REPORTABLE

IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION

CIVIL APPEAL No.3239  of 2019 [Arising out of SLP(C) No.21968 of 2017]

BAJAJ AUTO LIMITED      ….APPELLANT

Versus

UNION OF INDIA & ORS.   ….RESPONDENTS

J U D G M E N T

SANJAY KISHAN KAUL, J.

1. Leave granted. 2. The  appeal  raises  the  legal  question  of  the  liability  towards  National

Calamity Contingent Duty (for short ‘NCCD’), Education Cess and Secondary

& Higher Education Cess of a manufacturing establishment, which is exempted

from payment of Central Excise Duty (for short ‘CENVAT’) under the Central

Excise Act, 1944 (hereinafter referred to as the ‘1944 Act’). 3. In  order  to  encourage  development  of  industries  and  to  generate

employment  in  the  States  of  Uttarakhand  and  Himachal  Pradesh,  certain 1

special measures were considered appropriate to be taken by the Government

of India.  On the visit of the Prime Minister of India to Uttarakhand, in March,

2002, an announcement was made that tax and Central Excise concessions, to

attract investments in the industrial sector will be worked out for the Special

Category  States  including  Uttaranchal  (now  Uttarakhand).   The  industries

eligible for such incentives were to be environment friendly, with potential for

local  employment  generation  and use  of  local  resources.   Subsequently,  an

Office  Memorandum  was  issued  on  7.1.2003,  announcing  a  package  of

incentives providing for “New Industrial Policy and other concessions for the

State  of  Uttaranchal  and  the  State  of  Himachal  Pradesh.”   Para  3.1  (I)

stipulated the fiscal incentives.  It is not necessary to reproduce the complete

paragraph, but suffice to reproduce the relevant portion as under:

“3.1: Fiscal Incentives to new Industrial Units and to existing units on their substantial expansion:

(I).  New  industrial  units  and  existing  industrial  units  on  their substantial  expansion  as  defined,  set  up  in  Growth  Centres, Industrial Infrastructure Development Centres (IIDCs), Industrial Estates, Export Processing Zones, Theme Parks (Food Processing Parks, Software Technology Parks, etc.)  as stated in Annexure-I and  other  areas  as  notified  from  time  to  time  by  the  Central Government, are entitled to :  

(a) 100% (hundred percent) outright excise duty exemption for a period of 10 years from the date of commencement of commercial production.  

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(b) 100% income tax exemption for initial period of five years and thereafter 30% for companies and 25% for other than companies for  a  further  period  of  five  years  for  the  entire  states  of Uttarakhand  and  Himachal  Pradesh  from  the  date  of commencement of commercial production.”

(emphasis supplied)

4. In order to implement the aforesaid policy initiative, the Central Board of

Excise & Customs (for short ‘CBEC’) issued Notification No.50/2003-Central

Excise, dated June 10, 2003, in exercise of powers conferred under Section 5A

of the 1944 Act.  The relevant portion of the Notification reads as under:

“GENERAL EXEMPTION NO. 41

Exemption to goods other than specified goods cleared from units located in the Industrial Growth Centre or Industrial Infrastructure Development  Centre  or  Export  Promotion  Industrial  Park  or Industrial  Estate  or  Industrial  Area  or  Commercial  Estate  or Scheme Area of Uttarakhand and Himachal Pradesh.—In exercise of the powers conferred by sub-section (1) of section 5A of the Central Excise Act, 1944 (1 of 1944) read with sub-section (3) of section 3 of  the Additional  Duties  of  Excise (Goods of  Special Importance) Act, 1957 (58 of 1957) and sub-section (3) of section 3  of  the  Additional  Duties  of  Excise  (Textiles  and  Textiles Articles) Act, 1978 (40 of 1978), 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 and the Second Schedule to the Central Excise Tariff Act, 1985 (5 of 1986), other than  the  goods  specified  in  Annexure-I  appended  hereto,  and cleared  from a  unit  located  in  the  Industrial  Growth Centre  or Industrial Infrastructure Development Centre or Export Promotion Industrial  Park  or  Industrial  Estate  or  Industrial  Area  or

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Commercial Estate or Scheme Area, as the case may be, specified in  [Annexure-II  and  Annexure  III]  appended  hereto,  from  the whole of the duty of excise or additional duty of excise, as the case may be, leviable thereon under any of the said Acts.   

(emphasis supplied)

5. Once again, for the controversy in question, it is not necessary to refer to

the notification further, which stipulates other conditions to be fulfilled, to avail

of the benefit of the exemption notification, since there is no dispute that the

appellant satisfies those conditions.

6. The appellant, a limited company, established a manufacturing unit of two

wheeler vehicles in the year 2007.  The appellant was exempted from,  inter

alia, CENVAT, by virtue of its manufactured products falling under the Second

Schedule of the Central Excise Tariff Act, 1985.

7. The appellant was apparently paying an automobile cess, but the NCCD,

Education Cess and Secondary & Higher Education Cess were not being paid.

