REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NOS. 2781-2790 OF 2010

M/S. SRD NUTRIENTS PRIVATE LIMITED .....APPELLANT(S)

VERSUS

COMMISSIONER OF CENTRAL EXCISE GUWAHATI .....RESPONDENT(S)

W I T H

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J U D G M E N T

A.K. SIKRI, J.

Leave granted in the special leave petitions.

Civil Appeal Nos. 2781-2790 of 2010 & Ors. Page 4 of 30

2) In  order  to  encourage  the  business  community  to  set  up

manufacturing units in industrially backward areas like the North-

Eastern  States,  viz.  Assam,  Jammu  &  Kashmir,  Meghalaya,

Tripura, Mizoram, Manipur, Nagaland, Arunachal Pradesh as well

as Sikkim, notifications were issued by the Excise Department,

Government  of  India,  exempting  goods  specified  in  the  First

Schedule to the Central Excise Tariff Act, 1985 (other than those

mentioned in the annexure to these notifications) from payment of

excise duty in respect of  the goods manufactured and cleared

from units  located  in  the  aforesaid  States.   The  methodology

which was adopted and prescribed in these notifications was that

the manufacturer was initially supposed to pay the excise duty

leviable on such goods at the time of clearance as per the Tariff

Act  and  thereafter  claim  the  refund  thereof.   It  was  also

mentioned in these notifications that exemption contained therein

shall be available subject to the condition that the manufacturer

first utilises whole of the CENVAT credit available to him on the

last date of the month under consideration for payment of duty of

goods  cleared  during  such  period  and  was  to  pay  only  the

balance amount in cash.  It  is this balance amount which was

refundable to him.  Insofar as payment of the excise duty after

availing the CENVAT credit  and refund thereof subsequently is

Civil Appeal Nos. 2781-2790 of 2010 & Ors. Page 5 of 30

concerned,  there  is  no  dispute  about  the  same.   We  are

concerned with  altogether  different  aspect  which  is  associated

with the aforesaid notification granting exemption from payment

of excise duty.

3) It so happened that vide Finance Act, 2004, the Education Cess

and  Higher  Education  Cess  were  also  imposed,  which  are

surcharge on the excise duty.  These Education Cess and Higher

Education  Cess  were  also  levied  and  collected  from  the

manufacturers who had set up their units in the aforesaid areas,

along with the excise duty.  However, while refunding the excise

duty paid by these manufacturers, the Education Cess and the

Higher  Education  Cess  that  were  paid  by  the  manufacturers

along  therewith  were  not  refunded.   The  dispute,  thus,  which

arises for  consideration in  these appeals  is  as  to  whether  the

Education  Cess  and  Higher  Education  Cess  which  were  paid

along with the excise duty was also liable to be refunded along

with  the  central  excise  duty  in  terms  of  the  exemption

notifications.   This  is  the  issue  which  is  common in  all  these

appeals  and  the  factual  background  in  which  the  matter  has

travelled up to this Court is also almost the same.  Therefore, for

the sake of convenience, purpose would be served in tracing the

factual events from Civil Appeal Nos. 2781-2790 of 2010.

Civil Appeal Nos. 2781-2790 of 2010 & Ors. Page 6 of 30

4) The  appellant  in  these  appeals  is  M/s.  SRD Nutrients  Private

Limited (hereinafter referred to as the ‘assessee’).  It is engaged

in the manufacture and clearance of Malted Milk Food (Horlicks)

using sweetened milk powder since April 12, 2008 and has set up

its factory in the State of Assam.  This unit is duly registered with

the Central Excise Department.   

5) Industrial Policy dated April 01, 2007 for the North-Eastern States,

including the State of Assam, was announced by the Ministry of

Commerce  and  Industry  (Department  of  Industrial  Policy  and

Promotion), Government of India to set up a special package for

the North-Eastern States to accelerate industrial development of

the State.  As per this package, new industrial units were entitled

to 100% excise duty exemption for a period of 10 years from the

date of commencement of commercial production.  Pursuant to

the  said  Industrial  Policy,  the  Central  Government  issued

Notification  No.  20/2007-Ex.  dated  April  25,  2007  granting

exemption from duties of excise levied under the Central Excise

Act, 1944 (hereinafter referred to as the ‘Act’) read with Section

3(3)  of  the  Additional  Duties  of  Excise  (Goods  of  Special

Importance) Act, 1957 and Section 3(3) of the Additional Duties of

Excise  (Textiles  &  Textile  Articles)  Act,  1978  to  goods  cleared

Civil Appeal Nos. 2781-2790 of 2010 & Ors. Page 7 of 30

from the notified areas within the North-Eastern States.  The said

Notification  provided  that  the  assessee  would  be  entitled  to

refund of duty paid other than the duty paid by way of utilization of

CENVAT  credit  under  the  CENVAT  Credit  Rules,  2004.

Reproduction  of  the  first  three  paragraphs  of  this  Notification

would be sufficient, which are as follows:

“NOTIFICATION: 20/2007-C.E. dated 25-Apr-2007

North-East  –  Exemption  to  all  goods,  except  as specified,  cleared  from  Assam,  Tripura, Meghalaya,  Mizoram,  Manipur,  Nagaland, Arunachal Pradesh or Sikkim from duty paid other than by utilisation of Cenvat Credit.

