Case Note & Summary
The appeal arose from a dispute between Bajaj Auto Limited (appellant) and the Union of India (respondent) regarding the liability to pay National Calamity Contingent Duty (NCCD), Education Cess, and Secondary & Higher Education Cess. The appellant established a manufacturing unit in Uttarakhand in 2007 and was exempted from Central Excise Duty under Notification No.50/2003-Central Excise issued under Section 5A of the Central Excise Act, 1944, as part of a policy to promote industrial development in Uttarakhand and Himachal Pradesh. An audit in February 2009 revealed that the appellant had not paid the three cesses, leading to a show cause notice in August 2011 demanding payment. The appellant challenged the notice by filing a writ petition in the Uttarakhand High Court, which was dismissed by both the Single Judge and the Division Bench. The Supreme Court granted leave and heard the appeal. The legal issues were whether the exemption from basic excise duty also exempted NCCD, Education Cess, and Secondary & Higher Education Cess. The appellant argued that NCCD is a duty of excise and thus covered by the exemption, and that Education Cess and Secondary & Higher Education Cess are surcharges on excise duty and cannot be levied when the basic duty is exempted. The Department contended that the exemption notification must be strictly construed and did not specifically mention these cesses. The Supreme Court analyzed the relevant provisions: Section 136 of the Finance Act, 2001 imposes NCCD as a duty of excise in addition to other duties; Sections 91-93 of the Finance Act, 2004 impose Education Cess as a surcharge on excise duty; and Sections 136-138 of the Finance Act, 2007 impose Secondary & Higher Education Cess similarly. The Court relied on its earlier decision in SRD Nutrients Pvt. Ltd. v. Commissioner of Central Excise, Guwahati (2018) 1 SCC 105, which held that Education Cess and Secondary & Higher Education Cess, being surcharges on excise duty, are not leviable when the basic excise duty is exempted. The Court also noted that the Department's own circular dated 10.8.2004 clarified that no education cess is leviable on goods fully exempted from excise duty. Regarding NCCD, the Court held that since NCCD is a duty of excise leviable under the Central Excise Act, 1944, and the exemption notification exempts goods from the whole of the duty of excise, NCCD is also covered by the exemption. The Court allowed the appeal, set aside the High Court's orders, and quashed the show cause notice.
Headnote
A) Central Excise - Exemption Notification - National Calamity Contingent Duty (NCCD) - Section 136 Finance Act, 2001 - NCCD is a duty of excise leviable under the Central Excise Act, 1944 - Exemption notification under Section 5A of the Central Excise Act, 1944 exempts goods from 'whole of the duty of excise' which includes NCCD - Held that NCCD being a duty of excise, the exemption notification covers it and appellant is not liable to pay NCCD (Paras 15-17). B) Central Excise - Education Cess and Secondary & Higher Education Cess - Surcharge on Excise Duty - Sections 91-93 Finance Act, 2004 and Sections 136-138 Finance Act, 2007 - These cesses are surcharges calculated on the aggregate of excise duties - When basic excise duty is exempted, there is no substratum for levy of these cesses - Held that Education Cess and Secondary & Higher Education Cess are not payable when the basic excise duty is exempted, following SRD Nutrients Pvt. Ltd. v. Commissioner of Central Excise, Guwahati (2018) 1 SCC 105 (Paras 12-14).
Issue of Consideration
Whether a manufacturing establishment exempted from payment of Central Excise Duty under the Central Excise Act, 1944 is also liable to pay National Calamity Contingent Duty (NCCD), Education Cess and Secondary & Higher Education Cess.
Final Decision
The Supreme Court allowed the appeal, set aside the orders of the High Court, and quashed the show cause notice dated 26.8.2011. The appellant is not liable to pay NCCD, Education Cess, and Secondary & Higher Education Cess.
Law Points
- Exemption from basic excise duty extends to cesses levied as surcharge on excise duty
- NCCD is a duty of excise and exemption notification covers it
- Education Cess and Secondary & Higher Education Cess are surcharges on excise duty and cannot be levied when basic duty is exempted
- Strict construction of exemption notification not applicable when plain language covers the cesses
