notification mandates that the manufacturer must first utilize the entire Cenvat credit available at the end of the month for payment of duty on goods cleared during the month before paying any balance duty through PLA. The term "duty" in para 1A of the notification refers only to the duties exempted under the notification, not including Education Cess and S & H Cess. The respondents utilized BED credit for payment of Education Cess and S & H Cess first, resulting in higher payment through PLA and claiming higher refunds. The tribunal held that this practice is not permissible as it indirectly allows refund of Education Cess and S & H Cess, which are not covered by the exemption notification. 3. Refund of Duty Paid through PLA under Notification No. 56/2002-C.E.: The notification provides for refund of the duty paid through PLA after utilizing the entire Cenvat credit. The refund is limited to the duties exempted under the notification. The tribunal clarified that the refund mechanism does not cover Education Cess and S & H Cess, and any extra BED paid through PLA due to diversion of BED credit for these cesses is not refundable. 4. Interpretation of Relevant Provisions of Cenvat Credit Rules, 2004: Rule 3(4) of the Cenvat Credit Rules allows the utilization of Cenvat credit for payment of any duty of excise, while Rule 3(7)(b) specifies restrictions on the utilization of credit of certain duties. The tribunal noted that while the Cenvat Credit Rules permit the use of BED credit for payment of Education Cess and S & H Cess, this cannot be allowed in the context of Notification No. 56/2002-C.E. as it would result in an indirect refund of these cesses, which is not permissible under the notification. 5. Applicability of Judicial Precedents and Interpretations: The tribunal considered various judicial precedents, including the Apex Court's judgment in Union of India v. Modi Rubber Ltd. and the Tribunal's judgments in CCE v. Jindal Drugs Ltd. and CCE, Jammu v. Bharat Box Factory Ltd. These judgments support the view that Education Cess and S & H Cess are not covered by Notification No. 56/2002-C.E. The tribunal also considered the judgment of the Gauhati High Court in CCE, Dibrugarh v. Prag Bosimi Synthetics Ltd., which held that Cenvat credit of basic excise duty can be utilized for payment of NCCD, but noted that this judgment did not consider the scheme of refund under Notification No. 32/99-C.E., similar to Notification No. 56/2002-C.E. Conclusion: The tribunal concluded that a manufacturer availing of exemption under Notification No. 56/2002-C.E. cannot utilize BED credit for payment of Education Cess and S & H Cess, as it would result in an indirect refund of these cesses, which is not permissible under the notification. The orders of the CCE (Appeals) were set aside, and the orders of the original adjudicating authority were restored. The Revenue's appeals were allowed, and the stay applications were disposed of. Pronouncement: The judgment was pronounced in open court on 31-8-2012.
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