Sugar cess on exported sugar follows excise exemption and the export demand was unsustainable.

Sugar cess is levied and collected as duty of excise under the Sugar Cess Act, 1982, and the excise refund and exemption provisions under the Central Excise Act, 1944 apply to that levy. On that statutory basis, the exemption available for export clearance of excise duty extends to sugar cess on exported sugar. The circular under the Sugar Cess Act also expressly exempts duty of excise on sugar exported out of India. Accordingly, sugar cess on exported sugar is exempt and the demand raised on such exports is not sustainable.

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Issues: Whether sugar cess is to be treated as duty of excise for purposes of exemption on export of sugar under Notification No. 42/2001-C.E. (N.T.), and whether the demand of sugar cess on exported sugar was sustainable.

Analysis: Section 3(1) of the Sugar Cess Act, 1982 provides that sugar cess is levied and collected as duty of excise on sugar produced by a sugar factory in India. Section 3(4) further applies the provisions of the Central Excise Act, 1944 and the rules made thereunder, including those relating to refund and exemption, to such levy and collection. On that basis, sugar cess assumes the character of excise duty for the relevant purpose, and the exemption available to excise duty in respect of export clearance extends to sugar cess as well. The earlier judicial view relied upon by the parties was applied consistently with this statutory scheme. The circular issued under the Sugar Cess Act also expressly exempts the duty of excise on sugar exported out of India.

Conclusion: Sugar cess on exported sugar is exempt and the demand was not sustainable.

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