2006 (9) TMI 44 - AT - Central Excise

Appellant wins refund appeal after proving education cess is excise duty

The appellant's refund claims for cash payments of basic excise duty were initially denied by the Revenue based on the use of Cenvat credit for education ... Utilisation of Cenvat credit - application of sub-rule 7(b) of Rule 3 of Cenvat Credit Rules, 2004 - scope of sub-rule (4) of Rule 3 of Cenvat Credit Rules - education cess as a duty of excise - refund of duty under Notification No. 56 of 2002Utilisation of Cenvat credit - application of sub-rule 7(b) of Rule 3 of Cenvat Credit Rules, 2004 - scope of sub-rule (4) of Rule 3 of Cenvat Credit Rules - Sub-rule 7(b) of Rule 3 does not restrict utilisation of credit of basic excise duty for payment of education cess or other duties where sub-rule (4) governs utilisation of basic excise duty credit. - HELD THAT: - The tribunal examined the text of sub-rule 7(b) and concluded that its limitation pertains solely to utilisation of Cenvat credit arising from education cess paid on inputs. The provision governing utilisation of input credit relating to basic excise duty is sub-rule (4) of Rule 3, which places no corresponding restriction on utilisation of basic excise duty credit for payment of any duty of excise. Hence the finding of the original authority applying sub-rule 7(b) to utilisation of basic excise duty credit was unsustainable. [Paras 8]Finding that sub-rule 7(b) applies to basic excise duty credit is rejected; utilisation of basic excise duty credit is governed by sub-rule (4) and is not so restricted.Education cess as a duty of excise - refund of duty under Notification No. 56 of 2002 - Education cess is a duty of excise for the purposes of the exemption notification and related provisions. - HELD THAT: - The tribunal relied on the statutory declaration in Section 93(1) of the Finance Act, 2004 which states that the education cess levied under the Act 'shall be a duty of excise,' and on the tribunal's earlier Larger Bench decision in T.T.K. LIG Ltd. concluding that a cess on goods produced in India is treated as excise duty. Accordingly, the appellate authority's objection that education cess is not a duty of excise was held not sustainable in law. [Paras 9]Education cess qualifies as a duty of excise; the objection that it is not such a duty is rejected.Refund of duty under Notification No. 56 of 2002 - utilisation of Cenvat credit - The appellant's refund claims for cash-paid basic excise duty for September 2005 and October 2005 fall within the scheme of Notification No. 56/2002 and the denial by lower authorities is unsustainable. - HELD THAT: - The tribunal noted that the unit was eligible under the notification and that the statutory scheme envisages payment of duty by the manufacturer followed by monthly refund claims for cash-paid duty after exhausting available Cenvat credit. Since the denied amounts related to cash payment of basic excise duty (after utilisation of Cenvat credit), and because the restrictions relied upon by lower authorities were misplaced, the refund claims are within the notification's scheme and must be allowed. [Paras 2, 3, 9, 10]Refund claims relating to cash-paid basic excise duty for the months specified are allowable; appeals are allowed with consequential relief.Final Conclusion: The appeals are allowed: the denial of refund of cash-paid basic excise duty for September 2005 and October 2005 is set aside because sub-rule 7(b) does not apply to basic excise duty credit, education cess is a duty of excise, and the claims fall within Notification No. 56/2002. Issues:Denial of refund under Notification No. 56 of 2002 for cash payments of basic excise duty.Analysis:The appellant, located in a specified area, was eligible for exemption under Notification No. 56 of 2002. The exemption required the manufacturer to first discharge duty on goods, then file refund applications for the duty paid, and pay only the balance amount in cash after utilizing the Cenvat credit. The appellant filed refund claims for cash payments of basic excise duty in September and October 2005, which were denied by the Revenue. The denial was based on the appellant using Cenvat credit for education cess, which was deemed impermissible under the Cenvat Credit Rules. The Commissioner (Appeals) upheld this decision, also contending that education cess is not excise duty.The appellant argued that the lower authorities' objections were legally unsustainable. They pointed out that the Cenvat Credit Rules' sub-rules governed the utilization of credits, with sub-rule 7(b) not applicable to basic excise duty credit utilization. The appellant had used basic excise duty credit to pay education cess, which was permissible under sub-rule 4 of Rule 3. Additionally, the appellant cited Section 93 of the Finance Act, 2004, declaring education cess as excise duty. The appellant's refund claims were for basic excise duty, not education cess, and were in line with Notification No. 56/02. The appellant also referenced a Tribunal decision confirming that a cess on goods produced in India is excise duty.Upon review, it was found that sub-rule 7(b) did not restrict the utilization of basic excise duty credit, and the objection regarding education cess not being excise duty was unfounded based on the Finance Act declaration. The appellant's refund claims for basic excise duty were valid under the exemption notification. Therefore, the lower authorities' objections were deemed unsustainable, and the appeals were allowed with relief to the appellant.