2014 (1) TMI 1469 - HC - Central Excise

Sugar Cess qualifies as excise duty, enabling CENVAT Credit claim on imported raw sugar.

The court determined that the Sugar Cess under the Sugar Cess Act, 1982 qualifies as a duty of excise and not a fee. As a result, the assessee is entitled ... Benefit of CENVAT Credit - Credit on sugar cess - CENVAT credit taken on Sugar Cess paid as countervailing duty or CVD - Recovery of irregularly availed and utilized of CENVAT Credit under Rule 12 of the CENVAT Credit Rules, 2004 - 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 - Held that:- there must be actual quid pro quo for a fee has undergone a sea change in the recent years. The tax recovered by a public authority invariably goes into the Consolidated Fund, which ultimately is utilized for all public purposes. Whereas, a cess levied by way of fee is not intended to be, and does not become, a part of the Consolidated Fund. It is earmarked and set apart for the purpose of services for which it is levied. Article 270 make it very clear that no money out of the Consolidated Fund of India shall be appropriated except in accordance with law and for the purposes and in the manner provided in the Constitution - Any cess levied and collected in order to constitute a fee after such collection should go into a special fund earmarked for carrying out the purpose of the Act. The said fund so set apart should be appropriated specifically for the performance of the specified purpose and it should not be merged in the public revenues. In other words, the cess levied by way of fee is not intended to be and does not become a part of the Consolidated Fund. It should be earmarked and set apart for the purpose of services for which it is levied. Then only it should be described as a fee and not tax. If the cess levied and collected is credited to the Consolidated Fund of India and it has to be appropriated by the Parliament by law and then only the said amount could be credited to the Fund; it ceases to be a fee and partakes the character of a duty or a tax. Section 4 of the Act explicitly provides that the proceeds of the duty of excise levied under Section 3 shall be credited to the Consolidated Fund of India. Sub-Section (2) of Section 3 of the Sugar Development Fund Act, 1982, provides that the amount so credited, shall after due appropriation made by Parliament by law be credited to the Sugar Development Fund. Thus the cess collected under the Act invariably goes to the Consolidated Fund, which ultimately is utilized for all public purposes. Therefore, there is no quid pro quo between the cess levied and collected and the services rendered for such payment. On the contrary, the proceeds are credited to the Consolidated Fund of India which is meant to be utilized for all public purposes, may be including the purpose contemplated under the Sugar Development Fund Act, 1982. In the light of the aforesaid statutory provisions, the cess imposed under the Act is a duty of excise or a tax - Therefore, the sugar cess paid under the Act is tax, and to be precise it is DUTY OF EXCISE and not FEE. When an assessee imports goods into India in addition to payment of basic Customs Duty, he shall able be liable to pay additional duty of customs equal to the excise duty for the time being leviable on a like article if produced or manufactured in India and if such excise duty on a like article is leviable at any percentage of its value, the additional duty to which the imported article shall be so liable shall be calculated 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. Duty of excise is not ( sic ) collected as a cess at the time of production of the sugar in the assessee's sugar factory in India. It is not also in dispute that it is also collected at the time of importing raw sugar. At the time of importing raw sugar the assessee has paid the additional Customs duty or CVD (countervailing duty) as prescribed under Section 3 of the Customs Tariff Act of 1975. If the Article imported is a like article produced or manufactured in India and if excise duty on such like article is leviable, the assessee is liable to pay the additional duty. The Excise Duty on sugar is payable under two enactments, i.e., [1] Section 3 of Central Excise Act of 1944, at the rate prescribed in the Central Tariff Act, 1985. In addition, the assessee is also liable to pay cess as a duty of excise under the Sugar Cess Act of 1982. On such additional duty or CVD paid at the time of import by the assessee, apart from the Basic Customs Duty, he is entitled to the CENVAT Credit in terms of clause (vii) of Rule 3 of CENVAT Credit Rules, 2004. Assessee was entitled to claim CENVAT credit in respect of the cess paid as additional duty (CVD) on raw sugar imported under the Sugar Cess Act of 1982 read with Section 3 of the Customs Tariff Act, 1975 - Decided against Revenue. Issues Involved:1. Whether the Sugar Cess under Section 3(4) of the Sugar Cess Act, 1982 qualifies as a duty of excise.2. Whether the assessee is entitled to CENVAT Credit on the Sugar Cess paid as countervailing duty (CVD) under the CENVAT Credit Rules, 2004.Issue-wise Detailed Analysis:1. Nature of Sugar Cess:The primary issue was to determine whether the Sugar Cess is a fee or a tax. The court examined Section 3 of the Sugar Cess Act, 1982, which imposes a duty of excise on all sugar produced by any sugar factory in India. The court noted that the cess is levied and collected as a duty of excise and is credited to the Consolidated Fund of India, as per Section 4 of the Act. The court referenced several Supreme Court judgments to distinguish between a tax and a fee, concluding that the cess, being credited to the Consolidated Fund and utilized for public purposes, qualifies as a duty of excise rather than a fee. Therefore, the Sugar Cess under the Act is a duty of excise.2. Eligibility for CENVAT Credit:The court addressed whether the Sugar Cess paid as CVD on imported raw sugar qualifies for CENVAT Credit under Rule 3 of the CENVAT Credit Rules, 2004. The court analyzed Section 3 of the Central Excise Act, 1944, which includes the duty of excise within the scope of CENVAT. The court noted that Rule 3 of the CENVAT Credit Rules allows credit for duties specified, including additional duty under Section 3 of the Customs Tariff Act, 1975. Since the Sugar Cess is a duty of excise, it falls within the ambit of duties eligible for CENVAT Credit. The court further referenced the Bangalore Jute Factory Co. case, which supported the view that cess levied as a duty of excise is eligible for credit.Conclusion:The court concluded that the Sugar Cess under the Sugar Cess Act, 1982, is a duty of excise and not a fee. Consequently, the assessee is entitled to claim CENVAT Credit on the Sugar Cess paid as additional duty (CVD) on imported raw sugar. The appeal by the Revenue was dismissed, and the Tribunal's decision in favor of the assessee was upheld.