2025 (8) TMI 490 - AT - Central Excise

Supreme Court Upholds Education Cess Self-Credit Limits Under Notification No.56/2002-CE Despite HC Interim Order

The CESTAT Chandigarh upheld the restriction on self-credit of Education Cess and Higher Education Cess to the prescribed value addition percentage under ... Refund of Education Cess and Higher Education Cess and self-credit over and above the value addition of 34% permitted as per the Notification - appellants have availed self-credit which included the duty paid on account of Education Cess and Higher Education Cess and an amount over and above the value addition available as per the Notification - Benefit of exemption under the provisions of N/N.56/2002-CE dated 14.11.2002 as amended - HELD THAT:- It is found that though Hon’ble High Court of J & K has in its interim order held that the amendment, to Notification No.56/2002-CE dated 14.11.2002, fixing value addition was ultra vires of the Constitution, they held that in view of the aforesaid submissions of the learned counsel for the parties the appeal is disposed of with the observation that the result of the instant appeal shall also be governed by the decision in the matter which is pending before the Supreme Court. Hon’ble Supreme Court has finally upheld the constitutional validity of the amendments carried to Notification No.71/2003-CE dated 09.09.2003 and Notification No.56/2002-CE dated 14.11.2002. The submissions of the appellants based on the decision of Hon’ble J & K High Court’s interim order are not acceptable. Therefore, restricting the self-refund to a fixed percentage of value addition, is correct. It is found that Hon’ble Apex Court in the case of Unicorn Industries [2019 (12) TMI 286 - SUPREME COURT] held that a Notification has to be issued for providing exemption under the said source of power and that in the absence of Notification containing an exemption to such additional duties in the nature of Education Cess and Secondary & Higher Education Cess, they cannot be said to have been exempted. The appeal is sans any merit - Appeal dismissed. 1. ISSUES PRESENTED and CONSIDERED Whether Education Cess and Higher Education Cess form part of the excise duty exemption under Notification No.56/2002-CE dated 14.11.2002, thereby entitling refund of such cesses. Whether the self-credit/refund claimed over and above the value addition percentage prescribed in the Notification is permissible. Whether the interim order dated 13.12.2012 of the Hon'ble High Court of J & K, modifying earlier interim directions, applies retrospectively to refunds claimed for periods prior to that date. Whether the constitutional validity of amendments to Notification No.56/2002-CE dated 14.11.2002 fixing value addition percentage was upheld by the Hon'ble Supreme Court, and the implications thereof on refund claims. Whether the doctrine of promissory estoppel or retrospective/retroactive application of notifications affects the validity of the exemption notifications and consequent refund claims. Whether the refund claims must be restricted to the percentage of value addition specified in the Notification as per the law laid down by the Hon'ble Supreme Court and Tribunal precedents. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Refund of Education Cess and Higher Education Cess as part of Central Excise Duty Exemption Legal Framework and Precedents: The exemption Notification No.56/2002-CE dated 14.11.2002 provides exemption from Central Excise Duty. The question arises whether this exemption extends to Education Cess and Higher Education Cess, which are additional cesses levied on excise duty. The Hon'ble Supreme Court in Unicorn Industries held that exemption notifications must explicitly include such cesses to allow refund; in their absence, these cesses are not exempted. Court's Interpretation and Reasoning: The Tribunal observed that Education Cess and Higher Education Cess are additional duties and unless specifically exempted by a notification, they cannot be included in the exemption. The appellants' claim for refund of these cesses was therefore not tenable. Application of Law to Facts: Since Notification No.56/2002-CE does not explicitly exempt Education Cess and Higher Education Cess, the self-credit/refund of these cesses was rightly rejected. Conclusion: Refund of Education Cess and Higher Education Cess cannot be allowed under the exemption Notification No.56/2002-CE without explicit exemption provisions. Issue 2: Self-credit/refund over and above the value addition percentage prescribed in the Notification Legal Framework and Precedents: Notification No.56/2002-CE prescribes a fixed percentage of value addition (34%) as the limit for exemption/refund. The Hon'ble Supreme Court in its decision on similar notifications confirmed