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CX - Duty on cigarettes - unless amendment moved to Finance Bill, 2012 to replace 10% ad valorem with specific rate was made effective from 17/03/2012 by declaration under Provisional Collection of Taxes Act, effective date of hike would be date of enactment of Finance Bill: CESTAT

By TIOL News Service

MUMBAI, JUNE 13, 2013: WE had carried the following story in DDT 1935 dated 05/09/2012 -

Going up in SMOKE - Central Excise Duty on cigarettes

A fire at one end, a fool at the other, and a bit of tobacco in between

1. Take a look at the comparative chart of the Rate of duty on cigarettes under the First Schedule from 01.01.2012:

Tariff Heading	Description length mm	BED as on 01.01.2012 Rs. Per thousand sticks	BED proposed by Finance Bill, 2012 [16.03.2012] Rs. Per thousand sticks	BED as per Finance Act, 2012 [28.05.2012] Rs. Per thousand sticks
Non filter

2402 2010	Not exceeding 60 mm	509	---	---
	Not exceeding 65 mm#	---	509	509

2402 2020	Exceeding 60mm but not exceeding 70 mm	1218	---	---
	Exceeding 65 mm but not exceeding 70 mm#	---	10% + 1218	1463
Filter
2402 2030	Not exceeding 60 mm	509	---	---
	Not exceeding 65 mm	---	509	509

2402 2040	Exceeding 60 mm but not exceeding 70 mm	809	---	---
	Exceeding 65 mm but not exceeding 70 mm	---	10% + 809	1034

2402 2050	Exceeding 70 mm but not exceeding 75 mm	1218	10% + 1218	1463

2402 2060	Exceeding 75 mm but not exceeding 85 mm	1624	10% + 1624	1974

2402 2090	Others	1948	10% + 1948	2373

#- new category introduced by Finance Bill, 2012

2. A careful reading of the above Tabulation will reveal that the Central government has done the unthinkable.

2.1 The Central Excise duty on Cigarettes under the First Schedule as proposed by the Finance Bill, 2012 and which was brought into force with immediate effect by way of a declaration under the Provisional Collection of Taxes Act, 1931 has been drastically altered [except for the cigarettes filter/non-filter of length less than 65 mm] inasmuch as by the Finance Act, 2012 [w.e.f 28.05.2012] it has been re-converted from ad valorem plus specific to purely SPECIFIC rate of duty as was existing prior to 16.03.2012.

2.2 It would be interesting to note that consequent upon introduction of the Finance Bill, 2012 read with the PCT Act, 1931, cigarettes were notified under section 4A of the Central Excise Act. Accordingly, the value for the purpose of charging the ad valorem component of duty was to be done on the Retail Sale Price (RSP) printed on the pack less abatement of 50% [Notification Nos. 7/2012-CE(NT) dated 17th March, 2012 refers]. The Third Schedule of the Central Excise Act was also amended to include cigarettes through clause 140 of the Finance Bill, 2012 . However, consequent upon enactment of the Finance Bill, 2012, nothing changed much on this front viz. The Third Schedule carried the same change as proposed by clause 140 of the Finance Bill, 2012 inasmuch as it reads -

"In the Third Schedule to the Central Excise Act, after S.No. 26 and the entries relating thereto, the following S. No. and entries shall be inserted, namely:-

S.No.	Heading, sub-heading or tariff item	Description of goods
(1)	(2)	(3)
"26A	2402 20 10 to 2402 20 90	All goods".

2.3 Similarly, the notification 7/2012-CE(NT) dated 17.03.2012 also continues to extend MRP assessment to Cigarettes [Tariff Item 2402] and grants an abatement of 50%.

2.4 Existence of these amendments would suggest that Cigarettes are supposed to be assessed on ad valorem component of duty too.

2.5 But then, as mentioned, what the Finance Bill, 2012 proposed has been overturned by the Finance Act, 2012 i.e Cigarettes are to be assessed w.e.f 28.05.2012 at Specific rates of duty ONLY.

