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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 ..... jendra Jain, Sandeep Sachdeva, C.A., Anand Nainawati, Jigar Shah, Hardik Modh and R. Ravindran, Advocates, for the Appellant. Shri J.S. Negi, SDR, for the Respondent. [Order per : B.S.V. Murthy, Member (T)]. - The Silvassa factory of the appellant-company is a 100% Export Oriented Unit, inter alia, engaged in manufacture of polyester yarn. Apart from clearing the polyester yarn for export, the same is also being removed in DTA on payment of duty of excise in terms of proviso to Section 3(1) of Central Excise Act, 1944 read with Notification No. 23/2003-C.E. dated 31-3-2003. 2. The appellants during April, 2004 to December, 2005, in terms of the permission granted by the Development Commissioner, cleared certain quantity of polyester yarn in Domestic Tariff Area (DTA). At the time of said clearances, it paid excise duty under proviso 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... egislature and whether considering that purpose the fiction can be extended while levying education cess under Section 93 of the Finance Act also. 4. We have been informed that any decision taken on this question is likely to affect a number of EOUs and therefore, in our opinion, the tribunal should also consider issuing general notice making it know that any person representing EOU can address the tribunal on this question so that a well-considered decision on the subject can be taken. In our opinion, therefore, following order would meet the ends of justice. Order (i) The order impugned in the appeal is set aside. (ii) The appeal is remitted back to the tribunal for de novo consideration and decision in accordance with law. (iii) 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 int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lculating the customs cess, let landed value of an item be Rs.1000. The duty will he worked out as under : Landed Value (c.i.f.) Rs. 1000 Customs Duty @ 20% Rs. 200 Landed Cost Rs. 1200 CVD @ 16% +2% Education Cess Rs. 195.84 Thereon [192+3.84] Total Customs duty Rs. 395.84 While credit of total CV duty of Rs. 195.84 will be available, the cess component of Rs. 3.84 would be available as credit only for payment of education cess on final product." 10.4 An example below would clarify the position. Custom Duties payable when 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. 9 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 TABLE 'D' Excise Duties payable when EOU unit clears goods to DTA - As per Department 1 Assessable 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 = Excise Duty under proviso to Section 3 of CEA, 1944 40375.68 9=8*2% Educatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g tax for any purpose whatsoever. In other words, once the rate is enhanced, these sections get exhausted and they cannot be invoked once again. 14.5 Section 93 of the Finance Act, 2004 is already given full effect by way of considering the increased/enhanced rate of basic excise duty, (including the surcharge of education cess) while computing CVD payable Section 3(1) of Customs Tariff Act, 1975 for calculating the duty payable under the proviso to Section 3(1) of Customs Tariff Act, 1975 for calculating the duty payable under the proviso to Section 3(1) of the Central Excise Act, 1944. Section 93 of the Finance Act, 2004 could not be invoked once again for levying education cess only on the ground that it is an independent cess, over and above what is levied either 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Deeming fiction incorporated in proviso to Section 3(1) has to be given full effect. Customs duty payable on goods cleared by EOU to DTA - under proviso to Section 3-excisable goods treated as imported goods for measure of excise duty under proviso to Section 3 cannot be treated as actually goods manufactured in India for the purpose of Section 93 of the Finance Act, 2004. Deeming fiction has to be carried to Finance Act 2004 also. 20.1 The proviso to Section 3(1) mandates that excise duty payable on excisable goods manufactured in 100% EOU and cleared in DTA will be equal to aggregate of duties of Customs which would be leviable under the Customs Act, 1962, or any other law for the time being in force, on like goods produced or manufactured outside India if imported into India. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me under Section 93 of the Finance Act, 2004, it cannot be ignored that the rate is linked to imported goods and nay amount more than that imposed on imported goods, cannot be levied. 20.6 Chapter 22 of CBEC's Customs Manual under the Export Oriented Unit Scheme provides that the measure of excise duty leviable on goods manufactured in EOU/EPZs is worked out exactly in the same manner as applicable to imported goods. Further, vide Circular bearing F. No. 305/83/94-FTT dated 15-9-1994, issued by the Board, wherein the matter regarding the availability of end use based exemption notification by 100% EOUs was considered, it was clarified that clearances from 100% EOUs to the DTA are placed on par with imports. 20.7 If the interpretation placed in Section 93 of the Finance Act, 2004 by the 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 10.00 Rs.10.00 (a) Education Cess on customs duty 20% Rs. 0/20 Rs. 0.20 Rs. - Secondary Higher Cess Rs. 0/10 Rs.0.10 Rs. - Total Rs. 110/30 Rs. 10.30 Rs.10.00 CVD 20% Rs. 22/06 Rs. 22.06 Rs. 22.00 (b) Education Cess 2% Rs. 0/44 Rs. 0.44 Rs. - Secondary Higher Education Cess 1% Rs. 0/22 Rs. 0.22 Rs. - Total (Amount proviso (ii) to Section 3(1) Rs. 133/02 Rs. 33.02 Rs. 32.00 (c) Education Cess 2% Rs. 0.66 Rs. 0.64 Secondary Higher Education Cess 1% Rs. 0.33 Rs. 0.32 Total Rs. 34.01 Rs. 32.96 Education Cess claimed by Dept. is Rs. 1.95 against Rs. 0.96 claimed by Interverner. 