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2017 (11) TMI 655 - SC - Central ExciseRefund claim - EC/SHEC - Area Based Exemption - industrially backward area - whether the Education Cess and Higher Education Cess which were paid along with the excise duty was also liable to be refunded along with the central excise duty in terms of the exemption notifications? - Divergent views. Held that - Government itself has taken the position that where whole of excise duty or service tax is exempted, even the Education Cess as well as Secondary and Higher Education Cess would not be payable - Education Cess is on excise duty. It means that those assessees who are required to pay excise duty have to shell out Education Cess as well. This Education Cess is introduced by Sections 91 to 93 of the Finance (No.2) Act, 2004. As per Section 91 thereof, Education Cess is the surcharge which the assessee is to pay. Section 93 makes it clear that this Education Cess is payable on excisable goods i.e. in respect of goods specified in the first Schedule to the Central Excise Tariff Act, 1985. Further, this Education Cess is to be levied @ 2% and calculated on the aggregate of all duties of excise which are levied and collected by the Central Government under the provisions of Central Excise Act, 1944 or under any other law for the time being in force. Sub-section (3) of Section 93 provides that the provisions of the Central Excise Act, 1944 and the rules made thereunder, including those related to refunds and duties etc. shall as far as may be applied in relation to levy and collection of Education Cess on excisable goods. A conjoint reading of these provisions would amply demonstrate that Education Cess as a surcharge, is levied @ 2% on the duties of excise which are payable under the Act. It can, therefore, be clearly inferred that when there is no excise duty payable, as it is exempted, there would not be any Education Cess as well, inasmuch as Education Cess @ 2% is to be calculated on the aggregate of duties of excise. There cannot be any surcharge when basic duty itself is Nil. When two views are possible, one which favours the assessees has to be adopted - there were divergent views in case laws cited, the one which favors the assessee has been followed - reliance placed in the two judgments given in Bharat Box Factory Ltd. 2007 (6) TMI 524 - CESTAT, NEW DELHI and Cyrus Surfactants Pvt. Ltd. 2007 (6) TMI 325 - CESTAT, NEW DELHI held that Education Cess and Higher Education Cess would also refundable along with excise duty. The appellants were entitled to refund of Education Cess and Higher Education Cess which was paid along with excise duty once the excise duty itself was exempted from levy - appeal allowed - decided in favor of appellant.
Issues Involved:
1. Refund of Education Cess and Higher Education Cess along with excise duty under exemption notifications. Detailed Analysis: Background and Context: In order to encourage the business community to set up manufacturing units in industrially backward areas like the North-Eastern States, notifications were issued by the Excise Department, Government of India, exempting goods specified in the First Schedule to the Central Excise Tariff Act, 1985 from payment of excise duty in respect of the goods manufactured and cleared from units located in the aforesaid States. The methodology adopted was that the manufacturer was initially supposed to pay the excise duty and thereafter claim the refund thereof. The dispute arises as to whether the Education Cess and Higher Education Cess paid along with the excise duty were also liable to be refunded along with the central excise duty in terms of the exemption notifications. Notifications and Statutory Provisions:Notification No. 20/2007-Ex. dated April 25, 2007, granted exemption from duties of excise levied under the Central Excise Act, 1944 to goods cleared from the notified areas within the North-Eastern States. The notification provided that the assessee would be entitled to a refund of duty paid other than the duty paid by way of utilization of CENVAT credit under the CENVAT Credit Rules, 2004. Sections 91 to 93 of the Finance (No.2) Act, 2004, which introduced the Education Cess, are relevant. Section 93(1) states that the Education Cess shall be a duty of excise at the rate of two per cent, calculated on the aggregate of all duties of excise. Tribunal and High Court Judgments:The Service Tax Appellate Tribunal (CESTAT) in its brief order preferred to follow the view taken in Commissioner of Central Excise, Jammu v. Jindal Drugs Ltd. 2011 (267) ELT 653 (Tri.-Del.), which held that the Excise Department was under no obligation to refund the Education Cess and Higher Education Cess as the notification exempted only the excise duty. This was contrary to earlier decisions in Bharat Box Factory Ltd. v. Commissioner of C. Ex., Jammu 2007 (214) ELT 534 (Tri.-Del.) and Cyrus Surfactants Pvt. Ltd. v. Commissioner of Central Excise, Jammu 2007 (215) ELT 55 (Tri.-Del.), which opined that the Education Cess and Higher Education Cess were also refundable along with the excise duty. Arguments by the Assessee:The learned counsel for the appellant argued that the exemption notification provided 100% exemption from the levy of excise duty, and since Education Cess is levied as a percentage of the excise duty, it should also be exempted. He referred to Circular No. 134/3/211/ST dated April 08, 2011, which clarified that no Education Cess would be payable when service tax is Nil by virtue of exemption. He also pointed out that under similar circumstances, the Income Tax Department has been refunding the Education Cess. Arguments by the Revenue:The learned senior counsel for the Revenue argued that the exemption notification exempts only the excise duty, and since excise duty is payable first, Education Cess also becomes payable. He emphasized that excise duty is payable under the Excise Act, while Education Cess and Higher Education Cess are payable under the Finance Act. Therefore, the exemption notification issued under Section 5A of the Excise Act could exempt only the excise duty and not Education Cess. Government Circulars:Two Circulars are relevant: Circular dated August 10, 2004, which clarifies that Education Cess is part of excise, and Circular dated April 08, 2011, which states that where whole of service tax is exempted, Education Cess would also be Nil. These circulars are binding on the Department and clarify that when whole of excise duty or service tax is exempted, even the Education Cess as well as Secondary and Higher Education Cess would not be payable. Supreme Court's Decision:The Supreme Court agreed with the earlier decisions of the Tribunal in Bharat Box Factory Ltd. and Cyrus Surfactants Pvt. Ltd. and held that Education Cess and Higher Education Cess would also be refundable along with excise duty. The Court emphasized that judicial discipline warranted reference of the matter to the Larger Bench when divergent views existed. The Court also agreed with the reasoning of the Rajasthan High Court in Banswara Syntex Ltd., which held that surcharge in the form of Education Cess shall also be refundable. Conclusion:The Supreme Court allowed the appeals and held that the appellants were entitled to a refund of Education Cess and Higher Education Cess paid along with excise duty once the excise duty itself was exempted from levy. There shall, however, be no order as to cost.
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