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TMI Blog2010 (2) TMI 335X X X X Extracts X X X X X X X X Extracts X X X X ..... so to Section 3(1) of Central Excise Act, 1944 read with applicable exemption notification. Accordingly, as provided in the proviso, it paid aggregate of (a) amount of Basic Customs Duty leviable under Section 12 of the Customs Act, 1962; (b) amount of additional duties leviable under Section 3(1) of the Customs Act, 1975 (including Basic Excise Duty under the main section plus education cess under Section 93 on the excise duty) and (c) Customs education cess under Section 94 of the Finance Act, 2004 read with applicable exemption notification. 3. As per show cause notice dated 3-3-2006, the duty paid by the appellants is excise duty under proviso to Section 3(1) of the Central Excise Act, 1944. According to Revenue the appellants ought to have paid Education cess @ 2% levied under Section 93 of the Finance Act, 2004 and Rs. 1,98,122/- was recoverable from appellants. A show cause notice was issued on 3-3-2006. 4. The proposal made in the show cause notice dated 3-3-2006 was confirmed by Order-in-Original dated 31-7-2006 which in turn was affirmed by the Order-in-Appeal dated 26-6-2007. 5. The CESTAT vide Order dated 10-3-2008 dismissed the appeal. However, on appeal, the Hon'bl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... p; The tribunal shall, before deciding the appeal, consider the question whether in view of importance and likely far reaching affect of their decision, it will be appropriate to issue a general notice enabling any person, who may be adversely affected, being given an opportunity of being heard." 7. Accordingly, as directed by the Hon'ble Mumbai High Court, notice was issued to general public so that all the parties were interested to apply as interveners. 8. We have heard the appellants as well as the interveners and the learned DR on behalf of the Revenue. 9. The submissions made by appellants and the interveners are summarized below : Submissions made by Sarla Performance Fibres Ltd : Types of Excise Duties being levied on excisable goods manufactured in India 10.1 The duties of excise leviable on excisable goods manufactured in India are as under : (i) BED at the rate specified in the First Schedule to the Central Excise Tariff Act, 1985; (ii) SED at the rate specified in the Second Schedule to the Central Excise Tariff Act, 1985; (iii) &nb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... imported into India 1 Assesssable Value 100000.00 2=1*20% Basic Customs Duty U/S. 12 of CA, 1962 20000.00 CVD U/S. 3 of CTA, 1975 3=(1+2)*16% Basic Excise Duty U/S. 3 of CEA, 1944 19200.00 4=3*2% Education Cess U/S. 93 of FA, 2004 384.00 5=3+4 CVD U/S. 3 of CTA, 1975 19584.00 6=2+5 Sub-total of Customs Duties 39584.00 7=6*2%, Education Cess U/S. 94 of FA, 2004 791.68 8=6+7 Total Customs Duties 40375.68 Manner of computing the amount of Excise Duty payable by an EOU when it sells DTA. 11.1 In terms of Section 3(1) of the Central Excise Act, 1944, the excisable goods manufactured in India are liable to Basic Duty of Excise (BED) at the rates set forth in the First Schedule to the Central Excise Tariff Act and Special Duty of Excise (SED) specified in the Second Schedule to the Central Excise Tariff Act, 1985. 11.2 However, in terms of the proviso to Section 3(1) of the Central Excise Act, 1944, the rates of Central Excise duty mentioned in Section 3(1) are not applicable to the excisable goods which are produced or manufactured in, inter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sp; 3=(1+2)*16% Basic Excise Duty U/S. 3 of CEA, 1944 19200.00 4=3*2% Education Cess U/S. 93 of FA, 2004 384.00 5=3+4 CVD U/S. 3 of CTA, 1975 19584.00 6=2+5 Sub-total of Customs Duties 39584.00 7=6*2% Education Cess U/S. 94 of FA, 2004 791.68 8=6+7 Total Customs Duties = Excise Duty under proviso to Section 3 of CEA, 1944 40375.68 9=8*2% Education Cess U/S. 93 of FA, 2004 807.51 10=8+9 Total duties 41183.19 True nature of surcharge : surcharge enhances the tax and partakes the character of tax which it enhances. 13.1 It is well settled that the expression 'surcharge' in the context of taxation means an additional imposition which results in enhancement of the tax. The nature of the additional imposition is the same as the tax on which it is imposed as surcharge. For instance, a surcharge on land revenue is an enhancement of the land revenue to the extent of the imposition of surcharge. The nature of such imposition is the same viz., land revenue on which it is a surcharge. 13.2 Similarly a surcharge on income tax is indeed income tax only. A surcharge o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er under main Section 3 or proviso to main Section 3 of the Central Excise Act, 1944. 14.6 In view of the above, when rate of BED considered for BCD already takes into account enhancement imposed as surcharge, levying Education cess @ 2% under Section 93 of the Finance Act, 1994. Whenever two interpretations are possible, then the interpretation which avoids double taxation has to be preferred over an interpretation which confirms double taxation. 