Eligibility of cenvat credit on clean energy cess

by | Jul 31, 2019

The Clean Energy Cess (‘CEC’), renamed as the Clean Environment Cess in Finance Act 2016, was levied as a duty of excise vide Clause 83 of the Finance Act, 2010 (‘Finance Act, 2010’). While CEC was levied as a duty of excise, only some provisions of the Central Excise Act, 1944 (‘Excise Act’) relating to levy and collection, refund, penalties etc. were borrowed.

This update is to apprise you regarding the recent decision of the Tribunal in the case of CGST v. NSL Krishnaveni Sugars Limited, 2019-VIL-429-HYD-CE wherein the Tribunal dealt with the taxpayer’s eligibility to claim cenvat credit of CEC.

The taxpayer relied on the decision of Karnataka High Court in the case of CCE v. Shree Renuka Sugars 2013-VIL-210-KAR-CE wherein the Court allowed cenvat credit of sugar cess based on the fact that such amount is a duty of excise. Relying on this decision, in the case of Ramco Cements Limited v. CGST, 2018-VIL-858-CESTAT-BLR-CE, the Tribunal held that CEC is also levied as a duty of excise and thus, eligible for cenvat credit.          

In the present case, the department challenged the eligibility of CEC on the following two grounds:

  • Rule 3 of the Cenvat Credit Rules, 2004 (‘Credit Rules’) lists specific duties or cesses on which a taxpayer can claim credit including education cess and other duties or cesses which are also collected as a duty of excise. If the legislature intended to allow credit of all duties levied as a duty of excise, specific duties or cesses need not have been listed; and
  • Sugar cess is levied under the Sugar Cess Act, 1982 which borrows all the provisions of the Excise Act. Therefore, Section 37 of the Excise Act under which the Credit Rules are framed, also get borrowed. On the other hand, the Finance Act, 2010 only borrows some provisions of the Excise Act which do not include Section 37 or credit related provisions. Therefore, Credit Rules will not apply to CEC.

The Tribunal agreed with both the contentions of the Revenue and held that the taxpayer is not entitled to claim the cenvat credit of CEC.

It is interesting to note the recent case of ACC Limited v. CGST 2019-VIL-387-CESTAT-DEL-CE on the identical issue. In this case, the department did not take the second contention. The Tribunal observed that CEC is in nature of fee and ineligible for credit on the ground that Rule 3(1) of the Credit Rules covers duties of excise in the nature of a ‘tax’ and not a ‘fee’.

NITYA Comments:

In our view, the Tribunal in the case of NSL Krishnaveni Sugars (supra) has correctly distinguished between CEC and Sugar Cess. Further, it rightly held that Rule 3(1) allows cenvat credit on specified duties or cess only and not others including CEC. While we agree with the decision of the Tribunal in case of ACC Limited (supra), we disagree with the reasoning adopted by the Tribunal. In our view, CEC is in the nature of a tax.