In exercise of the powers conferred by sub-section (1) of section 5A of the Central Excise Act, 1944 (1 of 1944), the Central Government, being satisfied that it is  necessary  in  the public  interest  so to do,  hereby exempts the goods specified in the First Schedule to the Central Excise Tariff  Act, 1985 (5 of 1986) other than  those  mentioned  in  the  Annexure  and  cleared from a unit located in the States of Assam or Tripura or Meghalaya  or  Mizoram  or  Manipur  or  Nagaland  or Arunachal  Pradesh or  Sikkim,  as  the case may be, from so much of the duty of  excise leviable thereon under the said Act as is equivalent to the amount of duty paid by the manufacturer of goods other than the amount  of  duty paid by utilization of  CENVAT credit under the CENVAT Credit Rules, 2004.

2.   In  cases  where  all  goods  produced  by  a manufacturer  are  eligible  for  exemption  under  this notification, the exemption contained in this notification shall  be  available  subject  to  the  condition  that,  the manufacturer first utilises whole of the CENVAT credit available to him on the last day of the month under consideration for  payment  of  duty on goods cleared during  such  and  pays  only  the  balance  amount  in cash.

Civil Appeal Nos. 2781-2790 of 2010 & Ors. Page 8 of 30

3.  The exemption contained in this notification shall be given effect to in the following manner, namely:-

(a)  the  manufacturer  shall  submit  a statement of the duty paid other than the amount  of  duty  paid  by  utilisation  of CENVAT credit under the CENVAT credit Rules,  2004,  to  the  Assistant Commissioner  or  the  Deputy Commissioner  of  Central  Excise,  as  the case may be, by the 7th of the next month in  which  the  duty  has  been  paid  other than the amount of duty paid by utilization of  CENVAT  credit  under  the  CENVAT Credit Rules, 2004;

(b) the  Assistant  Commissioner  of  Central Excise  or  the  Deputy  Commissioner  of Central Excise, as the case may be, after such verification, as may be deemed by utilisation  of  CENVAT  credit  under  the CENVAT Credit  Rules,  2004,  during  the month  under  consideration  to  the manufacturer  by  the  15th of  the  next month.

Provided that in cases, where the exemption contained in this notification is not  applicable  to  some  of  the  goods produced by a manufacturer, such refund shall not exceed the amount of duty paid less  the  amount  of  the  CENVAT  credit availed of, in respect of the duty paid on the  inputs  used  in  or  in  relation  to  the manufacture of goods cleared under this notification;

(c) if  there  is  likely  to  be  any  delay  in  the verification,  Assistant  Commissioner  of Central  Excise  or  the  Deputy Commissioner  of  Central  Excise,  as  the case may be, shall refund the amount on provisional  basis  by the 15th of  the next month to the month under consideration and thereafter may adjust the amount of refund  by  such  amount  as  may  be necessary  in  the  subsequent  refunds

Civil Appeal Nos. 2781-2790 of 2010 & Ors. Page 9 of 30

admissible to the manufacturer.”

6) It may be mentioned at this stage that power to grant exemption

from  payment  of  excise  duty  is  conferred  upon  the  Central

Government  vide  Section  5A of  the  Act,  which  authorises  the

Central  Government  to  exempt  generally,  either  absolutely  or

subject to such conditions to be fulfilled, before or after removal,

as may be specified in the notification, excisable goods of any

specified description from the whole or any part of duty of excise

leviable  there,  if  the  Central  Government  is  satisfied  that  it  is

necessary,  in  public  interest,  so  to  do.   The  notifications  in

question  have  been  issued  in  exercise  of  the  said  power

conferred by sub-section (1) of Section 5A of the Act.  Thus, the

central excise duty, which is payable at the rates specified in the

Tariff Act, can be exempted, in respect of specified goods, wholly

or partly.

7) As mentioned above, the Parliament levied Education Cess by

Finance (No.2) Act,  2004.  Chapter VI  of the said Finance Act

deals  with  Education  Cess.   Sections  91  to  93  thereof  are

relevant and are reproduced below:

“91.  Education Cess. – (1) Without prejudice to the provisions of sub-section (11) of section 2, there shall be  levied  and  collected,  in  accordance  with  the provisions of this Chapter as surcharge for purposes

Civil Appeal Nos. 2781-2790 of 2010 & Ors. Page 10 of 30

of the Union, a cess to be called the Education Cess, to fulfil the commitment of the Government to provide and finance universalisd quality basic education.

(2)   The  Central  Government  may,  after  due appropriation  made  by  Parliament  by  law  in  this behalf, utilise, such sums of money of the Education Cess levied under sub-section (11) of section 2 and this Chapter for the purposes specified in sub-section (1), as it may consider necessary.

92.  Definition. – The words and expressions used in this  Chapter  and defined in  the  Central  Excise  Act, 1944 (1 of 1944), the Customs Act, 1962 (52 of 1962) or Chapter V of the Finance Act, 1994 (32 of 1994), shall  have  the  meanings  respectively  assigned  to them in those Acts or Chapter, as the case may be.

