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2019 (12) TMI 230 - HC - Central ExciseCENVAT Credit - Tribunal observed that, though auto cess and education cess were duties of excise, yet the goods on which they were paid, continued to be exempted goods as basic excise duty was not payable thereon? - HELD THAT - Having regard to (i) the nature of the various duties or cesses (which are in addition to the duty of excise leviable under the Act or additional duty of excise leviable under Section 3 of the Additional Duties of Excise (Goods of Special Importance) Act, 1957), which are nothing but levies of excise, and (ii) the overall scheme of Cenvat credit, as contained in the Rules of 2002 as well as 2004, there is no obvious or self-evident reason why the expression duty of excise used in the definition of exempted goods should not include these other levies. It matters not that these additional duties or cesses are not to be traced to the Act or are provided for by other enactments such as Finance Acts, or that they are levied as an increment, or are expressed as a proportion, to an existing tax (namely, basic duty of excise). Once it is seen that these cesses and duties are also excise duties and on that basis are included in the Cenvat credit scheme, as indicated by Rule 3 itself, the fact that these are referred to as cesses or duties looses its significance altogether; it is hardly determinative for construing the expression duty of excise . The substantial question of law is answered in the negative, i.e. in favour of the Assessee and against the Revenue. Whether ten percent (eight percent, under the earlier Rules) of the sale price referred to in clause (b) of Sub-rule (3) of Rule 6 is to be included in the total price of final goods exigible to duty or is it eligible for deduction as a tax from such total price. - Held that - In Chhata Sugar Co.Ltd. 2004 (2) TMI 67 - SUPREME COURT , the Supreme Court has held that to compute excise duty as a predetermined amount without making permissible deductions for reducing the cum-duty selling price was a fallacy both legally or mathematically. These observations are clearly apposite in the present case. After payment of ten or eight percent amount, as the case may be, which, as we have seen above, is noting but tax, the assessable value can be derived from such cum-duty price only after making permissible deductions, that is to say, deduction inter alia of the tax component, namely, ten or eight percent of the amount, as the case may be, of the selling price of the goods. - this question is answered in the negative, i.e. in favour of the Assessee and against the Revenue. Whether the Tribunal justified in holding that Cenvat Credit could be utilized by the Assessee, where common inputs were used along with non-common inputs in manufacture of exempted goods, as Explanation-III added to Rule 6 (3)(b) of Cenvat Credit Rules inserted w.e.f. 16 May, 2005 was prospective in nature? - HELD THAT - Rule 6 of Cenvat Credit Rules of 2002 and 2004 inter alia provides for obligations of manufacturers who manufacture both dutiable and exempted goods, if they are to claim Cenvat credit. Sub-Rule (1) makes it clear that Cenvat credit is not available on inputs used in the manufacture of exempted goods. Sub-rule (2) is an exception; it provides for circumstances in which Cenvat credit on inputs used in the manufacture of exempted goods can be availed of. Where inputs are used for manufacture of dutiable as well as exempted goods, the manufacturer may take credit on that quantity of inputs which is intended for use in the manufacture of dutiable goods. This is, however, subject to a condition that the manufacturer maintains separate accounts for receipt, consumption and inventory of input meant for use in the manufacture of dutiable goods and quantity of input meant for use in the manufacture of exempted goods. Sub-rule (3), applies only to those cases, where the manufacturer in question uses common inputs for manufacture of dutiable as well as exempted goods; it does not apply to a manufacturer of exempted goods, who uses exclusive inputs for such manufacture. This is implicit in Rule 6, read in the light of all its sub-rules together. Explanation III merely underscores this position. It makes explicit what was already implicit. It is purely and simply clarificatory or declaratory; it does not alter the old law in any manner or, in other words, introduce a new element in it which did not exist earlier. It must apply, accordingly, retrospectively. This question is answered in the negative, i.e. in favour of the Revenue and against the Assessee.
Issues Involved:
1. Whether tractors, exempt from basic excise duty but subject to auto cess and education cess, are considered "exempted goods" under Rule 6(1) of the Cenvat Credit Rules. 2. Whether the amount paid under Rule 6(3)(b) of the Cenvat Credit Rules is a tax and hence deductible from the sale price of exempted goods. 3. Whether Explanation III added to Rule 6(3) of the Cenvat Credit Rules is clarificatory or substantive and if it applies retrospectively. Issue-wise Detailed Analysis: 1. Classification of Tractors as Exempted Goods: The Assessee claimed Cenvat credit for auto cess and education cess paid on tractors, arguing that these cesses are duties of excise. The Department contended that tractors are exempt from basic excise duty and thus qualify as "exempted goods" under Rule 2(d) of the Cenvat Credit Rules, which precludes Cenvat credit on inputs used for such goods. The Tribunal accepted the Department's view, interpreting "duty of excise" in Rule 2(d) to mean only the basic excise duty, not including other cesses or duties. The Tribunal's reasoning was based on the singular use of "duty of excise" and the distinction made in Rule 3(1) between various duties. The High Court disagreed with this interpretation, stating that additional duties and cesses are also excise duties and should be included in the term "duty of excise." The Court found no reason to exclude these from the definition of "exempted goods." The Court also noted that the decision in Hero Motocorp Ltd. vs. Commissioner of Central Excise, which supported the Tribunal's view, was not applicable as it was based on a different context. The High Court concluded that the expression "duty of excise" in Rule 2(d) includes all duties of excise, including cesses, and ruled in favor of the Assessee. 2. Nature of Amount Paid Under Rule 6(3)(b): The Tribunal held that the amount paid under Rule 6(3)(b) (8% or 10% of the sale price of exempted goods) is not a tax but a facilitation measure, and thus not deductible from the sale price for computing excise duty. The Assessee argued that this amount is a compulsory exaction under the statute and should be considered a tax. The High Court agreed with the Assessee, stating that the amount is indeed a compulsory exaction under the statute and qualifies as a tax. The Court referred to several Supreme Court judgments, including Commissioner of Central Excise, Meerut vs. Kisan Sahkari Chinni Mills Ltd., which held that compulsory exactions under an enactment are taxes. The Court concluded that the amount paid under Rule 6(3)(b) is a tax and should be deductible from the sale price of exempted goods. 3. Retrospective Application of Explanation III to Rule 6(3): The Assessee argued that Explanation III, added to Rule 6(3) by Notification No.27/2005, which clarified that no credit shall be allowed on inputs used exclusively for the manufacture of exempted goods, should not apply retrospectively. The Department contended that the Explanation was merely clarificatory and should apply retrospectively. The High Court examined the nature of the Explanation and concluded that it was indeed clarificatory. The Court noted that the purpose of Explanation III was to clear any ambiguity and make explicit what was already implicit in the existing law. The Court referred to the principles laid out in Commissioner of Income Tax (Central)-I, New Delhi vs. Vatika Township Pvt. Ltd., which stated that clarificatory amendments are usually retrospective. The Court ruled that Explanation III is clarificatory and applies retrospectively, thus siding with the Department. Conclusion: The High Court ruled in favor of the Assessee on the first two issues and in favor of the Revenue on the third issue. The substantial questions of law were answered as follows: 1. In the negative, i.e., in favor of the Assessee and against the Revenue. 2. In the negative, i.e., in favor of the Assessee and against the Revenue. 3. In the negative, i.e., in favor of the Revenue and against the Assessee. Both the Assessee's and the Department's appeals were allowed accordingly.
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