15. Invoking Section 93 of the Finance Act, 2004 once again for levying Education cess amounts to double taxation. It is well settled that any construction which avoids double taxation has to be preferred over a construction which confirms double taxation. Central Excise Act, 1944, customs tariff act, 1975, Exim Policy/Foreign Trade Policy together form an integrated scheme of taxation. As far as EOU is concerned, all these enactments have to be interpreted in an integrated manner and in light of each and other and not in isolation. One has to dovetail into another. 16.1 The Foreign Trade Policy, Handbook of Procedure, Central Excise Act, 1944 and the Customs Act, 1962 and notifications issued thereunder relating to EOU form an integ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 20.2 In other words, proviso to Section 3(1) of the Central Excise Act, 1944 treats the goods manufactured and cleared from an EOU to DTA units at par with imported goods for purpose of determining the question of duty. Therefore, by virtue of this fiction, one has to forget that the goods under assessment are manufactured in India and thereafter compute the amount of duties payable by EOU on the basis that goods are imported into India. 20.3 The aggregate of duties of Customs leviable under the Customs Act, 1962, or any other law for the time in force, on importation of like goods in India (read with Notification No. 23/2003-C.E., dated 31-3-2003) has to be duly discharged by an EOU when it makes dispatches to DTA. At the time, Basic Customs Duty under Section 12 of Customs Act, 1962, Additional duty (CVD) under Section 3 of the Customs Tariff Act, 1975 and Education cess under Section 94 has to be considered read with any relevant Notification. Also, Education cess @ 2% under Section 93 of Finance Act, 2004 levied on excisable goods manufactured in India has to be considered and paid as part of CVD under Section 3(1) of the Customs Tariff Act, 1975. Hence, for rate of duty purp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he lower authorities is to be accepted as correct then the importer would be in an advantageous position than EOU. EOU will be required to pay duty more than duty payable on like goods imported into India. This would destroy the true purpose of proviso to section 3(1) of the Central Excise Act, 1944. 20.8 The Hon'ble High Court of Bombay found favour with the above submission and hence was pleased to direct the CESTAT to consider the submission. Having levied customs duty including customs duty in the from/guise of excise duty under proviso to Section 3, object was never to levy excise duty on goods cleared by EOU Legislative intent as per Board Circular. 21. The legislative object was that on goods cleared in DTA, EOU should not suffer central excise duty and other central levies but suffer customs duties including Counter Vailing duty. (i) Government of India - Ministry of Commerce - Department of Commerce - Resolution dated 21-11-1983 - Clause (xx) of the resolution stating that "Finished products shall be exempt from excise and other central levies. (ii) Circular No. 23/84, dated 29- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Department in respect of DTA clearances of a 100% EOU, education cess and Secondary & Higher Education Cess will be calculated thrice over [i.e. as in (a), (b) and (c) above]. 25. Both in respect of Education Cess as well as the Secondary & Higher Education Cess the nexus for levy is manufacture of production of excisable goods. Education Cess on imported goods, the nexus for levy is importation of goods into India. Further while calculating the aggregate of all levies of duties of Customs, education cess itself is to be excluded. The nexus for levy of excise duty is manufacture of production of excisable goods in India (which is the charging provision). But the extent or measure is customs duty (which is machinery provision). The machinery provision cannot and does not change the character of the levy. What is levied under Section 3(1) is not a duty of customs under the Customs Act or any other law. It is still a duty of excise notwithstanding the fact that the amount is measured by the customs duty payable on such goods if they were imported from abroad. 26. Board has also acknowledged this position in its Circular No. 268/69/2001-C.X. 8, dated 13th Feb. 2002. In respect of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re". Qua the same goods, there cannot be two such nexuses simultaneously. Either they are "imported" from abroad or "manufactured" in India - Board clearly accepts that they are manufactured in India in its circulars. 31. Here duty is levied and collected only as duty of excise and not as duty of customs. As the levy and collection still continues to be that of excise, no education cess or Secondary & Higher Education Cess can be added while calculating the customs duty and CVD for arriving at the "amount" as required under the second proviso to Section 3(1) of Central Excise Act. 32. Exclusion of these two levies mentioned in Section 93 and 94 of Finance (No. 2) Act, 2004 and Section 138 and 139 of the Finance Act, 2007, should be given effect to : 33. In all these four sections for the purpose of calculating aggregates of the duties of excise and/or customs, the education cess as well as Secondary & Higher Education Cess as a surcharge or cess leviable thereon are required to be excluded. Hence, it precludes addition of these levies while calculating the "amount" based on aggregate of duties of customs specified in proviso (ii) to Section 3(1). 