24. In the scheme of things of 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 Educati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the Customs levy respectively as stated in Section 91 of the Finance (No. 2) Act, 2004 and Section 136 of the Finance Act, 2007. 30. Education Cess and Secondary Higher Education Cess on the customs duty and CVD component of goods as if they are imported can be claimed and included only if the levy itself is made and collected under the provisions of the Customs Act or under any other law as duties of customs. In other words, if the nexus is "importation of goods". Here the nexus to levy these cesses still continues to "manufacture or production". Merely because the calculation of aggregate of duties is based on the customs duty, the nexus cannot change to one of importation and thereafter once again become one of manufacture. In other words, it would lead to an absurd situation where while calculating the aggregate the nexus is "importation" and after arriving at the amount, levy is made once again on the nexus as "manufacture". 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 collect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... OU can be charged on the amount arrived at without the addition of Education Cess and Secondary Higher Education Cess while calculating the aggregates. Not. 23/2003-C.E., dated 31-3-2003 itself does not include these Cesses. 39. Notification 23/2003-C.E., dated 31-3-2003 as amended till 1-3-2005, as amended by Not. No. 22/2006-C.E., dated 1-3-2006 and as amended by Not. 10/2008-C.E., dated 1-3-2008 against item 2 of the table provides examples of calculating the duty for DTA clearances of an EOU. Though Education Cess is leviable from 2004 and Secondary Higher Education Cess is leviable from 2007, the examples do not include these levies. 40. It cannot be said to be an omission or oversight. If as is being contended by the Revenue, these levies are to be added while calculating the Customs Duty and CVD components of the "amount" for DTA valuation, then the Government would have included them in its calculations. 41. It is well settled 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 : ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ducation cess on customs duty and secondary and higher education cess on customs duty. In which case the whole amount being Excise duty becomes cenvatable. 47. Education cess is added twice in calculating the aggregate duties of customs in terms of the proviso to Section 3(1). Once on the CVD portion which is equal to Excise duty and again on the total of basic duty+CVD+Education Cess which is equal to Excise duty. There is no provision for adding Education Cess for the third time since as per proviso the maximum duty payable is equal to the aggregate duties of customs which is equal to the aggregate duties of customs which is in the nature of Excise duty and which Education Cess is also paid when added the second time. 48. All over the country, the levy of Customs Education Cess and Customs Secondary and Higher Education Cess, on imports is uniformly done on the aggregate of Customs Duty. The Revenue, has all over the country issued Public Notices 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 du ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been used which indicates that "an amount" being aggregate of duties of customs = all duties of excise payable by an EOU and nothing more than that. Thus, an EOU will first calculate all type of duties of customs including cess and will arrive at "an amount" and that amount would be equal to all type of duties of excise including cess payable by an EOU under proviso to Section 3 as aforesaid. 52. There is no requirement of calculating E cess again separately once an amount equal to aggregate of duties of customs is arrived at for the basic reason that the word "duties" used with the word excise and also with the word customs in the proviso, covers all type of duties including E cess and that "an amount which is arrived at being aggregate of duties of customs is the final amount of duties of excise payable by an EOU, this is what proviso to Section 3 says. Submissions made by Viraj Profiles Ltd. : 53. The nature of the tax is Excise duty, although the measure, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ered the submissions made by the appellant as well as other interveners. 59. The issue to be decided is whether the department was right in demanding education cess under relevant provisions of Finance Act leviable as excise duty also after arriving at aggregate of duties of customs levialbe. In terms of proviso to Section 3(1) of the Central Excise Act, 1944 (the Act), when 100% EOU clear the goods and to domestic tariff area (DTA), duties of excise leviable shall be equal to the aggregate of duties of customs. The advocate for the appellant had submitted the calculations as per the appellant as well as, as per the department which have already been reproduced under para 12.1 of this order. 