By TIOL News Service

AHMEDABAD, OCT 14, 2013: THIS writ petition is preferred by the petitioner, engaged in the business of manufacture of patent or proprietary medicines. The petitioner company operates as 100% export oriented unit ("EOU"), where P.P. Medicines are manufactured. The company exports the goods manufactured in EOU. Certain percentage of production is allowed to be sold in Domestic Tariff Area ("DTA"). Section 3(1) of the Central Excise Act levies and collects the Central Excise duty on goods produced or manufactured in India. For goods manufactured by 100% EOU and brought to another place in India, rate of excise duty is applicable as per Clause-II of the proviso to section 3(1) of the Central Excise Act. The company has been paying the excise duty on the sum total of duties of customs and also education cess as well as secondary and higher education cess on customs duty leviable on similar medicines imported into India.

Dispute was raised as calculations of excise duties were made leviable on DTA clearances made by EOU on the ground that the education cess as well as secondary and higher education cess were leviable on sum total of custom duties.

Customs Excise & Service Tax Appellate Tribunal ("CESTAT") considered the similar dispute in case of Sarla Performance Fibers Ltd. vs. Commissioner of C.Ex. Vapi reported in (2010-TIOL-408-CESTAT-AHM ) and held that the method suggested by the Revenue for levying above cess for second or third time was incorrect and not in accordance with the scheme of section 3 of the Central Excise Act.

The petitioner also raised this very dispute before the Revenue authorities and appeal was preferred before the appellate Tribunal. The Tribunal held that the issue involved was covered by the decision rendered in the case of Sarla Performance Fibers Ltd. vs. Commissioner of C.Ex. Vapi where it was held that once the measure of Custom Duty equivalent to Central Excise Duty leviable on the like goods had been worked out, the question of levying the education cess separately in respect of clearance by 100% EOU to DTA would not arise.

The decision of Sarla Performance Fibers Ltd. vs. Commissioner of C.Ex. Vapi (supra) was challenged by the Revenue by way of Tax Appeals before this High Court and after a bipartite hearing, Tax Appeals were dismissed on 19.1.2012 [2012-TIOL-359-HC-AMH-CX] holding that appeal lies to the Supreme Court and not the High Court as the issue raised had a direct bearing on the rate at which manufacturers' pay excise duty on clearances made from EOU to DTA.

According to the appellants, the order of the appellate Tribunal rendered in the petitioner's appeal has become final and binding qua the parties and also to the adjudicating authority and the first appellate authority. Grievance thereafter was made by the petitioner that show cause notice dated 8.7.2011 came to be issued demanding sum of Rs.3,93,003 /and amount of cess on domestic clearances made by the petitioner's EOU from the period from July, 2010 to December, 2010 and yet another show cause notice for the period from January, 2011 to July, 2011 came to be served upon the petitioner company on 24.1.2012 demanding the sum of Rs.3,64,510 /as a short payment of education cess as well as secondary and higher education cess for DTA clearances made by the petitioner's EOU.

The petitioner filed a writ petition being Special Civil Application No.12686 of 2012 before this Court and by an order dated 6.12.2012 the Court allowed such petition and struck down the order dated 13.7.2012 passed by the respondent in order in original.

The grievance of the petitioner further subsisted as two show cause notices demanding cess from petitioner company on DTA clearances raising the very same issue have been issued and show cause notice dated 22.1.2013 is issued after this Court struck down the adjudication order passed by the second respondent in the petitioner's previous petition i.e. Special Civil Application No. 12686 of 2012 dated 6.12.2012.

In the affidavit in reply filed by the Department, it has contended inter alia that the Revenue's actions of issuance of show cause notice, demanding the cess with interest and penalty is not illegal nor without jurisdiction as the issue has not reached its finality.

It is further contended that the petitioner should exhaust the alternative remedy and respond to the show cause notices instead of straightaway rushing to the High Court by way of this petition.

The High Court noted:

The petitioner has challenged both the show cause notices issued by the Deputy Commissioner, Central Excise, Division-IV, Ahmedabad( 2) respectively on 21.8.2012 and 22.1.2013.

Only issue that is subsisting on merit between the parties is whether the petitioner herein is liable to pay education cess on the amount worked out by calculating the custom duty payable on the goods in respect of clearance made by 100% EOU to DTA.

According to the adjudicating authority even after arriving at the measure of Custom Duty for working out Central Excise duty payable, the Education Cess once again requires to be levied. However, the Tribunal has in no uncertain terms held in Sarla Performance Fibers Ltd. vs. Commissioner of C.Ex. Vapi reported in (2010-TIOL-408-CESTAT-AHM), that once the measure of Customs Duty equivalent to Central Excise Duty leviable on the like goods has been worked out, there could not arise any question of levying Education Cess separately for the clearances made by 100% EOU to DTA.

The petitioner has been paying Excise Duty on the sum total of duties of customs and Education Cess as well as secondary and higher Education Cess on the basic customs duty leviable on similar medicines imported into India.

When such issue was raised against the petitioner by the Department, the adjudicating authority had ruled against the petitioner; CESTAT held in favour of the petitioner by an order dated 21.6.2010 [2010-TIOL-1147-CESTAT-AHM] following the judgment of Sarla Performance Fibers Ltd. vs. Commissioner of C.Ex. Vapi.

High Court had earlier held that appeals against this decision of the Tribunal lies with Supreme Court. This was not challenged before the Apex Court on the ground of smallness of the claims and, therefore, the decision of the Tribunal continue to hold the field. (This does not seem to be correct)

When once again, show cause notices were issued to the present petitioner, it challenged the same by way of Special Civil Application No. 12686 of 2012 and this Court disapproved the act of adjudicating authority in no uncertain terms, quoting the decision of the Apex Court rendered in the case of Union of India vs. Kamlakshi Finance Corporation Ltd. reported in (2002-TIOL-484-SC-CX-LB).

High Court observed,

"It needs to be noted with strong disapproval that the repeated acts of the adjudicating authority of ignoring the decision of this Court is impermissible although till date the Revenue has deemed it fit not to challenge the order passed by the higher authority or Tribunal of superior jurisdiction."

The submission of Revenue is that the group of appeals decided by the Court in Sarla Performance Fibers Ltd. vs. Commissioner of C.Ex. Vapi does not conform to the monetary limits set by the said Tribunal nor do the question falls under the exception clause and hence, are not carried to the Apex Court. Be that as it may, it is an undisputed position that such decision of the Tribunal remains unchallenged.

Held: Despite clear and specific directions and authoritative pronouncements, act of issuance of show cause notice by the Deputy Commissioner is wholly impermissible and unpalatable and deserves to be quashed and struck down with a specific note of strong disapproval. The respondents simply could not have exercised the powers contained under the statute in such arbitrary exercise and in complete disregard to the pronouncement of this Court particularly reminding the Revenue authorities of the binding effect of decision of Tribunal on the identical question of law. This not only led to multiplicity of proceedings but also speaks of disregard to the direction of this Court rendered in the earlier petition of this very petitioner. Resultantly, petition stands allowed. Both the show cause notices dated 21.8.2012 and 22.1.2013 are quashed and struck down.

Please also see TIOL-DDT 2209

(See 2013-TIOL-802-HC-AHM-CX)