34. The purpose of the exclusio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... led that since these notifications are placed before the Parliament they attain the status of the law itself. Hence, these examples are binding on the authorities and they cannot contend to the contrary. Submissions made by Bebtiz Flanges : 42. Education Cess on imported goods, imposed under Section 91 of Finance (No. 2) Act, 2004, is calculated on the aggregate of duties of customs levied and collected by the Central Government under Section 12 of the Customs Act, 1962 and any sum chargeable on such goods under any other law for the time being in force, as an addition to, and in the same manner as, a duty of customs. 43. Section 94 of the Finance (No. 2) Act, 2004 refers to education cess as a duty of customs and provides for the calculation thereof in the manner stated hereinabove. The term "aggregate of duties of customs" includes all duties chargeable under Section 12 of the Customs Act, 1962 and any other sum chargeable on such goods under any other law for the time being in force, but excludes safeguard duty referred to in Section 8B and 8C of the CTA, countervailing duty referred to in Section 9 of CTA, the anti-dumping duty referred to in Section 9A of the CTA and educat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s to this effect. Reference is made to Public Notice No. 08/2005, dated 1st March, 2005, issued by Mumbai Custom House, wherein, Paragraph 3, it has been stated that; "2% of Education Cess is to be levied on the aggregate of Customs duty." The implication, that aggregate of Customs duty is exclusive of Customs Education Cess, cannot be thus escaped. The same principle is automatically applicable to Customs Secondary and Higher Education Cess. Submissions made by Shri Ambica Polymer Pvt. Ltd. : 49. E cess which is leviable by virtue of Section 91/93 of Finance Act, 2004 is a duty of excise. This will be helpful while reading proviso to Section 3 in subsequent paras of this petition for arriving at final conclusion. The amount of E cess payable is not required to be calculated in addition to the amount being aggregate of duties of customs for the reasons as stated blow - The petitioner herein submit that as aforesaid it is proviso to Section 3 of the Central Excise Act which is holding the filed, therefore, it would be proper, relevant &, important to examine the said proviso which reads as under- "Provided that the duties of excise which shall be levied & collected on any (exci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sure, as per the charging Section 3, is the rate of customs duty as held by the Larger Bench in Vikram Ispat v. Collector - 2000 (120) E.L.T. 800 (Tri. - LB). 54. In the of the aforesaid while the charging Section for levy of duty, in respect of clearances of goods by an EOU in the DTA is the first proviso to Section 3(1) of the said Act the measure thereof is the aggregate of duties of Customs, leviable under the Customs Act, 1962 or any other law for the time being in force, on like goods produced or manufacture outside India if imported into India. Thus, the aggregate of duties Customs, in the above example, is the sum total of the Basic Customs Duty + CVD + Education Ces on CVD+ Secondary & Higher Education Cess on CVD. 55. Section 94 of the Finance (No. 2) Act, 2004 refers to education cess as a duty of customs and provides for the calculation thereof in the manner stated hereinabove. The term "aggregate of duties of customs" includes all duties chargeable under Section 12 of the Customs Act, 1962 and any other sum chargeable on such goods under any other law for the time being in force, but excludes safeguard duty referred to in Section 8B and 8C of the CTA, countervailing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... here shall be levied and collected, in accordance with the provisions of this chapter as surcharge for the purposes of the union, assess to be called the education cess, ......." 61. To support his contention that expression "surcharge" in the context of taxation means an additional imposition which results in enhancement of tax and the nature of the additional imposition is the same as the tax on which it is imposed as surcharge. To support his contention he relies upon the decision of the Hon'ble Supreme Court in the case of CIT v. K. Srinivasan [1972 (4) SCC 526] and Sarojini Tea Co. (P) Ltd. v. Collector of Dibrugarh [1992 (2) SCC 156] in the case of Shri K. Srinivasan, the Hon'ble Supreme Court analyses the meaning of the term "surcharge" and held as under : "7. The above legislative history of the Finance Acts, as also the practice, would appear to indicate that the term "Income tax" as employed in Section 2 includes surcharge as also the special and the additional surcharge whenever provided which are also surcharges within the meaning of Article 271 of the Constitution. The phraseology employed in the Finance Acts of 1940 and 1941 showed that only the rates of income tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .., land revenue on which it is a surcharge." 