Jharkhand High Court Rules In Favor of Revenue In Clean Energy Cess Case

The petitioner, a subsidiary of Coal India Limited and a Category-I Mini Ratna Company since 2007, had challenged the order dated 29.09.2020 passed by respondent no. 3, the Principal Commissioner, Goods & Services Tax-CX, Ranchi.

In the said order, respondent no. 3 had confirmed the demand of Clean Energy Cess amounting to Rs. 470,83,42,400/- under Section 11 (A) of the Central Excise Act, 1944, read with Rule 6(5) of the Clean Environment Cess Rules, 2010, along with interest under Section 11AA/11AB of the Central Excise Act, 1944, and penalty under Section 11AC of the Central Excise Act, 1944.

The petitioner contended that, with the introduction of GST, the levy of clean energy cess had been replaced by the GST Compensation Cess under the Goods & Services (Compensation to States) Act, 2017. Accordingly, the petitioner had undisputedly paid the GST Compensation Cess on all clearances made post 01.07.2017.

Having heard the counsel for the rival parties and after going through the documents annexed with the respective affidavits and the averments made therein, the Court came up with the following issues for consideration:

(i) Whether the Revenue was entitled to levy Cess under Clean Energy Cess'2010, which had been repealed by the GST Compensation Cess under the Goods & Services (Compensation to States) Act, 2017?

(ii) If the Revenue was entitled to levy Cess under Clean Energy Cess'2010, then whether, in the facts and circumstances of this case, the Revenue could take recourse to the first proviso to section 11A(1)/ section 11A(4) on the grounds of suppression, fraud, etc.?

(iii) If the Assessee was liable to pay Cess under Clean Energy Cess'2010, then whether he was also liable to pay interest and penalty over the Cess amount?

In addressing the initial issue, the Court emphasized that the obligation to pay cess arises solely at the time of production, with its actual payment being scheduled upon the removal of coal, as outlined in Rule 4 and 6 of the Cess Rules.

The Court said that this stance was grounded in the provisions of Section 83(3) of the Finance Act, 2010, which specifies that the levy pertains to the production of coal. Notably, Rule 4 and 6 exclusively pertain to the timing and method of cess payment or discharge, rather than determining the rate. In elucidating this standpoint, the Court made reference to the dictionary definitions of 'accrued' and 'acquired.'

Consequently, the Court asserted, “Thus, we are of the considered opinion that the Revenue is right is demanding the tax on production which was lying on stock as on the date of amendment and repeal of Clean Energy Cess for the sole reason that the taxable event was production and only the payment was deferred at the time of Removal.”

“We hold that by virtue of Section 83(3) playability is created; and only the payment is deferred to be done in the manner provided in Rule 4 & 6. Accordingly, Issue No.(i) is decided in favour of Revenue,” the Court added.

Next, the court considered whether, in the facts and circumstances of the case, the Revenue could have taken recourse to the first proviso to section 11A(1)/section 11A(4) on the grounds of suppression, fraud, etc. The court observed that certain facts needed to be indicated.

The court noted that the show cause notice issued by the Respondent in the instant case was dated 15th March 2019, taking recourse to the first proviso to Section 11A(1) of the Central Excise Act, 1948. The reply to the show cause notice was submitted on 29th April 2019, and the Adjudication Order was passed on 29th February 2020.

The court stated that since the present case was an interpretational issue, and the petitioner was paying GST Compensation Cess with a bona-fide belief that Clean Energy Cess was not payable.

Further, the Court said that the petitioner has been filing regular returns under GST law for all the supplies of coal made after introduction of GST. Petitioner was not filing returns under Clean Energy Cess Rules with a bona fide belief that Clean Energy Cess was not payable.

Further, the Court added, “these facts were in the knowledge of the respondents; however, despite said facts being in the knowledge of the respondents, show cause notice was issued almost after two years from the date Clean Energy Cess was repealed. Thus, as aforesaid, since the instant case involves an interpretational issue, therefore in such circumstances, no penalty under Section 11AC can be levied as demand of Cess under the extended period of limitation is unsustainable.” “Further, as the allegation of suppression and wilful intent to evade tax is baseless and incorrect, penalty under Section 11AC(1)(c) of the Central Excise Act, 1944 cannot be imposed,” the Court added.

In view of the aforesaid discussions, the Court while deciding Issue no. (ii) and Issue No.(iii) (part) in favour of Assessee, the Court said inasmuch as, no penalty under Section 11AC can be levied as demand of Cess and further extended period of limitation can not be invoked; however, the Assessee is liable to pay Cess for the normal period including interest over the same.

Having regard to the aforesaid discussion and the judicial pronouncements the adjudication order was quashed and set aside and the matter was remitted back to the adjudicating authority: i.e. Principal Commissioner, Goods & Services Tax-CX, Ranchi (the respondent no. 3) to recalculate the amount of clean environment cess confirming the demand to normal period of limitation, and the writ application was partly allowed.

Counsel/s For the Petitioner: Mr. Laxmi Kumaran, Advocate M/s. A.K.Das, Shilpi Shalni, Advocates

Counsel/s For the Respondent: M/s. Anil Kumar, ASGI & Ashish Kumar Shekhar, Advocate

LL Citation: 2023 LiveLaw (Jha) 83

Case Title: Central Coalfields Limited vs union of India

Case No.: W.P. (T) No. 160 of 2021

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