3. One cannot understand what is happening in reality.

3.1 The shocking part of this story is the following directive given by the TRU in its letter F.No. 334/1/2012-TRU dated 01.06.2012; Paragraph I (1.4) under the head ' Excise duty applicable to cigarettes '.

"As part of proposals for Budget 2012-13, an ad valorem component of 10% chargeable on 50% of Retail Sale Price was added to other slabs beyond 65mm. The ad valorem component of 10% has now been converted to a specific rate and consequently, basic excise duty rates on cigarettes continue to be fully at specific rate albeit at revised rates as under:

...This clause was declared under Provisional Collection of Taxes Act, 1931 and hence the rates proposed in the Finance Bill came into effect from 17th March, 2012. Consequently, the revised rates as per section 141 read with Seventh Schedule of the Finance Act, 2012 are applicable with effect from 17th March, 2012 ."

4. Wherefrom the TRU gathers the powers to make this "specific rate of duty" applicable from 17 th March 2012 defies logic .

5. Probably, the Anti-evasion authorities will be sharpening their knives before all goes up in SMOKE!

Will TRU clarify?”

It is noticed that the CCE, Belapur had initiated action for recovery of the “differential” Central Excise duty against the Cigarette manufacturer and confirmed a demand of Rs.71,87,380/- along with interest and a penalty of Rs.25,000/-.

The Stay application filed by the appellant was heard recently by the CESTAT and the decision is as was expected.

Incidentally, after we carried our report, the CESTAT, Kolkata Bench had an occasion to deal with an almost identical issue in the matter of imposition of duty on Cement by the Finance Act, 2008 and the Bench had concluded thus -

“6.4 From the above it is clear, that the declaration was made with regard to Clause 84 under PCTA read with Seventh Schedule of the Finance Bill, 2008, whereby cement manufactured by the Applicant, was not figuring. As regards the rate of cement enhanced w.e.f. 29-4-2008, as per Section 89 read with Seventh Schedule of the Finance Bill, 2008, which was enacted on 10-5-2008, no declaration under PCTA was made.

6.5 As per Section 3 of PCTA, a declaration is required to be inserted in the Bill to give it an immediate effect that it is expedient in the public interest that any provision of the Bill relating to such imposition be increased. The relevant provisions of the PCTA are reproduced hereunder :-

“Section 3. Power to make declarations under this Act. - Where a Bill to be introduced in Parliament on behalf of Government provides for the imposition or increase of duty of customs or excise, the Central Government may cause to be inserted in the Bill a declaration that it is expedient in the public interest that any provision of the Bill relating to such imposition or increase shall have immediate effect under this Act.”

6.6 Section 3 of the PCTA empowers the Government, where a Bill to be introduced on its behalf “provides for imposition or increase of a duty of customs or excise”, to insert in the Bill a declaration that “any provision of the Bill relating to such imposition or increase shall have immediate effect under the Act”. What is requisite is that by reason of the Bill the customs or excise statute is to be amended either to impose duty for the first time or, where it is already imposed, to increase it. By making the declaration under the said Act the imposition or increase becomes effective upon the introduction of the Bill. Undisputedly, no declaration under PCTA was made with regard to enhancement of duty on cement to Rs. 900/- PMT, which was moved by way of amendment to Finance Bill, 2008 by the Finance Minister on 29-4-2008. Therefore, the effective date of the enhancement in the present case would be the date of enactment i.e. 10-5-2008.”

See Ultratech Cement Ltd. vs. CCE, Bolpur 2013-TIOL-677-CESTAT-KOL

In the present case, the Bench referred to the aforementioned decision and by following the ‘precedent' decision observed that prima facie duty cannot be demanded for the impugned period 17/03/2012 to 27/05/2012.

Accordingly, the CESTAT waived the requirement of pre-deposit of the entire amount of adjudged dues and granted Stay in the matter.

Live Life King-size!

(See 2013-TIOL-891-CESTAT-MUM)