62. We find that the issue before us is clearly covered by the above decisions and therefore we find ourselves in agreement with the contention that education cess which is a surcharge means an additional imposition which results in enhancement of the tax. 63. The next submission made by Shri Sridharan was that once the tax rate is enhanced, the section imposing surcharge gets exhausted and it need not be again looked into. What is required to be done for the purpose of determination of duty leviable on the goods cleared by a 100% EOU to domestic tariff area is to arrive at aggregate duties of customs leviable on like goods imported. Therefore, once the customs duty is determined and education cess on the whole of customs duty under Section 94 under of the Finance Act is added, the question of adding the education cess under Section 93 of Finance Act does not arise. Because once the surcharge is levied on customs duty, the enhancement of customs duty is over. There cannot be enhancement of the duty twice. As per the proviso to Section 3(1) of the Act, what is required to be determined is the aggregate of the customs duties. Once it is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the proviso shows that EOU has been given a separate treatment in the Act. Further, provisions relating to exemption to excisable goods under Section 5A, provisions relating to job work, provisions relating to Cenvat credit show that in all these places EOUs have been treated separately. In the absence of specific provisions relating to EOU in Section 93 of Finance Act relating to education levy, it has to be assumed that the legislative was to excludive EOU from the scope of Section 93 of the Finance Act, 2004. We are not considering this aspect in detail since we consider that the issue can be decided in favour of the appellant on the basis of the other submissions with which we have found ourselves in agreement. 66. The next submission made was that a deemed fiction should be carried to its logical end. For this purpose, the learned advocate cited Lord Asquith in East End Dwelling Co. Ltd. v. Finsbury Borough Council [1951 (2) ALL ER 587] wherein he stated as under : "If you are bidden to treat an imaginary state of affairs as real, you must surely, unless prohibited from doing so, also imagine as real the consequence and incidents which, if the putative state of affairs had i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stoms duties does not arise. 70. Now we come to the submissions made by Shri Ravindran, intervening on behalf of Godrej Industries Ltd. The conclusions submitted by Shri Ravindran have been reproduced in para 23 onwards. According to him, education cess has to be added only at the aggregate level and not at the level of each type of duty. For this purpose it is his submission that what is levied is not a duty of customs but a duty of excise measured and only the measure is customs duty. There is no dispute about this contention. However, we are not convinced about the correctness of the calculation made by the learned advocate. As already observed by us with regard to the nature of education cess, it is a surcharge and is in the nature of enhancement by the quantum of education cess under Section 94 of Finance Act. Afterwards, to arrive at additional customs duty, what is required to be worked out is equallant excise duty levialbe. Therefore, since education cess enhances the quantum of excuse duty, additional customs duty at its own level has to be enhanced by the quantum of education cess. Since the aggregate of both the duties is again considered as customs duties in total, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... herefore we do not consider it necessary to discuss the same. 73. On behalf of Shri Ambica Polymers Pvt. Ltd., it was submitted that in view of the fact that proviso to Section 3 of the Act uses the word "duties of excise" i.e. "an amount equal to" and "duties of customs", what is required is to calculate an amount equal to the aggregate of duties of customs and once that is done, it would be equal to all duties of excise payable by a EOU. Our attention was drawn to the fact that education cess is also to be treated as an excise duty for all purposes. Therefore, in terms of proviso to Section 3 of the Act, this cannot be a question of adding education cess once again. We agree with this submission. 74. On behalf of Viraj Profiles Ltd., it was submitted that the nature of the tax is excise duty but the measure for arriving at the quantum is the rate of customs duty and for this purpose reliance was placed on Vikram Ispat v. Collector reported in 2000 (120) E.L.T. 800 (Tri. - LB). We agree that the decision of the Larger Bench supports the case of the appellants and therefore once aggregate of duties of customs is worked out, the question of arriving at the quantum of excise duty b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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