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When the exemption is granted under the particular provision; it would not cover any other kind of d

In the Supreme Court case of M/S. UNICORN INDUSTRIES v UNION OF INDIA & OTHERS CIVIL APPEAL NO. 9238 OF 2019 [ARISING OUT OF S.L.P. (CIVIL) NO. 28966 OF 2012]

The bench comprising of Justice Arun Mishra, Justice M.R. Shah and Justice B.R.Gavai collectively upheld the order of High court and dismissed the appeal

The Government of India in order to promote industrial development in the North-Eastern region announced vide Office Memorandum dated 24.12.1997, specific fiscal incentives including total exemption from tax to the new industrial units and substantial expansion of existing unit in the North Eastern Region for a period of 10 years from the date of commencement of production. Government of Sikkim vide Notification dated 17.2.2003, notified new industrial policy whereby all fiscal incentives available to the industries in the North Eastern Region would be available to the units set up in the State of Sikkim. The Central Government issued a Notification dated 9.9.2003, granting exemption from payment of duty of excise for goods specified in the notification and cleared from a unit located in the Industrial Growth Centre or other specified areas within the State of Sikkim. The manufacturer has to first utilize the Cenvat Credit for discharging duty liability on final products, and the remaining amount of duties had to be paid through Personal Ledger Account (PLA) or Current Account, i.e., in cash. Thus, the exemption scheme was to discharge the liability on the final product and then claim or avail the refund or recredit of the duties paid in cash.

The Unicorn Industries established a unit in 2006 for manufacturing “Indian Mouth Freshener” an excisable commodity covered under Chapter 21 of the First Schedule of Central Excise Tariff Act, 1985. It was registered under the Central Excise Act. In June 2006, the appellant had started manufacturing its product. The Commissioner, Central Excise issued show cause notice, it was submitted that grounds phrased in the response were unsustainable. The appellant was asked to show cause why amount should not be recovered under Section 11A of the Central Excise Act along with the interest and penalty.

The appellant submitted that 14 separate claims were filed for a refund of additional excise duty and education cess on the ground these levies are also duties of excise, for which exemption had been granted for ten years. Deputy Commissioner of Central Excise issued a show cause notice requiring the appellant to repay the amount of NCCD for the period July 2006 to December 2006, on the ground that exemption was not permissible under the notification for the units located in the State of Sikkim. The respondents demanded the issuance of further notice education cess and secondary and higher education cess. The appellant filed a writ application in the High Court. By the impugned judgment, the same has been dismissed.

Learned counsel appearing on behalf of the appellant submitted that NCCD, education cess, and secondary and higher education cess form part of the excise duty. Hence, the decision of the High Court is bad in law Reliance has been placed on SRD Nutrients Private Limited v. Commissioner of Central Excise, Guwahati and the decision of this Court in Bajaj Auto Limited v. Union of India & others It is submitted that the education cess was introduced by Sections 91 and 93 of the Finance Act, 2004 and higher education cess by the Finance Act, 2007 and the NCCD was imposed under Section 136 of the Finance Act, 2001. The imposition is in the nature of a duty of excise and in addition to any other duty of excise chargeable under the Central Excise Act, 1944.

It is not disputed that the Government of India took a policy decision, Ministry of Industry, Department of Industrial Policy and Promotion vide Office Memorandum dated 24.12.1997, concerning new industrial policy and concessions in the NorthEastern region. The decision was taken for converting the Growth Centres and IIDCs into total tax-free zones for the next ten years. All industrial activities in these zones would be free from income tax and excise duty for ten years from the commencement of production. The submission raised on behalf of appellant is that the duty and cess in the nature of excise duty cannot be realized, particularly in view of the provisions in the Finance Acts of 2001, 2004 and 2007 relating to refund and exemption, which has made applicable, the provisions of the Act of 1944 and the Rules made thereunder relating to exemption.

This Court in SRD Nutrients Private Limited (supra) has observed that the circulars bind department. When there is no excise duty, the education cess and secondary and higher education cess could not have been demanded.

The court pronounced that:

“21. One aspect that clearly emerges from the reading of these two circulars is that the Government itself has taken the position that where the whole of excise duty or service tax is exempted, even the education cess, as well as secondary and higher education cess, would not be payable. These circulars are binding on the Department. 22. Even otherwise, we are of the opinion that it is more rational to accept the aforesaid position as clarified by the Ministry of Finance in the aforesaid circulars. Education cess is on excise duty. It means that those assessees who are required to pay excise duty have to shell out education cess as well. This education cess is introduced by Sections 91 to 93 of the Finance (No. 2) Act, 2004. As per Section 91 thereof, education cess is the surcharge which the assessee is to pay. Section 93 makes it clear that this education cess is payable on “excisable goods,” i.e., in respect of goods specified in the First Schedule to the Central Excise Tariff Act, 1985. Further, this education cess is to be levied @ 2% and calculated on the aggregate of all duties of excise which are levied and collected by the Central Government under the provisions of the Central Excise Act, 1944 or under any other law for the time being in force. Subsection (3) of Section 93 provides that the provisions of the Central Excise Act, 1944 and the Rules made thereunder, including those related to refunds and duties, etc. shall as far as may be applied in relation to levy and collection of education cess on excisable goods. A conjoint reading of these provisions would amply demonstrate that education cess as a surcharge is levied @ 2% on the duties of excise, which are payable under the Act. It can, therefore, be clearly inferred that when there is no excise duty payable, as it is exempted, there would not be any education cess as well, inasmuch as education cess @ 2% is to be calculated on the aggregate of duties of excise. There cannot be any surcharge when basic duty itself is NIL.”

The decision of larger bench is binding on the smaller bench has been held by this Court in several decisions such as Mahanagar Railway Vendors’ Union v. Union of India & Ors. (1994) Suppl. 1 SCC 609, State of Maharashtra & Ors. v. Mana Adim Jamat Mandal, AIR 2006 SC 3446 and State of Uttar Pradesh & Ors. v. Ajay Kumar Sharma & Ors. (2016) 15 SCC 289. The decision rendered in ignorance of a binding precedent and/or ignorance of a provision has been held to be per incuriam in Subhash Chandra & Ors. v. Delhi Subordinate Services Selection Board & Ors. (2009) 15 SCC 458, Dashrath Rupsingh Rathod v. State of Maharashtra (2014) 9 SCC 129, and Central Board of Dawoodi Bohra Community & Ors. v. State of Maharashtra & Ors. (2005) 2 SCC 673. It was held that a smaller bench could not disagree with the view taken by a larger bench. It is clear that before the Division Bench deciding SRD Nutrients Private Limited and Bajaj Auto Limited (supra), the previous binding decisions of three Judge Bench in Modi Rubber (supra) and Rita Textiles Private Limited (supra) were not placed for consideration.

The court pronounced that the decisions are binding on the Coordinate Bench and declared that it did not find any ground to take a different view.

Pranav M Varma

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