93.  Education Cess on excisable goods. – (1) The Education Cess levied under section 91, in the case of goods specified in the First  Schedule to the Central Excise  Tariff  Act,  1985  (5  of  1986),  being  goods manufactured or produced, shall be a duty of excise (in this section referred to as the Education Cess on excisable  goods),  at  the  rate  of  two  per  cent, calculated  on  the  aggregate  of  all  duties  of  excise (including special duty of excise or any other duty of excise  but  excluding  Education  Cess  on  excisable goods) which are levied and collected by the Central Government in the Ministry of Finance (Department of Revenue), under the provisions of the Central Excise Act, 1944 (1 of 1944) or under any other law for the time being in force.

(2) The Education Cess on excisable goods shall be in addition to any other duties of excise chargeable on such goods, under the Central Excise Act, 1944 (1 of 1944) or any other law for the time being in force.

(3) The provisions of the Central Excise Act, 1944 (1 of 1944) and the rules made thereunder, including those relating  to  refunds  and exemptions  from duties  and imposition of penalty shall, as far as may be, apply in relation  to  the  levy  and  collection  of  the  Education Cess on excisable goods as they apply in relation to the levy and collection of the duties of excise on such goods under the Central Excise Act, 1944 or the rules,

Civil Appeal Nos. 2781-2790 of 2010 & Ors. Page 11 of 30

as the case may be.”

8) As the assessee was denied refund of the Education Cess and

Higher Education Cess, he challenged the order of the Assessing

Officer  by  filing  appeal  before  the  Commissioner  of  Central

Excise  and  Customs  (Appeals),  Guwahati.   However,  these

appeals were dismissed by the Commissioner and the order of

the Commissioner  has been upheld  by the Customs Excise &

Service  Tax  Appellate  Tribunal  (CESTAT)  by  the  impugned

judgment.  Said order is the subject matter of these appeals.

9) It  may be pointed out  at  the outset  that  in  its  brief  order,  the

Service Tax Appellate Tribunal (hereinafter referred to ‘Tribunal’)

has taken note of two of its earlier judgments which were relied

upon by the appellant. These are :

(i)  Bharat  Box  Factory  Ltd.  v.  Commissioner  of  C.  Ex.,

Jammu1  

(ii)Cyrus  Surfactants  Pvt.  Ltd.  v. Commissioner  of  Central

Excise, Jammu2  

In both these decisions, the Delhi Bench of the Tribunal had

opined that the Education cess and Higher Education Cess were

also refundable along with the excise duty.

1 2007 (214) ELT 534 (Tri.-Del.) 2  2007 (215) ELT 55 (Tri.-Del.)

Civil Appeal Nos. 2781-2790 of 2010 & Ors. Page 12 of 30

10) The Revenue, on the other hand, had relied upon another

judgment of Tribunal in the case of  Commissioner of Central

Excise, Jammu  v.  Jindal Drugs Ltd.3.  In this judgment which

was also rendered by the Delhi Bench of the Tribunal, a contrary

view has been taken, viz., the Excise Department was under no

obligation to  refund the Education Cess and Higher  Education

Cess  as  the  notification  exempted  only  the  excise  duty  and,

therefore, it is the excise duty which was to be refunded.   

11) The  CESTAT,  by  impugned  judgment,  has  preferred  to

follow the view taken by the Tribunal in  Jindal Drugs Ltd. case

on the  ground  that  it  is  later  in  point  of  time in  which  earlier

judgment in  Cyrus Surfactants Pvt. Ltd.   case has also been

considered.

12) In the aforesaid backdrop, learned counsel for the appellant

was vehement in his criticism of the view taken by the Tribunal.

His first submission was that in case the Division Bench of the

Tribunal  in  Jindal  Drugs Ltd. decided  to  differ  from the  view

taken by earlier Division Bench in Cyrus Surfactants Pvt. Ltd. ,

an appropriate course of  action was to refer  the matter  to the

larger Bench. That apart, submitted the learned counsel, the view

3  2011 (267) ELT 653 (Tri.-Del.)

