Sugar Cess can be Paid Utilizing CENVAT Credit Availed on Inputs, Capital Goods and Input Services: CESTAT [Read Order]

In a recent decision, the Customs, Excise & Service Tax Appellate Tribunal ( CESTAT ) of Bangalore allowed the appellant company to utilize its CENVAT credit  availed on inputs, capital goods, and input services, for the payment of sugar cess.

The appellant/ assessee in the case is Shree Renuka Sugar Limited.

The case concerned payment of sugar cess, levied at ₹24 per quintal of sugar, as stipulated by a 2008 notification from the Ministry of Consumer Affairs. The appellant,  manufacturers of sugar, molasses, rectified spirit, and denatured ethyl alcohol, had utilized CENVAT credit to pay sugar cess for the period between May 2010 to March 2011 and July 2010 to February 2011. However, during the scrutiny of their monthly ER-1 returns, the Central Excise Department flagged that the appellant-company used CENVAT credit to discharge the sugar cess liabilities amounting to ₹4.05 crore and ₹1.30 crore, which was challenged by the department.

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Consequently, two show-cause notices were issued in June and August 2011, demanding the recovery of the cess payments in cash under Section 11A of the Central Excise Act, along with interest and penalties under Rule 25 of the Central Excise Rules.

Aggrieved, the assessee contested the orders before CESTAT, maintaining that they were entitled to utilize CENVAT credit for this purpose, citing prior favorable rulings in their own cases.

The assessee-company's representative, Mr. Rahul Patil, argued that sugar cess is a levy of excise and can therefore be paid using CENVAT credit under Rule 3(4) of the CENVAT Credit Rules ( CCR ), 2004. The counsel for assessee presented several precedents from both the High Courts and the Tribunal, including decisions in Shree Renuka Sugars Ltd. vs. CCE Belgaum (Final Order No. 20416/2017), and judgments from various CESTAT benches in Ahmedabad, Kolkata, and Bangalore, all supporting the company's claim. He further noted that the Karnataka High Court had already upheld the Tribunal's decision, confirming that sugar cess qualifies as a duty of excise.

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On the other hand, the Revenue's representative, Mr. H. Jayathirtha, argued that sugar cess, being levied under the Sugar Cess Act of 1982, does not qualify as a duty of excise under the Central Excise Act. He contended that the CENVAT Credit Rules do not permit the utilization of credit for paying sugar cess and that the appellants should have paid the cess in cash. Moreover, the revenue’s counsel pointed out that similar issues involving the Clean Energy Cess had been decided in favor of the Revenue, denying the use of CENVAT credit for cess payments. He also mentioned that the Karnataka High Court ruling had been challenged before the Supreme Court, and hence, the issue had not yet reached finality.

The Tribunal, led by Dr. D.M. Misra (Judicial Member) and Mrs. R. Bhagya Devi (Technical Member), examined the relevant provisions of Rule 3(4) of the CCR, 2004, and considered the precedents. The Tribunal observed that the sugar cess is treated as a duty of excise and noted the absence of any specific prohibition in Rule 3(4) preventing the use of CENVAT credit to pay sugar cess. The ruling highlighted the Karnataka High Court's earlier decision affirming that sugar cess is indeed a form of excise duty, and thus, CENVAT credit utilization is permissible under the rules.

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The Tribunal also dismissed the Revenue’s reliance on the Clean Energy Cess cases, clarifying that unlike sugar cess, Clean Energy Cess was specifically excluded from CENVAT credit utilization by a 2010 notification. Therefore, the Tribunal concluded that the comparison between the two levies was inapplicable. In its final judgment, the Tribunal set aside the impugned orders passed by the Commissioner of Central Excise, ruling that the appellant’s utilization of CENVAT credit for paying sugar cess was legitimate. The appeals were allowed, and the Tribunal granted consequential relief to the assessee as per the law

To Read the full text of the Order CLICK HERE

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