2018 (2) TMI 1264 - HC - Service Tax

Vires of N/N. 22/2015-CE(NT) dated 29th October, 2015 - Violation of Articles 14, 19(1)(g), 265 and 300A of the Constitution of India - utilization of credit accumulated on account of Education Cess and Secondary and Higher Education Cess for payment of service tax leviable and payable on telecommunication services - grievance of the petitioners is, and they claim a vested right to avail benefit of the unutilized amount of EC or SHE credit, which was available and had not been set off as on 1st March, 2015 and 1st June, 2015 for payment of tax on excisable goods and taxable services respectively. Statutory effect of withdrawal of EC and SHE on excisable goods and taxable services with effect from 1st March, 2015 and 1st June, 2015 respectively, pursuant to the Finance Act, 2015 - Held that - Omission of a provision signifies deletion of that provision and is normally not treated as different from repeal. The repeal/omission in the present case was not made retrospectively, but applied prospectively. Manufacturers and output service providers were entitled to take benefit of EC and SHE credit on the EC and SHE payable on manufactured goods and output services on or before the cut off date, i.e., 1st March, 2015 in case of manufactured goods and 1st June, 2015 in case of taxable services. They have not been allowed to take credit after the said two dates for the simple reason that EC and SHE ceased to be applicable and were no longer payable after the said dates. The provisos added to Rule 3, sub-rule (7) in clause (b) are really in the nature of concessions confined to a limited and narrow set of cases and are not of general application. Noticeably, they expand the scope and give benefit of utilization of accumulated EC and SHE against payment of excise duty and service tax, which was not the position prior to 1st March, 2015 and 1st June, 2015, respectively. It is also easily apparent as to why the said benefit or concession was granted. These cases certainly fall in a distinct and separate class. The said classification would not fall foul of vice of discrimination. Article 14 is not offended. In fact the petitioners do not challenge and question the provisos, albeit seek additional benefit and concession beyond those granted, even though they were never available earlier. It is no doubt true that the two cesses, in the present case, were in the nature of taxes and not fee, but it would be incorrect and improper to treat the two cesses as excise duty or service tax. In the present case, credit of EC and SHE could be only allowed against EC and SHE and could not be cross- utilized against the excise duty or service tax. In fact, what the petitioners seek is an amendment of the scheme to allow them to take cross utilization of the unutilized EC and SHE upon the two cesses being withdrawn against excise duty and service tax, though this was not the position even earlier. Both EC and SHE were withdrawn and abolished. They ceased to be payable. In these circumstances, it is not possible to accept the contention that a vested right or claim existed and legal issue is covered against the respondents. Petition dismissed - decided against petitioner.

Issues Involved:
1. Validity of Notification No. 22/2015-CE(NT) dated 29th October 2015.
2. Utilization of unutilized Education Cess (EC) and Secondary and Higher Education Cess (SHE) credit for payment of service tax.
3. Interpretation of the term "subsumed" in the context of EC and SHE being included in excise duty and service tax.
4. Vested rights to claim benefit of unutilized EC and SHE credit.
5. Applicability of precedents such as Eicher Motors Limited and Samtel India Limited.

Detailed Analysis:

1. Validity of Notification No. 22/2015-CE(NT):
The petitioners sought to quash Notification No. 22/2015-CE(NT) dated 29th October 2015, arguing it violated Articles 14, 19(1)(g), 265, and 300A of the Constitution of India. They contended that the accumulated credit of EC and SHE should be allowed for payment of service tax on telecommunication services. The court examined the statutory effect of the withdrawal of EC and SHE and found that the exemptions and omissions were prospective, not retrospective. The court concluded that the withdrawal of EC and SHE was a policy decision and did not infringe upon the petitioners' constitutional rights.

2. Utilization of Unutilized EC and SHE Credit:
The petitioners claimed a vested right to utilize unutilized EC and SHE credit for payment of service tax, arguing that EC and SHE were subsumed into the increased rates of excise duty and service tax. The court noted that cross-utilization of EC and SHE credit was never permitted under the earlier provisions, and the new notifications only provided limited concessions. The court held that the petitioners were not entitled to claim a vested right to cross-utilize the unutilized EC and SHE credit.

3. Interpretation of "Subsumed":
The petitioners relied on the Finance Minister's Budget Speech and other explanatory materials, which stated that EC and SHE were subsumed into the increased rates of excise duty and service tax. The court clarified that the term "subsumed" was used to explain the balancing act of increasing taxes while withdrawing cesses, and did not imply that EC and SHE continued to exist as part of the higher tax rates. The court emphasized that the statements made in the Budget Speech and explanatory notes were not legally binding and did not confer a right to cross-utilize EC and SHE credit.

4. Vested Rights to Claim Benefit of Unutilized EC and SHE Credit:
The court examined whether the petitioners had a vested right to claim the benefit of unutilized EC and SHE credit. It referred to the Supreme Court's decision in Hingir-Rampur Coal Company Limited, which distinguished between taxes and fees, and noted that EC and SHE were specific cesses with distinct purposes. The court concluded that the petitioners did not have a vested right to cross-utilize the unutilized EC and SHE credit, as the cesses were abolished and ceased to be payable.

5. Applicability of Precedents:
The petitioners relied on the Supreme Court's decisions in Eicher Motors Limited and Samtel India Limited, which dealt with the lapsing of credit under different circumstances. The court distinguished these cases, noting that in Eicher Motors, the credit was taken away despite the tax/duty not being withdrawn, whereas in the present case, EC and SHE were abolished. The court also referred to the decision in Osram Surya (P) Ltd., which upheld the imposition of a time limit for claiming MODVAT credit, and found that the petitioners' reliance on Eicher Motors was misplaced.

Conclusion:
The court dismissed the writ petition, holding that the petitioners did not have a vested right to cross-utilize the unutilized EC and SHE credit for payment of excise duty or service tax. The court emphasized that the withdrawal of EC and SHE was a policy decision, and the term "subsumed" did not imply a continuation of the cesses as part of the higher tax rates. The court also distinguished the petitioners' reliance on precedents, noting that the circumstances in those cases were different.

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