Civil Appeal Nos. 2781-2790 of 2010 & Ors. Page 13 of 30

taken in  Cyrus Surfactants Pvt. Ltd.  needs to be approved. In

this behalf, he argued that reading of the exemption Notification

dated April  25, 2007 would make it  clear that there was 100%

exemption granted by the said Notification from levy of  excise

duty which was clear from the reading of para 1 thereof.  Para 2

of the Notification simply laid down the mechanism as to how the

said exemption was to be applied, with the specification that the

duty was to be paid first after adjusting the CENVAT credit and

thereafter claim for refund was to be made.  He further submitted

that Education Cess was levied @ 2% on the excise duty.  When

the levy of excise duty itself was exempted, the Education Cess

also got  exempted thereby.   He also submitted that  Education

Cess is  in  the nature  of  surcharge and in  the absence of  the

primary  tax  (i.e.  Excise),  the  question  of  payment  of  any

surcharge thereupon would not arise.  He also referred to Circular

No.  134/3/211/ST  dated  April  08,  2011  issued  by  the  Excise

Department  amply  clarifying  that  since  the  Education  Cess  is

levied and collected as percentage of service tax, no Education

Cess would be payable when and wherever service tax is Nil by

virtue  of  exemption.   His  plea  was  that  though  the  aforesaid

Circular  was issued in  the context  of  service tax,  the principle

accepted therein by the Department would apply in the present

Civil Appeal Nos. 2781-2790 of 2010 & Ors. Page 14 of 30

case also,  more so,  when Notification dated October 06,  2007

exempting service tax was pari materia.   He also pointed out that

under similar circumstances, Income Tax Department has been

refunding  the  Education  Cess.   He  also  argued  that  in  the

scenario where there are two divergent views and two possible

interpretations, one that is in favour of the assessee should be

followed.   In  support  of  his  aforesaid  arguments,  apart  from

relying  upon  the  reasoning  given  by  the  Tribunal  in  Cyrus

Surfactants Pvt. Ltd., he referred to the judgment of this Court

Assistant  Commissioner  of  Commercial  Taxes  (Asstt.)

Dharwar  v. Dharmendra Trading Company Etc. Etc.4  

13) He  also  relied  upon  the  decision  in  the  case  of

Commissioner of Central Excise, Mangalore v. Suzlon wind

International5 rendered  by  Bangalore  Bench  of  the  Tribunal

which had decided the case in favour of the assessee referring to

Circular dated April 04, 2011.  Even the Rajasthan High Court has

leaned  in  favour  of  the  assessee  in  the  case  of  Banswara

Syntex Ltd. v. Union of India6 holding that since Education Cess

in the form of  surcharge is levied and collected,  there was no

question of retaining this amount once the excise duty itself got

4  (1998) 3 SCC 570 5  2012-TIOL-1837-CESTAT-BANG 6  2007 (216) ELT 16 (Raj.)

Civil Appeal Nos. 2781-2790 of 2010 & Ors. Page 15 of 30

exempted.

14) He also read out the following passage from the judgment

of  this  Court  in  R.S.  Joshi,  Sales  Tax  Officer,  Gujarat  and

Others v. Ajit Mills Limited and Another7:

“34. Section 37(1) uses the expressions, in relation to forfeiture, “any sum collected by the person . . . shall be forfeited'. What does “collected” mean here? Words cannot  be construed effectively  without  reference to their  context.  The  setting  colours  the  sense  of  the word.  The  spirit  of  the  provision  lends  force  to  the construction that “collected” means “collected and kept as his” by the trader. If the dealer merely gathered the sum by way of  tax and kept it  in suspense account because of  dispute about  taxability  or  was ready to return  it  if  eventually  it  was  not  taxable,  it  was  not collected. “Collected', in an Australian Customs Tariff Act, was held by Griffith, C.J., not “to include money deposited under an agreement that if it was not legally payable it will be returned' : (Words & Phrases, p.274). We  therefore  semanticise  “collected”  not  to  cover amounts gathered tentatively to be given back if found non-exigible from the dealer.”

15) Rebutting  the  aforesaid  arguments  of  the  appellants,  Mr.

Yashank P.  Adhyaru,  learned senior  counsel  appearing for  the

Revenue commended this Court to approve the view taken by the

Tribunal in Jindal Drugs Ltd.  case which has been accepted by

the High Court as well.   His argument was that the exemption

notification exempts only the excise duty.  However, duty has to

be  paid  first  and  along  with  that  Education  Cess  and  Higher

Education Cess also become payable.  He also emphasised the

7  AIR 1977 SC 2279 : (1977) 40 STC 497

Civil Appeal Nos. 2781-2790 of 2010 & Ors. Page 16 of 30

fact that excise duty is payable under the Excise Act, Education

Cess and Higher Education Cess are payable under the Finance

Act, by virtue of Section 11 thereof. Therefore, the mandate and

source of charging Education Cess is altogether different.  The

exemption notification which is issued under Section 5A of  the

Excise Act could exempt only the excise duty payable under the

said statute and not Education Cess which is payable under a

different statute.  He further submitted that since the duty is to be

paid first, education cess also becomes payable.  When it comes

to refund of the excise duty in terms of Notification dated April 25,

2007, it is only excise that would be refunded and not the cess.

He also argued that circular dated April 08, 2011 was not binding

on the Court.  His further submission was that even Calcutta High

Court had taken identical view in Biswanath Hosiery Mills Ltd.

& Anr. v. Union of India & Ors.8.

16) It is clear from the arguments of the counsel for the parties

that divergent views are expressed by the CESTAT as well  as

High Courts.  Even one Bench of the same Tribunal has differed

from  its  earlier  Division  Bench  decision.   In  this  scenario,  it

becomes important  as to how the Department  has viewed the

position regarding Education Cess and Higher Education Cess

8  (2017) 346 ELT 353

Civil Appeal Nos. 2781-2790 of 2010 & Ors. Page 17 of 30

which  is  payable  as  surcharge  on  the  excise  duty,  once  the

excise  duty  is  exempted.   Two  Circulars  are  relevant  in  this

behalf, one is Circular dated August 10, 2004 which clarifies that

Education  Cess  is  part  of  excise.   In  this  Circular,  certain

clarifications are given by the Ministry of Finance (Department of

Revenue),  Government  of  India  and  relevant  portion  thereof

reads as under:

“Subject:  Issues  relating  to  imposition  of Education  Cess  on  excisable  goods  and  on imported goods, as pointed out by the trade and the field formations-reg.

