2012 (8) TMI 374 - AT - Service Tax

Recovery ordered of education cess refunded to exporters along with service tax, by virtue of exemption notifications where whole of service tax is exempt - Held that - According to section 95(1) of Finance (No. 2) Act, 2004 and section 140 (1) of Finance Act, 2007. Education Cess and Secondary and Higher Education Cess are leviable and collected as service tax, and when whole of service tax is exempt, the same applies to education cess as well. Since Education Cess is levied and collected as percentage of service tax, when and wherever service tax is NIL by virtue of exemption, Education Cess would also be NIL. Henceforth, where education cess has been refunded to exporters along with service tax, by virtue of exemption notifications where whole of service tax is exempt, the same need not be recovered. Commissioner s orders for recovery of part of the refunds sanctioned are set aside.

Summary

Issues:
Recovery of Education Cess and Secondary & Higher Education Cess components from refunds sanctioned by the original authority.

Analysis:
The appeal was filed against two separate Orders-in-Revision dated 17.9.2009 and 30.11.2009 by the Commissioner of Central Excise, Mangalore, directing the recovery of Education Cess and Secondary & Higher Education Cess components totaling Rs. 14,135/- and Rs. 20,412/- respectively from refunds sanctioned by the original authority. The original authority had granted a refund of service tax, including the mentioned components, paid by the appellant in accordance with Notification No. 41/2007-ST dated 6.10.2007 for service tax on input services utilized for exported goods.

The learned Superintendent (AR) presented that the Central Board of Excise and Customs (CBEC) had issued Circular No. 134/03/2011-ST dated 8.4.2011, clarifying that the entire service tax, along with Education Cess and Secondary & Higher Education Cess, was exempted under Notification No. 41/2007-ST dated 6.10.2007. The Circular emphasized that Education Cess should not be recovered when the entire service tax is exempted, as Education Cess is levied and collected as a percentage of service tax. Therefore, where service tax is exempted, Education Cess should also be considered exempt.

Based on the above clarification from the CBEC, the Tribunal found merit in the appeals filed by the party. Consequently, the Commissioner's orders for the recovery of the Education Cess and Secondary & Higher Education Cess components from the refunds sanctioned were set aside. The appeals were allowed with consequential relief as per the law.