4 November 2016
EY Tax Alert
2012
Rajasthan HC holds Education Cess and SHE Cess is leviable on Oil
Cess
Executive summary
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This Tax Alert gives an update on the decision1 of Rajasthan High Court (HC)
dealing with the issue on applicability of Education Cess and Secondary and
Higher Secondary Education Cess (SHE Cess) on Oil Cess collected under section
15 of Oil Industries (Development) Act, 1974 (‘Oil Act’).
HC set aside Tribunal’s order that was based on Gujarat HC’s decision in the case
of Sahakari Khand Udyog Mandi Ltd wherein it was held that Sugar Cess levied
and collected cannot be equated with duty of Central Excise and therefore,
cannot be treated to be part and parcel of the amount on which Education Cess
had to be calculated.
HC upheld the appeal filed by Revenue observing as follows:
►
Section 15 of the Oil Act is not para-materia to section 3 of Sugar Cess Act,
1982 (‘Sugar Act’) dealt with by the Gujarat HC.
►
Under section 16 of the Oil Act, a broad discretion is available with the
Central Government for necessary allocation of Oil Cess collected as Excise
duty. On the other hand, under the Sugar Act, the entire Sugar Cess
collected as duty shall mandatorily go to consolidated fund required to be
maintained as per the Sugar Development Fund Act, 1982.
►
A plain reading of section 91 read with section 93 and section 136 read with
section 138 of the Finance Act make it abundantly clear that Education/SHE
Cess can very well be levied and collected by the Central Government under
the provisions of Central Excise Act, 1944 or under any other law for the
time being in force.
___________________
1
TS-425-HC-2016(RAJ)-EXC
Background
►
Respondent is engaged in the business of
exploration, development and
production of crude oil and natural gas.
►
It had entered into a production sharing
agreement with Government of India for
conducting petroleum operations and
producing crude oil at Rajasthan.
►
Production of crude oil does not attract
Excise duty, but National Calamity
Contingent Duty alongwith applicable
cess on the quantity of crude oil received
by the oil refinery is required to be paid
as per Oil Industries (Development) Act,
1974 (‘Oil Act’).
►
The respondent had discharged its
liability but did not pay Education Cess
and Secondary and Higher Secondary
Education Cess (SHE Cess) on Oil Cess.
►
Accordingly, an order was passed
holding that Education and SHE Cess are
chargeable on Oil Cess as it is in the
nature of Excise duty.
►
►
►
Subsequently, an appeal was filed before
Commissioner (Appeals) which held that
Oil Cess is levied and collected as Excise
Duty as mentioned in section 15 of Oil
Act2 and all the provisions of Central
Excise Act, 1944 (‘CE Act’) and rules
made thereunder are applicable.
In the second appeal, the Tribunal held
that for the purpose of charging
Education Cess and SHE Cess, Excise
duty would include only those cess levied
as duty of Excise which are levied by the
Ministry of Finance, Department of
Revenue (‘MoF’).
Tribunal relied on Gujarat High Court’s
(HC) decision in the case of Sahakari
Khand Udyog Mandi Ltd3 wherein HC
held that Sugar Cess levied and collected
cannot be equated with duty of Central
Excise and therefore, cannot be treated
to be part and parcel of the amount on
which Education Cess had to be
calculated.
►
Aggrieved by this, Revenue filed an
appeal before Rajasthan HC.
Appellant’s (Revenue)
contentions
►
Tribunal had erred while relying upon
Gujarat HC decision (supra), as it was
dealing with the provisions of Sugar Cess
Act, 1982 (‘Sugar Act’), whereas in the
case in hand the Oil Cess is made
applicable as per section 15 of the Oil
Act. Provisions of Oil Act are quite
different from the provisions of Sugar
Act.
►
By virtue of deeming provisions as
provided under section 15(4) of Oil Act,
it is to be largely construed that Oil Cess
is nothing but Excise Duty.
►
Exclusion of respondent industry from
the levy of Education Cess on the count
that the duties of Excise as per section
15 of the Oil Act are neither levied nor
collected in accordance with the Finance
Act, shall be highly technical and against
the legislative intent to introduce the
Education Cess.
Respondent’s contentions
►
Since Oil Cess is levied by the Ministry of
Petroleum (‘MoP’), even though
collected by MoF as Excise duty, the
same cannot be included in the duty of
Excise for the purpose of Education
Cess.