The  undersigned  is  directed  to  state  that subsequent  to  Budget  2004  announcements,  a number  of  representations/  references  have  been received  from  the  trade  as  well  as  from  the  field formations pertaining to imposition of Education Cess on  excisable  goods  and  on  imported  goods.  The points  raised  and  the  clarifications  thereon  are  as follows.  

Issue  No.  (1): Whether  Education  Cess  on excisable  goods  is  leviable  on  goods  manufactured prior to imposition of Cess but cleared after imposition of such cess?

Clarification: Education Cess on Excisable goods is a new levy. In similar cases, it has been held by the Supreme Court that if a levy is not there at the time the goods are manufactured or produced in India,  it cannot be levied at the stage of removal of the said goods.  Thus,  Education  Cess  is  not  leviable  on excisable  goods manufactured prior  to imposition of cess but cleared after imposition of such cess.

Issue  No.  (2): Whether  goods  that  are  fully exempted  from  excise  duty/customs  duty  or  are cleared without payment of excise duty/customs duty (such as clearance under bond or fulfillment of certain

Civil Appeal Nos. 2781-2790 of 2010 & Ors. Page 18 of 30

conditions) would be subjected to Cess

Clarification: The Education Cess is leviable at the rate of two per cent of the aggregate of all duties of excise/customs (excluding  certain  duties  of  customs like anti  dumping duty,  safe  guard duty  etc.), levied and  collected.  If  goods  are  fully  exempted  from excise duty  or  customs duty,  are chargeable to  NIL duty  or  are  cleared  without  payment  of  duty  under specified  procedure  such  as  clearance  under  bond, there is no collection of duty. Thus, no education cess would be leviable on such clearances. In this regard, letter  D.O.  No.  605/54/2004-DBK,  dated  21st July, 2004  issued  by  Member  (Customs)  may  also  be referred to.”

17) Other Circular is dated April 08, 2011 issued by the Central

Board  of  Excise  and  Customs,  New  Delhi  on  the  subject

“education cess and secondary and higher education cess-reg.”.

We would like to reproduce this Circular in its entirety:   

“Education  Cess  and  Secondary  and  Higher Education Cess also exempted when notifications exempt whole of Service tax  

Circular No. 134/3/2011-S.T., dated 8-4-2011 F.No. 354/42/2011-Tru

Government of India Ministry of Finance (Department of Revenue)

Central Board of Excise & Customs, New Delhi

Subject : Education Cess and Secondary and Higher  Education Cess – Reg.

Representations have been received from the field formations,  seeking  clarification  regarding  the applicability  of  service  tax  exemption  to  Education Cess  (refers  to  both  Education  Cess leviable  under Finance (No.2) Act, 2004 and Secondary and Higher Education  Cess  leviable  under  Finance  Act,  2007), under  notifications  where  'whole  of  service  tax' stands.exempted.  Apparently the doubt  arises in the

Civil Appeal Nos. 2781-2790 of 2010 & Ors. Page 19 of 30

context  of  Tribunal's  Order  in  the  matter  of  MIs. Balasore Alloys Ltd.  Vs CCE, Customs and Service Tax,  BBSR-I  (2010-TIOL-16S9-CESTAT-KOL)  = 2010(20)W.T.R. 506 (Tribunal).  

2. The issue has been examined. Though Tribunal's Order  referred  above  is  in  favor  of  revenue,  it  is inconsistent  with  the  policy  intention  of  the Government to exempt education cess in addition to service  tax,  where  'whole  of  service  tax'  stands exempted.  According  to  section  95(1)  of  Finance (No.2) Act,  2004 and section 140(1) of  Finance Act, 2007,  Education  Cess  and  Secondary  and  Higher Education Cess are leviable and collected as service tax,  and  when  whole  of  service  tax  is  exempt,  the same  applies  to  education  cess  as  well.  Since Education Cess is levied and collected as percentage of Page 1 of 2 service tax, when and wherever service tax  is  NIL by  virtue  of  exemption,  Education  Cess would also be NIL.

3.  This  being  the  principle,  field  formations  are directed  not  to  initiate  proceedings  to  recover  the education cess,  where 'whole  of  service tax'  stands exempted under the notification. Extending the same principle, where education cess has been refunded to exporters  along  with  service  tax,  by  virtue  of exemption notifications where 'whole of service tax' is exempt, the same need not be recovered.  

4. Field formations may be instructed accordingly.  

5.  Please acknowledge the receipt  ofthis  circular: Hindi version to follow.

18) No doubt, it clarified the position in relation to the exemption

from payment of service tax that was given vide Notification No.

