2014 (1) TMI 169 - HC - Customs

Benefit of Exemption Notification No. 32/2005-Cus. - Demand of Education Cess on CVD - Whether on imports made by an importer which otherwise qualify for exemption from payment of customs duty and additional duty under Exemption Notification No. 32/2005 would still be liable to pay Education Cess on such basic duty of customs and additional duty on the ground that such duty-free imports were being made under DEPB scheme - Held that - As goods imported under the DEPB scheme by assessee by virtue of exemption notification No.45/2002 carry nil rate of customs duty and additional duty they are also not liable to pay education cess at the prescribed rate - from the nature of DEPB scheme and the exemption granted to imports made under such scheme it can be seen that the very purpose is to neutralise the import duty component on the imported goods used for production of export items. Such object is achieved through the DEPB scheme under which the exporter is given the facility of utilising the credits in the DEPB scrips for the purpose of adjustment against the customs duty liability on the goods imported for the ultimate purpose of export on value addition. Merely because the conditions provided for adjustment of credit in the DEPB scrips it cannot be stated that either there was no exemption from payment of customs duty or that the Central Government was levying and collecting customs duty from the importers in form of adjustment of credit in the DEPB scrips.Thus through such adjustments on the DEPB scrips at the time of further imports customs duty component is sought to be neutralised. Circular dated 8-7-2004 the Ministry of Finance in a question whether goods that are fully exempt from excise/customs duty or are cleared without payment of such duty would be subject to education cess clarified that the education cess is leviable at the rate of 2% of the aggregate of the duties of excise/customs levied and collected. If goods are fully exempted from excise duty or customs duty or are chargeable to nil rate of duty or are cleared without payment of duty under specified procedure such as clearance bond there is no collection of duty and therefore no education cess would be leviable on such clearances- . Duty demands were even otherwise made without issuing any show-cause notice or adjudication. Even on such grounds the notices are liable to be quashed - Following decision of GUJARAT AMBUJA EXPORTS LTD & 1 Versus GOVT OF INDIA THR UNDER SECRETARY (DBK) & 2 2012 (7) TMI 679 - GUJARAT HIGH COURT - Decided against Revenue.

Summary

Issues:
- Whether Education Cess is leviable on imports made under DEPB Scheme.
- Whether Education Cess is exempt under Notification No. 5/2002 for imports under DEPB scheme.

Analysis:
1. Issue 1 - Education Cess on Imports under DEPB Scheme:
- The case involved a dispute regarding the levy of Education Cess on imports made by an importer eligible for exemption from customs duty under Exemption Notification No. 32/2005. The central issue was whether Education Cess was applicable to such imports even if customs duty was exempted under the DEPB scheme. The Tribunal, relying on precedent, held that Education Cess was not leviable on duty-free imports under the DEPB scheme, despite the Revenue's argument that Education Cess should be paid on the basic customs duty and additional duty.
- The Court referred to the purpose of the DEPB scheme, which aimed to neutralize the import duty component on goods used for export production. It highlighted that the exemption from customs duty under the DEPB scheme was intended to offset the customs duty liability on imported goods used for export purposes. The Court emphasized that the adjustment of credit in DEPB scrips against customs duty was procedural and did not negate the exemption from payment of customs duty.
- Citing relevant provisions and circulars, the Court concluded that Education Cess could not be levied on imports fully exempt from customs duty under the DEPB scheme. It noted that the adjustment of Education Cess against credit in DEPB scrips was legally unsustainable, leading to the quashing of the circular pertaining to Education Cess on DEPB imports.

2. Issue 2 - Exemption of Education Cess under Notification No. 5/2002:
- The Respondents argued that Education Cess was not exempt under Notification No. 5/2002, and importers could not pay it on imports under the DEPB scheme. The Court analyzed the provisions and clarified that Education Cess should not be adjusted against DEPB scrip credit if it was not part of the exemption. The Court deemed this argument a legal fallacy, as Education Cess could not be enforced against DEPB imports if not exempted under the relevant notification.
- Consequently, the Court held the impugned circular related to DEPB scrips invalid and contrary to the Finance Act, quashing and setting it aside. The judgment emphasized that Education Cess could not be levied on imports fully exempt from customs duty under the DEPB scheme, aligning with the Tribunal's decision and dismissing the Revenue's appeals.

In conclusion, the High Court upheld the Tribunal's decision, dismissing the tax appeals and affirming that Education Cess was not applicable to imports fully exempt from customs duty under the DEPB scheme, and the circular enforcing Education Cess on such imports was invalid and set aside.