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TMI Blog2014 (1) TMI 1469X X X X Extracts X X X X X X X X Extracts X X X X ..... 2004. According to them the Manufacturer is allowed to take credit of additional duty leviable under Section 3 of the Customs Tariff Act, 1975, equivalent to the duty of excise specified under Clause (i), (ii), (iii), (iv), (v) and (vi) of Rule 3(1) of the said Rules. 3. Sugar Cess is not specified under Rule 3 of the CENVAT credit Rules, 2004 as being eligible for being taken credit of. Therefore, a show cause notice dated 05.05.2006 was issued to the assessee asking them to show cause as to why the irregularly availed and utilized CENVAT Credit should not be recovered under Rule 12 of the CENVAT Credit Rules, 2004 along with interest and why penalty should not be imposed for the said contravention. The assessee in the reply dated 07.06.2006 pleaded that cess on sugar is levied as a duty of excise and thus what is collected is duty of excise and availment of credit of such duty cannot be denied. That sugar cess has all characteristic features of Central Excise Duty and the Provisions of the Central Excise Act 1944 and the Rules made thereunder are mutatis mutandis applicable to cess paid under the Act. The new CENVAT Rules provide for credit to manufacturers and service provider ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the said order of the Tribunal, the Revenue is in appeal. SUBSTANTIAL QUESTION OF LAW 6. This appeal came to be admitted on 11.03.2008 to consider the following substantial question of law, which reads as under: "(1) Whether the assessee is entitled for Cenvat Credit, on the Sugar Cess (under Section 3(4) of the Sugar Cess Act, 1982) as the same is not one of the duties allowed for Cenvat Credit under Rule 3(1) of the Cenvat Credit Rules, 2004?" RIVAL CONTENTIONS 7. The learned counsel appearing for the Revenue assailing the impugned order of the Tribunal contended that the cess levied and collected under the Act does not part take the character of a duty of excise. It is in the nature of a fee, for rendering specific service as contemplated under the Sugar Development Fund Act, 1982 and therefore the assessee is not entitled to the benefit of CENVAT Credit. Secondly he contended, to be eligible to claim CENVAT credit the cess paid under the Act should have been included in Rule 3 and a reference to the Act is conspicuously missing in Rule 3 of the CENVAT Credit Rules. Therefore the Tribunal committed a serious error in extending the benefit of CENVAT Credit t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r as may be, apply in relation to the levy and collection of the said duty of excise as they apply in relation to the levy and collection of the duty of excise on sugar under that Act" 10. It is clear from the aforesaid provisions that the cess is imposed for the purpose of the Sugar Development Fund Act, 1982. The Sugar Development Fund Act, 1982 was enacted to provide for the financing of activities for development of sugar industry and for matters connected therewith or incidental thereto. The purpose of establishment of the said fund is for making loans for facilitating the rehabilitation and modernization of any sugar factory or any unit thereof or the undertaking of any scheme for development of sugar cane in the area in which a sugar factory is situated; for making loans to any sugar factory or any unit thereof for begese based co-generation power projects with a view to improve their viability; for production of anhydrous alcohol or ethanol from alcohol with a view to improve their viability; for any research project aimed at development of sugar industry for maintenance of buffer stocks of sugar with a view to stabilizing price of sugar; for defraying the expenditure on i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... just as if they had been actually written in it with the pen or printed in it, and, the moment you have those clauses in the later Act, you have no occasion to refer to the former Act at all. 14. In this case it is not that some of the provisions of the Central Excise Act, 1944, were incorporated under the Act. What is incorporated is the provisions of the Central Excise Act, 1944. i.e., the entire enactment and also the Rules made there under including those relating to refunds and exempting from duty. After so incorporating the entire Central Excise Act of 1944 and the Rules made there under Section 4 of the Act deals with the cess so collected and how it should be dealt with. Section 4 reads as under: "4. Crediting proceeds of duty to Consolidated Fund of India - The proceeds of the duty of excise levied under section 3 shall be credited to the Consolidated Fund of India." 15. This Act does not provide for appropriation of the said sum collected. Appropriation is dealt with under the provisions of the Sugar Development Fund Act. 1982 under Section 3 which reads as under: (1) There shall be formed a fund to be called the Sugar Development Fund; &nbs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which has been given by Latham, C.J., in Matthews v. Chicory Marketing Board (1938) 60 C.L.R. 263 is often cited as a classic on this subject. "A Tax", said Latham, C.J., "is a compulsory exaction of money by public authority for public purposes enforceable by law, and is not payment for services rendered". In bringing out the essential features of a tax this definition also assists in distinguishing a tax from a Fee. It is true that between a tax and a fee there is no generic difference. Both are compulsory exactions of money by public authorities; but whereas a tax is imposed for public purpose and is not, and need not, be supported by any consideration of service rendered in return, a fee is levied essentially for services rendered and as such there is an element of quid pro quo between the person who pays the fee and the public authority which imposes it. If specific services are rendered to a specific area or to a specific class of persons or trade or business in any local area, and as a condition precedent for the said services or in return for them cess is levied against the said area or the said class of persons or trade or business the cess is distinguishable from a tax a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is enough to uphold the validity of the fee charged." 