41/2007-ST dated October 06, 2007.  We have gone through that

Notification as well, which is in pari materia with Notification dated

April 25, 2007.   What is important is that this Circular dated April

Civil Appeal Nos. 2781-2790 of 2010 & Ors. Page 20 of 30

08,  2011  refers  to  the  judgment  of  the  Tribunal  in  Balasore

Alloys Ltd. v.  CCE, Customs and Service Tax, BBSR-I9 which

was a decision rendered in favour of the Revenue as it was held

therein  that  the  Education  Cess  and  Higher  Education  Cess

would not be refunded while giving back the exempted service

tax.   Notwithstanding the same, the Circular  mentions that  the

said order of the Tribunal is inconsistent with the policy intention

of  the  Government  to  exempt  Education  Cess  in  addition  to

service tax, ‘whole on service tax’ stands exempted.

19) During  arguments,  when these  circulars  were  referred  to

and relied upon by the learned counsel for the assessees, Mr.

Adhyaru had asked for some time to seek instructions from the

Department in this behalf.  In order to give him a chance to seek

the clarification, matter was directed to be listed for direction on

October 10, 2017.  On that day, Mr. Adhyaru produced the copy

of letter dated October 4, 2017 addressed by the Office of the

Commissioner  of  Central  Goods  &  Services  Tax  to  The

Commissioner,  Directorate  of  Legal  Affairs,  Central  Board  of

Excise & Customs.  In this communication, it is simply stated that

refund of  central  excise duty has been provided by exemption

Notification dated July 8, 1999 and dated April 25, 2007 to the

9  (2010-TIOL-1659-CESTAT-KOL)

Civil Appeal Nos. 2781-2790 of 2010 & Ors. Page 21 of 30

manufacturing units in the North Eastern Region to give effect to

the North Eastern Industrial Promotion Policy 1997 (NEIPP 97).

There are no provisions for any refund/exemption of service tax.

It  is  further  stated that  in  respect  of  income tax,  exemption is

granted under Section 80IC of the Income Tax Act.   When we

confronted the learned senior counsel with the fact that it does

not give specific answer to the query raised, the learned senior

counsel took further time to file written submissions by October

23, 2017.  However,  till  date,  no such written submissions are

filed nor any clarification provided.

20) One aspect that clearly emerges from the reading of these

two circulars is that the Government itself has taken the position

that where whole of excise duty or service tax is exempted, even

the Education Cess as well as Secondary and Higher Education

Cess would not be payable.  These circulars are binding on the

Department.   

21) Even otherwise, we are of the opinion that it is more rational

to  accept  the aforesaid  position as  clarified  by  the  Ministry  of

Finance in the aforesaid circulars.  Education Cess is on excise

duty.   It  means that  those assessees who are required to pay

excise  duty  have  to  shell  out  Education  Cess  as  well.   This

Civil Appeal Nos. 2781-2790 of 2010 & Ors. Page 22 of 30

Education Cess is introduced by Sections 91 to 93 of the Finance

(No.2) Act, 2004.  As per Section 91 thereof, Education Cess is

the surcharge which the assessee is to pay.  Section 93 makes it

clear that this Education Cess is payable on ‘excisable goods’ i.e.

in respect of goods specified in the first Schedule to the Central

Excise Tariff  Act,  1985.   Further,  this  Education Cess is  to  be

levied @ 2% and calculated on the aggregate of  all  duties  of

excise which are levied and collected by the Central Government

under the provisions of Central  Excise Act,  1944 or under any

other law for the time being in force.  Sub-section (3) of Section

93 provides that the provisions of the Central Excise Act, 1944

and the rules made thereunder, including those related to refunds

and duties etc. shall as far as may be applied in relation to levy

and collection of Education Cess on excisable goods.  A conjoint

reading  of  these  provisions  would  amply  demonstrate  that

Education Cess as a surcharge, is levied @ 2% on the duties of

excise which are payable under the Act.   It  can,  therefore,  be

clearly inferred that when there is no excise duty payable, as it is

exempted,  there  would  not  be  any  Education  Cess  as  well,

inasmuch as Education Cess @ 2% is to be calculated on the

aggregate of duties of excise.  There cannot be any surcharge

when basic duty itself is Nil.       

Civil Appeal Nos. 2781-2790 of 2010 & Ors. Page 23 of 30

22) It  is  rightly  pointed  out  by  the  learned  counsel  for  the

appellants that the CESTAT in the earlier two judgments given in

Bharat Box Factory Ltd. and Cyrus Surfactants Pvt. Ltd. held

that Education Cess and Higher Education Cess would also be

refundable along with excise duty and in view thereof, another co-

ordinate  Bench  of  CESTAT could  not  take  a  contrary  view  in

Jindal Drugs Ltd.  Judicial discipline warranted reference of the

matter to the Larger Bench which it did not do.  In the impugned

judgment,  while  preferring  to  follow  the  view  taken  in  Jindal

Drugs Ltd., the Tribunal has not given any reasons for adopting

this course of action.  The Rajasthan High Court in the case of

Banswara Syntex Ltd. while holding that surcharge taken in the

form of Education Cess shall also be refundable has given the

following reasons in support of the said view:

“15. The very fact  that the surcharge is collected as part of levy under three different enactments goes to show that scheme of levy of Education Cess was by way  of  collecting  special  funds  for  the  purpose  of Government  project  towards providing and financing universalised quality of basic education by enhancing the burden of Central Excise Duty, Customs Duty, and Service  Tax  by  way  of  charging  surcharge  to  be collected for the purpose of Union. But, it was made clear  that  in  respect  of  all  the  three  taxes,  the surcharge collected along with  the tax  will  bear  the same character of respective taxes to which surcharge was  appended  and  was  to  be  governed  by  the respective enactments under which Education Cess in the form of surcharge is levied & collected.

