2014 (6) TMI 304 - AT - Central Excise

Manufacturers cannot use BED credit for education cess, S&H cess under Notification No. 56/2002-CE

The Tribunal held that manufacturers availing exemption under Notification No. 56/2002-CE could not utilize Basic Excise Duty (BED) credit for paying ... Area based exemption - Cash refund scheme - payment of education cess and S & H cess using BED Credit - Whether a manufacturer availing of exemption under Notification No. 56/2002 - CE - Held that:- manufacturer availing of notification 56/02-CE cannot utilize BED credit for payment of education cess and S & H cess as, it will amount to the indirect refund of education cess and S & H cess, which is not permissible. The payment of education cess and S&H cess through BED credit is in conflict with the scheme of this exemption which does not exempt the education cess and S&H cess and which is available only in respect of the duties mentioned in it subject to following of condition of para 1A of the notification. Thus, while the Cenvat credit of the various duties/taxes mentioned in Rule 3(7) (b) can be used only for payment of the respective duties/taxes, there is no such restriction for utilization of credit of other duties i.e. BED credit, AED (GSI) credit, etc. In our view, in case of a manufacturer availing of exemption under Notification No.56/02-CE, while the restriction on utilization of Cenvat credit of duties/taxes as mentioned in Rule 3(7) (b) would be applicable, there would be one more additional restriction on utilization of credit of duties/taxes other than those mentioned in Rule 3(7) (b), i.e. credit of BED, AED (GSI) etc. and this restriction is that this credit cannot be used for payment of duties not exempted under this notification, as, as discussed above, if this is permitted, this would result in refund of duties like education cess, S & H cess, NCCD etc. which is not permitted under this notification, while it is well settled law that what is not permissible directly cannot be allowed indirectly. Therefore, in order to ensure that an assessee availing of exemption under this notification does not end up availing this exemption in respect of education cess and S & H cess also, he cannot be allowed to use BED credit for payment of education cess and S & H cess, though this may be permitted under the provision of Rule 3(4) of the Cenvat Credit Rules, 2004. The provision of Rule 3(4) of the Cenvat Credit Rules are after all a facility and the extent to which the same are in conflict with the condition of Notification No.56/2002-CE, the same would not be applicable, as it is the condition of notification which would prevail. It is pertinent to note that education cess and S & H cess have been levied vide Section 91 of Finance Act, and 136 of Finance Act, 2007 respectively and the object behind this levy is to generate funds to finance and provide infrastructure for promoting education in the country. If the argument of the respondents is accepted, then by adopting the practice of paying education cess and S & H cess from the Cenvat credit (BED) the assessee would indirectly get the refund of aforesaid cess which is not permissible under law as held by the Guwahati High Court in the matter of Dharampal & Satyapal (2011 (8) TMI 99 - GAUHATI HIGH COURT). - A unit availing of exemption under Notification No.56/2002 –CE cannot utilize BED credit for payment of education cess and S & H cess which are not exempted under this notification - Extra BED paid through PLA on account of diversion of BED credit for payment of education cess and S & H cess would not be refundable under Notification No. 56/2002 - CE - Decided in favour of Revenue. Issues Involved:1. Utilization of BED credit for payment of education cess and S&H cess.2. Refund eligibility under Notification No. 56/2002-CE.Detailed Analysis:1. Utilization of BED Credit for Payment of Education Cess and S&H Cess:The central issue was whether a manufacturer availing exemption under Notification No. 56/2002-CE could utilize Basic Excise Duty (BED) credit for the payment of education cess and Secondary and Higher Education cess (S&H cess). The Department contended that such utilization resulted in higher payments through PLA (Personal Ledger Account) and consequently higher refunds, which was impermissible.The Tribunal examined the relevant provisions of Notification No. 56/2002-CE, the Finance Act, 2004, and the Finance Act, 2007. It concluded that the notification exempts duties levied under the Central Excise Act, 1944, AED (GSI) Act, 1957, and AED (T&TA) Act, 1978, but not the education cess and S&H cess. The Tribunal relied on the Supreme Court's judgment in Union of India vs. Modi Rubber Ltd., which clarified that the term 'duty of excise' in exemption notifications does not cover special excise duties or additional duties unless explicitly stated.The Tribunal held that utilizing BED credit for paying education cess and S&H cess before exhausting it for BED payment distorted the duty payable through PLA, indirectly resulting in refunds of education cess and S&H cess, which were not exempt under the notification. Therefore, such utilization was not permissible.2. Refund Eligibility under Notification No. 56/2002-CE:The Tribunal further analyzed the refund mechanism under Notification No. 56/2002-CE. The notification provides for refunds of duties paid through PLA after exhausting available Cenvat credit. The Tribunal emphasized that the refund mechanism was designed to refund only those duties explicitly covered under the notification, excluding education cess and S&H cess.The Tribunal noted that the condition in Para 1A of the notification required manufacturers to first utilize the entire Cenvat credit available at the end of the month for duty payments on goods cleared during that month. The Tribunal interpreted 'duty' in this context to mean only those duties exempted under the notification, not including education cess and S&H cess.The Tribunal rejected the argument that Rule 3(4) of the Cenvat Credit Rules, 2004, which allows using BED credit for any duty of excise, could override the specific conditions of the exemption notification. It concluded that the conditions of the notification prevailed, and allowing BED credit for education cess and S&H cess payments would contravene the notification's scheme.Conclusion:The Tribunal held that manufacturers availing exemption under Notification No. 56/2002-CE could not utilize BED credit for paying education cess and S&H cess. Consequently, any extra BED paid through PLA due to diversion of BED credit for such payments was not refundable under the notification. The Tribunal set aside the impugned order of the Commissioner (Appeals) and restored the original adjudicating authority's orders, thereby allowing the Revenue's appeals.