Section 15 of Oil Act deals with levy and
collection of Oil Cess, a duty of Excise on items
removed to a refinery or factory
2
►
Education Cess is applicable only if levied
and collected in accordance with the CE
Act, the Customs Act, 1962, or Finance
Act, 1994. Excise duty under section 15
of the Oil Act is not levied in any of the
aforesaid enactments, though collected
by Department of Revenue being a
mechanism adopted to make the process
of collection easy.
CCE vs. Sahakari Khand Udyog Mandi Ltd [2011
(263) ELT (34) Guj]
3
►
►
►
The legislature, if it was intending to
include the Oil Act also in it, then a
specific reference of that should have
been given, but that is absent, which
clearly indicates the intent of legislature
to exclude the application of Education
Cess on the Excise duties referred under
section 15 of the Oil Act.
Reliance was placed on Circular dated 10
August 20044, clarifying that Education
Cess is calculated on the aggregate
duties of Excise/Customs and levied and
collected by the Department of Revenue.
Reliance was also placed upon Circular
dated 7 January 20145, reiterating that
Education/SHE Cess are not to be
calculated on the Cesses which are
levied under the Acts administered by
Department/Ministries other than MoF,
but are only collected by the Department
of Revenue in terms of those Acts.
High Court ruling
►
Tribunal did not examine the scope of
levying Education and SHE Cess. It had
simply arrived at the conclusion by
relying on the decision of Gujarat HC.
►
Gujarat HC was dealing with the
provisions of Sugar Act. Provisions of
section 15 of Oil Act are not paramateria to section 3 of Sugar Act6.
►
►
Sugar Act provides for cess for the
purpose of the Sugar Development Fund
Act, 1982, as a duty of excise on all sugar
produced at any sugar factory in India
and further section 4 of Sugar Act
pertains to crediting of sugar cess
proceeds to consolidated fund of India.
There is no provision akin to Section 4 of
the Sugar Act and absence of such a
TRU Circular F.No.345/2/2004-TRU dated 10
August 2008
5 Circular No.978/2/2014-CX, dated 7 January
2014
6 Section 3 of Sugar Act deals with levy and
collection of Sugar Cess, for the purposes of the
Sugar Development Fund Act, 1982, a duty of
4
provision
changes
the
complete
complexion of section 15 of the Oil Act.
►
As per section 16 of Oil Act, the duty of
Excise levied shall be first credited to the
consolidated fund of India and the
Central Government (‘CG’) may, pay to
the Board out of such proceeds (after
deducting expenses) such sums of
money for being utilised exclusively for
the purpose of this Act.
►
Thus, under section 16, a broad
discretion is available with CG for
necessary allocation of Excise. On the
other hand, under the Sugar Act, the
entire duty shall mandatorily go to
consolidated fund required to be
maintained as per the Sugar
Development Fund Act, 1982.
►
There is no merit in the argument that
Cess collected under section 15 of the
Oil Act is administered by MoP and MoF
is only a collecting agency.
►
A plain reading of the provisions of
section 91 read with section 93 and
section 136 read with section 1387 of
the Finance Act make it abundantly clear
that Education/SHE Cess can very
well be levied and collected by CG under
the provisions of CE Act or under any
other law for the time being in force.
►
Respondent is subjected to a cess under
the Oil Act, a law in force at the time of
introduction of Education/SHE Cess.
►
No doubt, under the Oil Act also the
procedure given under CE Act has been
adopted, but the Cess sought to be
collected under the Oil Act is not
exclusively for the purposes of that Act
only.
►
Thus, the HC set aside the Tribunal order
and held that Education/SHE Cess is
excise on all sugar produced by any sugar factory
in India.
7
Section 91 and 136 provide for levy and
collection of Education and SHE Cess respectively.
Section 93 and 138 provide for Education and SHE
Cess on excisable goods respectively.
leviable on Oil Cess collected as a duty of
Excise.
Comments
Ruling of Rajasthan HC shall have an
adverse impact on oil and gas
industry. Further, this ruling shall
have an influence on pending
litigations where levy of Education
Cess on Cess collected under other
Acts is in question.
HC order is most likely to be
challenged before the Apex Court
and until such decision the matter
may remain litigative.
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