the validity of such value addition limits. Tribunal decisions in Indswift Labs and Modern Papers reaffirmed that refunds must be restricted to the prescribed value addition percentage. Court's Interpretation and Reasoning: The Tribunal found that the appellants' claim for refund exceeding the 34% value addition limit was not permissible. The fixed percentage is a statutory ceiling and cannot be exceeded by self-credit. Application of Law to Facts: The appellants' refund claim of Rs. 2,99,21,171/- over and above the 34% value addition limit was correctly disallowed. Conclusion: Refund claims must be restricted to the value addition percentage specified in the Notification; amounts claimed beyond this are not allowable. Issue 3: Applicability and retrospective effect of the Hon'ble High Court's interim order dated 13.12.2012 Legal Framework and Precedents: The Hon'ble High Court of J & K issued an interim order on 13.12.2012 modifying its earlier interim order dated 07.04.2011. The question was whether this order applies retrospectively to refund claims for periods prior to 13.12.2012. Court's Interpretation and Reasoning: The Commissioner (Appeals) held that the interim order dated 13.12.2012 is a continuation/modification of the earlier order and applies to all refunds sanctioned after that date, regardless of the period to which the refund pertains. The Tribunal concurred, rejecting the appellants' contention that the order did not have retrospective effect. Application of Law to Facts: Refund claims determined after 13.12.2012 must comply with the directions of the interim order, even if the claims relate to periods before that date. Conclusion: The interim order dated 13.12.2012 applies to all refund claims decided after that date, irrespective of the period claimed. Issue 4: Constitutional validity of amendments to Notification No.56/2002-CE and impact on refund claims Legal Framework and Precedents: The Hon'ble High Court of J & K had earlier held the amendment fixing value addition as ultra vires. However, the Hon'ble Supreme Court in a consolidated judgment upheld the constitutional validity of amendments to Notification No.56/2002-CE and similar notifications. Court's Interpretation and Reasoning: The Tribunal noted that the Supreme Court's decision overruled the High Court's interim orders and held the amendments valid. The Supreme Court clarified that refunds already granted prior to the notifications would not be reopened, but pending refund applications must be decided in accordance with the valid notifications and the law. Application of Law to Facts: The appellants' reliance on the High Court's interim order was rejected as the Supreme Court's ruling is binding and final. Conclusion: Amendments to Notification No.56/2002-CE fixing value addition are constitutionally valid; refund claims must be adjudicated accordingly. Issue 5: Doctrine of promissory estoppel and retrospective/retroactive effect of notifications Legal Framework and Precedents: The Supreme Court held that High Courts erred in applying the doctrine of promissory estoppel to quash notifications on the ground of retrospectivity. Notifications are prospective unless explicitly stated otherwise. Court's Interpretation and Reasoning: The Tribunal relied on the Supreme Court's observation that notifications fixing value addition and exemption percentages are not retrospective and do not violate promissory estoppel. Application of Law to Facts: The appellants' argument based on promissory estoppel and retrospective application was rejected. Conclusion: Notifications fixing value addition and exemption percentages are prospective; promissory estoppel does not invalidate them. Issue 6: Restriction of refund claims to value addition percentage as per the Notification and Tribunal precedents Legal Framework and Precedents: Notification No.56/2002-CE fixes value addition at 34%. Tribunal decisions in Indswift Labs and Modern Papers have consistently held that refund claims must be restricted to this percentage. The Supreme Court's ruling in Unicorn Industries confirms that exemption notifications must explicitly include additional cesses for refund eligibility. Court's Interpretation and Reasoning: The Tribunal followed these precedents and held that the appellants' refund claims must be restricted to the 34% value addition limit and exclude Education Cess and Higher Education Cess unless specifically exempted. Application of Law to Facts: The appellants' refund claims were disallowed to the extent exceeding the prescribed value addition and including Education Cess and Higher Education Cess. Conclusion: Refund claims must be strictly confined to the limits and conditions prescribed in the exemption Notification and consistent with Supreme Court and Tribunal precedents.