60. Shri Sridharan, learned advocate, submitted that the true nature of education cess is actually a surcharge. For this purpose he relied upon Section 91 of Finance Act, 2004 which reads as under : "91 : Education cess - (i) when prejudices to the sub-section 2 of section 2, there 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rge" has been used in Article 271 for the purpose of separating it from the basic charge of a tax or duty for the purpose of distributing the proceeds of the same between the Union and the States. The proceeds of the surcharge are exclusively assigned to the Union. Even in the Finance Act itself it is expressly stated that the surcharge is meant for the purpose of the Union." In the case of Sarojini Tea Co. Pvt. Ltd., after hearing various judgments including K. Srinivasan's case, Hon'ble Supreme Court came to the following conclusion : "16. From the aforesaid decisions, it is amply clear that the expression 'surcharge' in the context of taxation means an additional imposition which results in enhancement of the tax and the nature of the additional imposition is the same as the tax on which it is imposed as surcharge. 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." 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 ce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubmission. We also agree that the action taken by the department in this case is against this basic principle. The proviso to Section 3(1) of the Act requires the department to arrive at aggregate of customs duties and levy an equal amount as excise duty. Therefore, once aggregate of customs duties is determined, applying the provisions of Finance Act as it relates to goods manufactured by 100% EOU does not arise. We find the following decision cited by the learned advocate relevant in this context. 1. K.P. Varghese v. ITO. [1981 (4) SCC 173] In this case, the Hon'ble Supreme Court observed that the Income Tax Act, 1961 and the Gift Tax Act, 1958 are parts of an integrated submissions of taxation and the same amount which is chargeable as gift could not be intended to be charged also as capital gains. 65. Next submission was that the very fact that duty on the goods manufactured by 100% EOU when cleared to DTA has to be charged not under main Section 3(1) of the Act but under 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 relat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to DTA from 100% EOU were treated as import but having been located within the country, nature of levy has to be a levy on the manufacture. Hence the need for a proviso and also explanation as to how the excise duty leviable on these goods have to be determined. Therefore, customs duty payable on imported goods is the measure of excise duty payable on goods cleared by EOU to DTA and therefore they cannot be treated as goods actually manufactured in India. The deemed fiction has to be carried to Finance Act also. Further, we also find that Chapter 22 of CBEC provides that the measure of excise duty leviable on goods manufactured in EOU is worked out exactly in the same manner as applicable to imported goods. This also supports the view canvassed by the learned advocate. 69. As pointed out by the learned advocate, since the object was not to levy excise duty on goods cleared by EOU, the question of adding education cess under Section 93 of Finance Act after determination of aggregate of customs 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 repr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ication, the purpose is to provide exemption. If the calculation method provided in a notification results in lower levy of any duty, it has to be taken as specific exemption under that notification and cannot be treated as laying down the law and method of calculation for the purpose of levy itself. Notification itself is a part of subordinate legislation and therefore it cannot over ride the provisions of enactments made by the legislature. The provisions of Finance Act, Customs Act and Central Excise Act definitely stand at a much higher footing when compared to a notification and therefore omission or inclusion of a particular method of calculation does not help the case of the learned advocate. We have already explained the logic behind adding education cess at the level of customs duties as well as additional customs duties. 72. As regards the submissions made on behalf of Bebitz Flanges Works Pvt. Ltd., we find that the submissions are already covered by our discussions earlier and therefore 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 u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e provisions of relevant law and there cannot be a general rule. In fact this is what seems to be the conclusion in the decision of the Tribunal in Favorite Industries case. This conclusion would show that the decision of the Tribunal in Favorite Industries case would not in any way affect the conclusions that we have reached already. Further, the learned DR also submitted that as per the provisions of Section 93(2) of Finance Act, 1994, the education cess leviable on excisable goods shall be in addition to any other duties of excise chargeable on such goods. In fact this is the ground on which the department has proceeded to add education cess once again after arriving at aggregate of customs duties. The answer to this is the conclusion drawn by us with regard to the contention that education cess is only a surcharge and is in the nature of enhancement of duties. Therefore, once education cess is added to the customs duties to arrive at aggregate of customs duties, the question of charging education cess again does not arise. Because once it is a enhancement, it is part of the relevant type of the duty. What is required for the purpose of proviso to Section 3 of Central Excise Act ..... X X X X Extracts X X X X X X X X Extracts X X X X
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