The dispute  arose on account of  an audit  conducted on 27/28.2.2009.  The

dispute pertains to the liability of the appellant to pay the unpaid three cesses

referred to aforesaid. 8. Now turning to the three cesses in question, NCCD was imposed under

Section 136 of the Finance Act,  2001, in the nature of a duty of excise,  in

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addition to any other duties of excise chargeable under the 1944 Act.   The

relevant portion is extracted as under:

“S. 136- National Calamity Contingent Duty

(1) In the case of goods specified in the Seventh Schedule, being goods  manufactured  or  produced,  there  shall  be  levied  and collected for the purposes of the Union,  by surcharge, a duty of excise,  to  be  called  the  National  Calamity  Contingent  duty (hereinafter referred to as the National Calamity duty), at the rates specified in the said Schedule.

(2) The National Calamity duty chargeable on the goods specified in the Seventh Schedule shall be in addition to any other duties of excise  chargeable on such goods under the Central  Excise Act, 1944 or any other law for the time being in force.

(3)  The provisions of the Central Excise Act, 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 National Calamity duty leviable under this section in respect of the goods specified in the Seventh Schedule as they apply in relation to the levy and collection of the duties of excise on such goods under that Act or those rules, as the case may be.”

(emphasis supplied)

9. Sections 91 & 93 of the Finance Act, 2004 introduced the Education Cess

as a duty of excise calculated on the aggregate of all duties of excise.  Sections

136 & 138 of the Finance Act of 2007 similarly imposed Secondary & Higher

Education Cess, on the same pattern as the Education Cess.

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10. As noticed above, on account of the audit conducted of the appellant, an

audit objection report was prepared on account of the failure of the appellant to

pay the aforementioned three cesses, and consequent queries were raised vide

letter dated 27.2.2009, by the Superintendent (Audit), Central Excise Meerut-II

on the appellant. These were responded to, by the appellant. This was followed

by a show cause notice dated 26.8.2011.  It is relevant to note that in terms of

the show cause notice, the cesses were being so demanded on account of the

fact that they had not been specifically exempted, even though they were a duty

in the nature of  excise,  whether leviable on the product (NCCD) or on the

amount  of  excise  duty  payable  (Education  Cess  and  Secondary  &  Higher

Education  Cess).  The  Department  took  a  legal  stand  that  the  exemption

notification  had  to  be  construed  strictly  and  that  there  had  been  wilful

suppression of facts.  The demand raised was also specified.

11. The appellant filed a writ petition under Article 226 of the Constitution of

India, before the High Court of Uttarakhand on 13.10.2011, assailing the show

cause notice.  This endeavour, however, did not succeed and the writ petition

was dismissed by the learned Single Judge, vide order dated 9.10.2014.  The

appeal  preferred  before  the  Division  Bench  also  met  the  same  fate,  vide

impugned order dated 16.3.2017.

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12. The controversy before us is now in a narrow compass, on account of the

subsequent  judicial  pronouncement  in  SRD  Nutrients  Pvt.  Ltd.  v.

Commissioner of Central Excise, Guwahati1.  The issue of the Education Cess

and the Secondary & Higher Education Cess, in our view, is covered against

the Department in view of this judgment and that is how, also, the Department

appears to have understood now, in view of the written synopsis placed before

us.

13. In  the  facts  of  that  case,  there  was  an  initiative  for  development  of

industries in the North-Eastern States of Assam, Tripura, Meghalaya, Mizoram,

Manipur, Nagaland, Arunachal Pradesh, etc.  A Notification exempting goods

from payment of excise duties was issued in respect of those States.  Education

Cess and Secondary & Higher Education Cess, as imposed under the Finance

Acts  of  2004 and 2007,  respectively  were  also  sought  to  be  levied  on the

appellant therein.  The gravamen of the reasoning of this Court is that since

these cesses are a surcharge levied and collected on the total value of the excise

duty, and the excise duty itself is exempted, there cannot be any question of

any recovery of these cesses, as the substratum does not exist.  Not only that,

this Court also took into account how the Department itself had viewed the

situation regarding Education Cess and Secondary & Higher Education Cess,

1 (2018) 1 SCC 105

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

exempted.  The Circular dated 10.8.2004 issued by the Department clarified the

position in this behalf as under:

“Issue  (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 fulfilment of certain 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,  safeguard 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  21-7-2004  issued  by Member (Customs) may also be referred to.”

(emphasis supplied)

14. It was observed by this Court as under:

“22. 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 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

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calculated  on  the  aggregate  of  all  duties  of  excise  which  are levied  and  collected  by  the  Central  Government  under  the provisions of the 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.”

(emphasis supplied)

15. A reference was also made to the judgement of the Rajasthan High Court,

in  Banswara Syntex Ltd. v. Union of India2, where it has been observed as

under:

“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 the 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

2 2007 SCC OnLine Raj 365 :: (2007) 216 ELT 16

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under which education cess in the form of surcharge is levied and collected.

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) and (3) of Section 93.”