Civil Appeal Nos. 2781-2790 of 2010 & Ors. Page 24 of 30

16.  Apparently,  when  at  the  time  of  collection, surcharge  has  taken  the  character  of  parent  levy, whatever  may  be  the  object  behind  it,  it  becomes subject  to  the  provision  relating  to  the  Excise  Duty applicable to it in the manner of collecting the same obligation of the tax payer in respect of its discharge as  well  as  exemption  concession  by  way  of  rebate attached with such levies. This aspect has been made clear by combined reading of sub-sections (1), (2) & (3) of Section 93.

xxx xxx xxx

18. The  Explanation  appended  to  Notification  dated 26.6.2001  included  within  the  ambit  of  Excise  Duty any special Excise Duty collected under any Finance Act when under Finance Act, 2004 it was ordained that Education  Cess  to  be  collected  as  surcharge  on Excise Duty payable on excisable goods and shall be a Duty of Excise, it became a special Duty of Excise by way of Education Cess chargeable and collected under Finance Act, 2004 and fell  within the ambit of clause  (3)  of  Explanation  appended  to  Notification dated  26/6/2001.  Consequently,  rebate  became available  on  collection  of  surcharge on  Excise Duty under  Finance  Act,  2004  in  terms  of  existing Notification  dated  26/6/2001  immediately.  Later Notification  including  the  Education  Cess  in enumerative definition in the circumstances was only clarificatory and by way of abandoned caution, but not a new rebate in relation to Excise Duty or  any part thereof as statutorily pronounced as well as specified Excise Duty levied and collected under the Finance Act.”

We are in agreement with the aforesaid reasons accorded

by the Rajasthan High Court, since it is in consonance with the

legal principle enunciated by this  Court.   For  this purpose,  we

may refer to the judgment in the case of  Collector of Central

Excise, Patna  v.  Tata Engineering and Locomotive Co.10   In

10  1997 (92) ELT 303 (SC)

Civil Appeal Nos. 2781-2790 of 2010 & Ors. Page 25 of 30

that case, issue pertained to valuation of cess which was levied

@ 1/8 per cent of  ad valorem ‘value’ of the central excise duty.

The Court held that the calculation of 1/8 per cent ad valorem of

the motor vehicle for the purposes of the levy and collection of the

automobile cess must be made that was being calculated since

automobile  cess  was to  be  levied  and  calculated  as  if  it  was

excise  duty.   As  a  fortiorari,  the  Education  Cess  and  Higher

Education Cess levied @ 2% of the excise duty would partake the

character of excise duty itself.   

Insofar as judgment of Calcutta High Court in  Biswanath

Hosiery  Mills  Ltd.  case  is  concerned,  we find  that  the  same

would have no bearing in the present case.  In the said case,

cess was payable under Section 5A of  the Textiles Committee

Act,  1963.   After  going  through  the  provisions  of  Textiles

Committee Act, 1963 and the Textile’s Committee (Cess) Rules,

1975, the High Court found that as per the scheme of Textiles

Committee Act  and the rules framed therein,  levy of  cess was

independent of excise under the Act which was a complete code

containing all the provisions relating to levy, collection, exemption

and  application  of  cess.   Therefore,  even  the  legislative

intendment underlying Textiles Committee (Amendment) Act and

rules read with the preamble, aims and objects of the Act was

Civil Appeal Nos. 2781-2790 of 2010 & Ors. Page 26 of 30

clearly discernable, namely, the legislature intended to levy the

cess under the Act independent of and in addition to the excise

duty which was payable under the Central Excise and Salt Act,

1944.   

23) It is also trite that when two views are possible, one which

favours the assessees has to be adopted.  

24) For the aforesaid reasons, we allow these appeals and hold

that the appellants were entitled to refund of Education Cess and

Higher Education Cess which was paid along with excise duty

once the excise duty itself was exempted from levy.  There shall,

however, be no order as to cost.  

.............................................J. (A.K. SIKRI)

.............................................J. (ASHOK BHUSHAN)

NEW DELHI; NOVEMBER 10, 2017

Civil Appeal Nos. 2781-2790 of 2010 & Ors. Page 27 of 30

ITEM NO.1501            COURT NO.6             SECTION XVI

              S U P R E M E  C O U R T  O F  I N D I A                        RECORD OF PROCEEDINGS

Civil Appeal Nos. 2781-2790/2010

M/S. SRD NUTRIENTS PRIVATE LIMITED Appellant(s)

VERSUS

COMMISSIONER OF CENTRAL EXCISE,  GUWAHATI              Respondent(s)