20. Again the Apex Court in the case of Sreenivasa General Traders and Ors. v. State of Andhra Pradesh and Ors. reported in 1983 (4) SCC 353 held as under: "The traditional view that there must be actual quid pro quo for a fee has undergone a sea change in the subsequent decisions. The distinction between a tax and a fee lies primarily in the fact that a tax is levied as part of a common burden, while a fee is for payment of a specific benefit or privilege although the special advantage is secondary to the primary motive of regulation in public interest. If the element of revenue of general purpose of State predominates, the levy becomes a tax. In regard to fees there is, and must always be, correlation between the fee collected and the service intended to be rendered. In determining whether a levy is a fee, the true test must be whether its primary and essential purpose is to render specific services to a specified area of class; it may be of no consequence that the State may ultimately and indirectly be benefited by it. The power of any legislature to levy a fee is conditioned by the fact that it must be "by and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and distributed between the Union and the States; (1) All taxes and duties referred to in the Union List, except the duties and taxes referred to in articles (268 and 269), respectively, surcharge on taxes and duties referred to in article 271 and any cess levied for specific purposes under any law made by Parliament shall be levied and collected by the government of India and shall be distributed between the Union and the States in the manner provided in clause (2); (2) Such percentage, as may be prescribed, of the net proceeds of any such tax or duty in any financial year shall not form part of the Consolidated Fund of India, but shall be assigned to the States within which that tax or duty is leviable in that year, and shall be distributed among those States in such manner and from such time as may be prescribed in the manner provided in clause (3); (3) In this article, "prescribed" means - (i) until a Finance Commission has been constituted, prescribed by the President by order, and (ii) after a Finance Commission has been constituted, prescribed by the President by order after considering the recommendation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act is a duty of excise or a tax. The contention that it is a fee and the assessee is not entitled to CENVAT credit has no substance. Therefore, the sugar cess paid under the Act is tax, and to be precise it is DUTY OF EXCISE and not FEE. 28. Insofar as the contention that, to be eligible for CENVAT credit, is it necessary that the Act should have been mentioned in Rule 3 of the CENVAT Credit Rules, is concerned, the answer is found in section 3 of the Central Excise Act, 1944 which is the charging Section. It reads as under: "3. Duties specified in the Schedule and the Second Schedule to the Central Excise Tariff Act, 1985 to be levied - (1) There shall be levied and collected in such manner as may be prescribed - (a) a duty of excise to be called the Central Value Added Tax (CENVAT) on all excisable goods (excluding goods produced or manufactured in special economic zones, which are produced or manufactured in India as, and at the rates, set forth in the First Schedule to the Central Excise Tariff Act, 1985 (5 of 1986); (b) a special duty of excise, in addition to the duty of excise specified in clause (a) above, on excisable goods ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the duty of excise specified in the Second Schedule to the Tariff Act, leviable under the Act; (iii) the additional duty of excise leviable under section 3 of the Additional Duties of Excise (Textile and Textile Articles) Act, 1978 (40 of 1978); (iv) the additional duty of excise leviable under section 3 of Additional Duties of Excise (Goods of Special Importance) Act, 1957 (58 of 1957); (v) the National Calamity Contingent duty leviable under section 136 of the Finance Act, 2001 (14 of 2001), as amended by section 169 of the Finance Act, 2003 (32 of 2003); (vi) Education Cess on excisable goods leviable under section 91 read with Section 93 of the Finance (No.2) Act, 2004; (vii) the additional duty leviable under section 3 of the Customs Tariff Act, equivalent to the duty of excise specified under clauses (i), (ii), (iii), (iv), (v) and (vi) above; and, (viii) the additional duty of excise leviable under section 157 of the Finance Act, 2003 (32 of 2003); paid on any inputs or capital goods received in the factory on or after the first day of March, 2002, including the said duties pai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed at that percentage of the value of the imported article. Therefore, on imported goods or articles, in addition to basic Customs Duty, an assessee is also liable to additional duty of customs, equivalent to excise duty. The excise duty is leviable under the Central Excise Act 1944 and also the Sugar Cess Act, 1982. 36. It was fairly submitted by the learned counsel for the Revenue that if the cess paid under the Act is held to be a duty of excise or a tax, then the assessee is entitled to the credit of such duty tax paid. 37. In this connection it is also useful to refer to the judgment of the Apex Court in the case of Barnagore Jute Factory Ca. V. Inspector of Central Excise, reported in 1992 (57) ELT 3 (SC) where the Apex Court was considering the nature of a "cess" levied and collected under the provisions of the Jute Manufacturers Cess Act, 1983, where identical provisions came up for consideration. After referring to the provisions of the Act and various judgments, the Apex Court has held as under: "17. It is then argued that if we arrive at the above conclusion on the basis of the language employed in Section 9, it would lead to an anomalous situation viz, w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ses where a mere reference is made to another Act a distinction pointed out in a recent decision of this Court in Bhatinaa Improvement Trust v. Balwant Singh. (1991 (4) SCC 368). 19. ..........The nature of the cess imposable under Section 9 is really that of duty of Central Excise, as emphasised hereinbefore. Evidently, for that reason the principle obtaining under the Central Excise Act has been adopted by this Act in the matter of levy of cess. We cannot agree with Sri Salve that according to Section 9, the cess can be levied on the basis of value alone and on no other basis. The main limb of Section 9(1) does not indicate any particular basis for levy of cess. It is only the proviso which says, "no such rate shall in any case exceed two annas per cent of the value of the goods." Sri Salve wants us to read the proviso into the main limb and on that basis, hold that Section 9(1) contemplates levy of cess only ad valorem"......" 38. Section 3 of the Act provides for levy and collection as a cess for the purpose of Sugar Development Fund Act, 1982, a duty of excise on all sugar produced by any sugar factory in India. Therefore, the cess leviable and collected is at t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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