(emphasis supplied)

This Court gave its imprimatur to the aforesaid judgment of the Rajasthan

High Court, in para 24 of the judgment in SRD Nutrients Pvt. Ltd.3

16. The  real  bone  of  contention  which  survives  for  consideration  is  the

NCCD.  The reason for this is that while the two cesses discussed aforesaid

were in the nature of levy on the excise duty payable, the NCCD is levied on

the product itself, as per Section 136 of the Finance Act, 2001.  It is this aspect,

inter alia, which was canvassed by the Department to persuade this Court to

take a different view from the one taken qua the other two cesses.

17. On behalf  of  the appellant,  Mr.  Mukul Rohatgi  and Mr.  Arvind Datar,

learned Senior Advocates sought to persuade us to apply the same principles

qua NCCD as the other two cesses and, thus, go along with the view taken in

3 (supra)

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SRD Nutrients Pvt. Ltd.,4 even insofar as NCCD is concerned.

18. On  the  other  hand,  on  behalf  of  the  Department,  Ms.  Nisha  Bagchi,

Advocate sought to contend otherwise by seeking to point out the difference in

the nature of incidence, since NCCD was to be calculated on the value of the

product and not on the value of the excise duty payable.

19. We may note that in terms of the impugned judgment, one principle which

clearly emerges,  and over which there is no dispute  before us,  also,  is  that

exemption notifications, like the one in question must be read in a manner that

give them a  liberal  interpretation,  provided that  no violence is  done to  the

language employed.  The rationale for the same is well enunciated in Novopan

India Ltd., Hyderabad v. CCE and Customs, Hyderabad,5 apart from in other

judicial pronouncements.  In such cases, it is not as if the principle of strict

interpretation of  tax law has been given a  complete go by,  but  that  rule of

interpretation would apply at a different stage, i.e., to determine whether the

exemption is applicable to the assessee or not.  Once such exemption is indeed

found to be applicable to the assessee in question, a liberal approach is to be

adopted by the Court in construing the language, such as to allow the benefit to

be  reaped by the  beneficiary  in  question  (Union of  India v.  Wood Papers

4 (supra) 5 1994 Supp (3) SCC 606

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Ltd.6).

20. We may notice  that  the  primary  reasoning  contained  in  the  impugned

order  is  common  for  the  three  cesses,  i.e.,  NCCD;  Education  Cess  and

Secondary & Higher Education Cess.  These were in the nature of surcharges

levied  in  other  Acts,  which  have  not  been  specifically  excluded  under  the

Notification in question.  That reasoning does not prevail, more so because of

the judgment in SRD Nutrients Pvt. Ltd.7  The question, thus, is whether, even

though the NCCD is in the nature of an excise duty, its incidence being on the

product, rather than on the value of the excise duty, that itself would make any

difference to the applicability of the NCCD to excise exempt units.

21. On a proper appreciation of the judicial pronouncement in SRD Nutrients

Pvt. Ltd.,8 we are not inclined to take a different view from the one taken for

Education  Cess  and  Secondary  &  Higher  Education  Cess,  even  while

considering the issue of NCCD.

22. We  may  notice  that  this  Court,  in  SRD Nutrients  Pvt.  Ltd.9 gave  its

imprimatur to the view expressed by the Rajasthan High Court in  Banswara

Syntex  Ltd.10  The  rationale  is  that  while  there  may  be  surcharges  under

6 (1990) 4 SCC 256 7 (supra) 8 (supra) 9 (supra) 10 (supra)

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different  financial  enactments  to  provide  the  Government  with  revenue for

specified purposes, the same have been notified as leviable in the nature of a

particular kind of duty.  In the case of NCCD, it is in the nature of an excise

duty.  It has to bear the same character as those respective taxes to which the

surcharge is appended.  NCCD will not cease to be an excise duty, but is the

same as an excise duty, even if it is levied on the product.  Thus, when NCCD,

at the time of collection, takes the character of a duty on the product, whatever

may be the rationale behind it, it is also subject to the provisions relating to

excise duty, applicable to it in the manner of collection as well as the obligation

of  the  taxpayer  to  discharge  the  duty.   Once  the  excise  duty  is  exempted,

NCCD, levied as an excise duty cannot partake a different character and, thus,

would be entitled to the benefit of the exemption notification.  The exemption

notification also states that the exemption is from the “whole of the duty of

excise or additional duty of excise.”  We may also note that the exemption

itself is for a period of ten years from the date of commercial production of the

unit.

23. We are, thus, of the view that the appellant would not be liable to pay the

NCCD.

24. The result of the aforesaid discussion is that the impugned orders are set

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aside and the show cause notice dated 26.8.2011 is quashed while holding that

the appellant  is  not  liable to pay NCCD, Education Cess and Secondary &

Higher Education Cess.

25. The appeal is allowed, leaving the parties to bear their own costs.

..….….…………………….J. [L. Nageswara Rao]

...……………………………J. [Sanjay Kishan Kaul]

New Delhi. March 27, 2019.

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