In a recent judgment Gujarat High Court has held that Crude Oil Cess imposed under the Oil Industry (Development) Act, 1974 is not excise duty and hence, Education Cess and Higher Secondary Education Cess cannot be levied on such amount.
The petitioner, a Company is engaged in the extraction of crude oil falling under Chapter Heading 27090000 of the Central Excise Tariff Act, 1985. The petitioner is paying cess on the clearance of petroleum/crude oil under the provisions of section 15 of the Oil Industry (Development) Act, 1974. The petitioner entered into Production Sharing Contract with the Ministry of Petroleum and Natural Gas, Government of India for Dholka and Wavel fields for the purpose of carrying out exploration and production activity. In furtherance thereto, the petitioner entered into a Crude Off take and Sales Agreement with Oil and Natural Gas Corporation, and Indian Oil Corporation Limited. Under the said agreement, the petitioner supplies crude oil to the custodian, ONGC. On custody transfer of the crude oil, ONGC provides a custody report indicating the quantity of the crude oil received from the petitioner. The ONGC, then, supplies the crude oil to the buyer/IOCL.
After supplying crude oil to ONGC, the petitioner has paid Petroleum/Crude Oil Cess in terms of the provisions of section 15 of the OID Act for the period July, 2004 to April 30, 2014. The Crude Oil Cess is levied by the Ministry of Petroleum and Natural Gas and collected by the Department of Revenue, Ministry of Finance. It is the case of the petitioner that it paid Primary Education Cess and Secondary and Higher Secondary Education Cess on Crude Oil Cess for the aforesaid period amounting to Rs.73,60,061/-. The Central Board of Direct Taxes issued a circular dated 07.01.2014 clarifying that the Education Cess and Secondary and Higher Secondary Education Cess are not to be calculated on cesses which are levied under the Acts administered by Department/Ministries other than Ministry of Finance (Department of Revenue) in terms of those Acts. In view of the above, the petitioner filed a letter dated 17.07.2014 requesting for refund of the amount of Rs.73,60,061/- of Education Cess and Secondary and Higher Secondary Education Cess inadvertently paid by it for the aforesaid period in terms of the circular dated 07.01.2014. As per the understanding of the petitioner, its refund claim was sent to the concerned Range Superintendent vide letter dated 22.07.2014, who by letter dated 08.08.2014 and 16.09.2014, submitted his verification report with the recommendation of rejection of refund claim.
It was submitted on behalf of the petitioners that as per section 15(1) of the OID Act, there shall be levied and collected, as a cess, for the purpose of the OID Act, on every specified item which is produced in India and removed to a refinery or factory or transferred by the person by whom such item is produced to another person, a duty of excise at a specified rate. It was pointed out that the levy of duty of excise as a cess on removal or transfer of crude oil is provided under the OID Act which is administered by the Ministry of Petroleum and Natural Gas, Government of India. Also, the power to levy cess on crude oil is with the Ministry of Petroleum and Natural Gas and not with Ministry of Finance. It was submitted that the cess on crude oil is neither levied under the Central Excise Act, nor by the Ministry of Finance, Government of India. It was also pointed out that on a plain reading of the said statutory provisions, it becomes clear that education cess is levied on the aggregate of all duties of excise which are levied and collected by the Central Government in the Ministry of Finance (Department of Revenue) under the provisions of the CE Act. However, the crude oil cess paid by the petitioner is levied by the Ministry of Petroleum and Natural Gas and is neither levied under the Central Excise Act, 1944 nor levied by the Ministry of Finance (Department of Revenue) but under the OID Act. It was submitted that the petroleum / crude oil cess stands levied by virtue of section 15 of the OID Act and the same is merely collected as excise duty by the Ministry of Finance (Department of Revenue). It was submitted that the education cess is to be collected on the aggregate dues of excise duty levied and collected by the Department of Revenue, and only such dues which are (a) levied and collected dues of excise, and (b) are both levied and collected by Department of Revenue, should be taken into account for calculating the education cess. It was contended that the crude oil cess is levied by the Central Government in the Ministry of Petroleum as established under the OID Act and the same cannot be held as levied by the Ministry of Finance. For the purpose of levying Education Cess on any kind of duty of excise, the latter should be leviable and recoverable by the Central Government in the Ministry of Finance. However, as Crude Oil Cess is not levied by the Ministry of Finance, Education Cess cannot be levied on he same.
The division bench comprising of Justice Harsha devani and Justice A.G.Uraizee observed that as per the relevant clauses of the agreement entered into by the petitioner, the price of crude oil does not include any tax, including Education Cess and Secondary and Higher Secondary Education Cess. Education Cess and Secondary and Higher Secondary Education Cess being cesses levied at a percentage of the aggregate of all duties of excise, the basic requirement for levy thereof is the existence of excise duty. In the present case Oil Cess is not a duty of excise and hence, the basic requirement of levy of such cesses is not satisfied. Furthermore, for the purpose of levy of Education Cess and Secondary and Higher Secondary Education Cess, two other conditions precedent, are required to be satisfied, viz., (i) that the duty of excise should be levied by the Central Government in the Ministry of Finance (Department of Revenue); and (ii) the duty of excise should be collected by the Central Government in the Ministry of Finance (Department of Revenue). In the present case, since the machinery provisions of the Central Excise Act, 1944 and the rules framed there under have been incorporated in the OID Act, the second condition precedent is satisfied, viz. that the cess is collected by the Central Government in the Ministry of Finance (Department of Revenue); however, the first condition with regard to levy of such duty of excise by the Central Government in the Ministry of Finance (Department of Revenue) is not satisfied inasmuch as the Oil Cess under the OID Act is levied by the Ministry of Petroleum and Natural Gas. In the aforesaid premises, the requirements of section 93 of the Finance Act, 2004 and section 138 of the Finance Act, 2007 are not satisfied in the present case, and consequently, the said provisions have no applicability to the facts of the present case. The petitioner, therefore, cannot be said to have been liable to pay Education Cess and Secondary and Higher Secondary Education Cess under the above provisions.The refund claim was also accepted by the Court.
Read the full text of the Judgment here.
