Relief to Mahindra and Mahindra: CESTAT rules Automobile Cess cannot be treated as Basic Excise Duty [Read Order]

The Customs, Excise and Service Tax Appellate Tribunal ( CESTAT ), Mumbai Bench consisting of CJ Mathew, Technical Member and Ajay Sharma, Judicial Member granted relief to Mahindra & Mahindra Ltd, the appellant and ruled that automobile cess cannot be treated as basic excise duty.

The issue in controversy in this appeal of M/s Mahindra & Mahindra Ltd assailing the order of the Commissioner of Central Excise is on the short point of recovery of credit distributed by the registered ‘input service distributor’.

In addition to the appellant unit, also undertakes manufacture at Rudrapur and Haridwar both of which are entitled to ‘area-based exemption’ extended by notification no. 50/2003-CE dated 10th June 2003 and, according to central excise authorities, precluded thereby, from deriving the benefits of CENVAT Credit Rules, 2004 to such extent.

The appellant had, during 2007-08 to 2012-13, availed credit of Rs 42 crores and proceedings were initiated against them to disallow Rs 8 crores pertaining to credit attributable to the other two factories in proportion to production that should, according to central excise authorities, have been excluded from the pool available for distribution.

The appellant submitted before the adjudicating authority that the said factories, even though exempted from basic excise duty, could not be said to have been manufacturing ‘exempted goods’ within the meaning of rule 2(d) of CENVAT Credit Rules, 2004 as ‘automobile cess’ levied under the Industrial (Development and Regulation) Act, 1951, along with other applicable cesses thereon, was being fully discharged by them.

The Counsel for the appellant subsequent to the issue of the impugned order, the legality of discharge of ‘automobile cess’ sufficing to exclude the units at Rudrapur and Haridwar from being considered as manufacturers of ‘exempted goods’ was upheld in Mahindra & Mahindra Ltd v. Commissioner of Central Excise by reversing the decision of the Tribunal challenged by them in appeal before the High Court of Bombay.

The Bench observed that “The distinction of ‘automobile cess’, in so far as not being a levy under Central Excise Act, 1944 and not levied on basic excise duty, with ‘other cess’, that are exempted owing to the exemption of basic excise duty in the decision of the High Court of Bombay, makes the position abundantly clear.”

“Nothing further survives in the finding of the adjudicating authority in the impugned order as the discharge of ‘automobile cess’ effaces coverage of rule 6 of CENVAT Credit Rules, 2004 to the output of the Rudrapur and Haridwar factories,” the Tribunal said.

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