CESTAT: Sugar Cess on Imported Raw Sugar Qualifies as Duty of Excise, Eligible for CENVAT Credit
Pranav B Prem
The Chandigarh Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) has held that CENVAT credit is admissible on sugar cess paid on imported raw sugar. The bench comprising S.S. Garg (Judicial Member) and P. Anjani Kumar (Technical Member) was deciding an appeal filed by M/s A B Sugar Ltd. against the Commissioner of Central Excise, Ludhiana, challenging an order confirming the demand of CENVAT credit of ₹62,40,000/-, interest, and equal penalty under the Cenvat Credit Rules, 2004, along with recovery of sugar cess amounting to ₹23,68,872/- with interest and penalty under the Central Excise Act, 1944.
In 2010, the appellant imported raw sugar under Ex-Bond Bill of Entry No. 219 dated 23.02.2010 and paid sugar cess at the rate of ₹24 per quintal under Section 3(1) of the Sugar Cess Act, 1982. Although Notification No. S.O. 102(E) dated 07.01.2009, read with Circular No. 883/3/2009-CX dated 26.02.2009, had exempted sugar cess, the appellant, unaware of this exemption, paid the cess after reprocessing the imported sugar and selling it to buyers. The appellant took CENVAT credit of the cess amount, under the bona fide belief that such credit was allowable.
The Department contended that sugar cess is not a “duty of excise” within the meaning of the Cenvat Credit Rules, 2004, and therefore, credit was inadmissible. A show cause notice dated 06.05.2011 was issued alleging that neither the Sugar Cess Act, 1982, nor the Cenvat Credit Rules permitted such credit. The adjudicating authority confirmed the proposals in the notice, leading to the present appeal.
Before the Tribunal, the appellant argued that the Sugar Cess Act explicitly provides that sugar cess is to be collected as a duty of excise and that all provisions of the Central Excise Act, 1944 apply to it. The appellant relied heavily on the Tribunal’s earlier decision in Shree Renuka Sugars Ltd. v. Commissioner of Central Excise, Belgaum [2007 (218) ELT 388 (Tri. Bang.)], affirmed by the Karnataka High Court in Commissioner of C.Ex., Belgaum v. Shree Renuka Sugars Ltd. [2014 (302) ELT 33 (Kar.)], where it was held that sugar cess qualifies as a duty of excise and is eligible for CENVAT credit. It was also pointed out that though the Revenue had filed an appeal against the High Court ruling before the Supreme Court, there was no stay on its operation. The appellant further relied on the Supreme Court’s decision in Barnagore Jute Factory Co. v. Inspector of Central Excise [1992 (57) ELT 3 (SC)], which clarified that certain cesses, though described as such, are in substance duties of excise.
The Tribunal examined in detail the Karnataka High Court’s reasoning in Shree Renuka Sugars Ltd., quoting its finding that cess under the Sugar Cess Act is “a duty of excise” levied at the stage of production, and that additional duty (CVD) paid on imports equivalent to such duty is eligible for CENVAT credit under Rule 3(1)(vii) of the Cenvat Credit Rules, 2004. The High Court had noted that when raw sugar is imported, in addition to basic customs duty, the importer must pay both excise duty under the Central Excise Act and cess under the Sugar Cess Act, and that such additional duties qualify for credit.
Following this precedent, the CESTAT concluded that the issue was no longer res integra. The impugned order was found to be contrary to binding judicial authority, and therefore, unsustainable in law. Accordingly, the Tribunal set aside the Commissioner’s order and allowed the appeal, restoring the appellant’s entitlement to CENVAT credit on the sugar cess paid on imported raw sugar, with consequential relief as per law.
Appearance
Counsel for Appellant/ Assessee: Yug Singhal and Shivansh Dhiman
Counsel for Respondent/ Department: Aneesh Dewan
Cause Title: M/s A B Sugar Ltd. V. Commissioner of Central Excise and Service Tax, Ludhiana
Case No: Excise Appeal No. 2696 of 2012
Coram: S.S. Garg [Judicial Member], P. Anjani Kumar [Technical Member]