WITH C.A. No. 812/2013 (XIV) C.A. No. 1730-1731/2016 (XIV) C.A. No. 5173/2010 (XIV) C.A. No. 4611/2010 (XIV) C.A. No. 4596/2010 (XIV) C.A. No. 2987/2010 (XIV) C.A. No. 5175/2010 (XIV) C.A. No. 2988/2016 (XIV) C.A. No. 3981-3983/2013 (XIV) C.A. No. 2651-2660/2011 (XIV) C.A. No. 8322/2010 (XVI -A) C.A. No. 8323-8324/2010 (XVI -A) C.A. No. 5927-5929/2010 (XIV) C.A. No. 3735-3750/2011 (XIV) C.A. No. 5022-5023/2014 (XIV) C.A. No. 4597/2010 (XIV) C.A. No. 4598/2010 (XIV) C.A. No. 4599/2010 (XIV) C.A. No. 4600/2010 (XIV) C.A. No. 4601/2010 (XIV) C.A. No. 4602/2010 (XIV) C.A. No. 4603/2010 (XIV) C.A. No. 4604/2010 (XIV) C.A. No. 4605/2010 (XIV) C.A. No. 4606/2010 (XIV) C.A. No. 4607/2010 (XIV) C.A. No. 4608/2010 (XIV) C.A. No. 4609/2010 (XIV) C.A. No. 4610/2010 (XIV) C.A. No. 5300-5303/2011 (XIV) C.A. No. 5926/2010 (XIV) C.A. No. 6085-6092/2010 (XIV) SLP(C) No. 26126/2012 (XIV) SLP(C) No. 26134/2012 (XIV) SLP(C) No. 21896/2012 (XIV) SLP(C) No. 22201/2012 (XIV) SLP(C) No. 21563/2012 (XIV)

Civil Appeal Nos. 2781-2790 of 2010 & Ors. Page 28 of 30

SLP(C) No. 26133/2012 (XIV) C.A. No. 8732-8735/2013 (XIV) C.A. No. 10253-10258/2010 (XIV) C.A. No. 10245-10252/2010 (XIV) C.A. No. 8330/2010 (XVI -A) C.A. No. 8326/2010 (XVI -A) C.A. No. 8331/2010 (XVI -A) C.A. No. 8328/2010 (XVI -A) C.A. No. 8336/2010 (XVI -A) C.A. No. 8335/2010 (XVI -A) C.A. No. 8332/2010 (XVI -A) C.A. No. 8329/2010 (XVI -A) C.A. No. 8178/2012 (XIV) C.A. No. 813/2013 (XIV) C.A. No. 7605/2012 (XIV) C.A. No. 8181/2012 (XIV) C.A. No. 8180/2012 (XIV) C.A. No. 811/2013 (XIV) C.A. No. 8185/2012 (XIV) C.A. No. 8186/2012 (XIV) C.A. No. 8179/2012 (XIV) C.A. No. 7876/2012 (XIV) C.A. No. 8182/2012 (XIV) C.A. No. 8504-8509/2012 (XVI -A) C.A. No. 1445-1446/2011 (XIV) C.A. No. 1443-1444/2011 (XIV) SLP(C) No. 35647-35650/2011 (XIV) C.A. No. 720/2012 (XIV) C.A. No. 4321-4322/2013 (XIV) C.A. No. 4292-4319/2013 (XIV) C.A. No. 4323-4325/2013 (XIV)

Date : 10-11-2017  These  matters  were  called  on  for  pronouncement  of

judgment today.

For parties Mr. Rakesh Dahiya, AOR

Mr. Mohd. Irshad Hanif, AOR

Mr. Pratap Venugopal, Adv. Ms. Surekha Raman, Adv. Mr. Anuj Sarma, Adv. Ms. Kanika Kalaiyarasan, Adv. M/S.  K J John And Co, AOR

Mr. Rajesh Kumar, AOR

Mr. Mukesh Kumar Maroria, AOR

Civil Appeal Nos. 2781-2790 of 2010 & Ors. Page 29 of 30

Mrs. Anil Katiyar, AOR

Mr. Anil K. Jha, AOR Mr. R. K. Ojha, Adv.

Mr. Ravindra Keshavrao Adsure, AOR

Dr. Kailash Chand, AOR

Mr. B. Krishna Prasad, AOR

Mr. Arvind Kumar Sharma, AOR

Mr. Abhimanyu Bhandari, Adv. Ms. Roohina Dua, Adv. Mr. Naveen Kumar, AOR

Mr. B. Krishna Prasad, AOR

Mr. L. Badri Narayanan, Adv. Mr. Aditya Bhattacharya, Adv. Mr. Victor Das, Adv. Ms. Apeksha Mehta, Adv. Mr. Yogendra Aldak, Adv. Mr. M. P. Devanath, AOR Mr. Anil Dutt, Adv.

Mr. Praveen Kumar, AOR

Mr. Jay Savla, AOR Ms. Renuka Sahu, Adv.

Mr. Mukesh Kumar Maroria, AOR                     

Hon'ble Mr. Justice A. K. Sikri pronounced the

judgment  of  the  Bench  comprising  His  Lordship  and

Hon'ble Mr. Justice Ashok Bhushan.

Leave granted in the special leave petitions.

The appeals are allowed in terms of the signed

reportable judgment.

(NIDHI AHUJA)               (MALA KUMARI SHARMA) COURT MASTER    COURT MASTER

[Signed reportable judgment is placed on the file.]

Civil Appeal Nos. 2781-2790 of 2010 & Ors. Page 30 of 30