2014 (12) TMI 728 - HC - Customs

Levy of Education cess on Basic Customs Duty which was debited in the DEPB Licence - Exempted goods - Held that - Ministry of Finance clarified in the proceedings dated 8-7-2004 in D.O.F. No. 334/3/2004-TRU on the specific issue as to whether goods that are fully exempted from excise duty/customs duty or are cleared without payment of excise duty/customs duty (such as clearance under bond of fulfilment of certain conditions) would be subjected to Cess. It was stated therein that since education cess has to be calculated at the percentage on the duty liability, when the goods are fully exempted from excise duty or customs duty, are chargeable to Nil duty or are cleared without payment of duty under specified procedure such as clearance under bond, the question of education cess to be levied does not arise. Having regard to the specific understanding given on the principle of levy of education cess, and the subsequent Circular also issued in Circular No. 5/2005-Cus., dated 31-1-2005 (F. No. 605/54/2004-DBK), we have no hesitation in confirming the order of the Tribunal by dismissing the appeal. - Decided against Revenue.

Summary

Issues:
1. Whether the Department is entitled to collect Customs Educational Cess on Basic Customs Duty debited in the DEPB Licence?
2. Whether the Tribunal correctly interpreted Notification No. 96/2004-Customs regarding exemption of Basic Customs Duty subject to DEPB Licence debit?
3. Whether the Tribunal erred in not considering Board Circular No. 5/2005 dated 31-1-2005?

Analysis:

Issue 1:
The Tribunal upheld the assessee's contention that the levy of education cess under Section 84 of the Finance (No. 2) Act, 2004 should not be imposed on exempted items. The Tribunal's decision aligned with a Mumbai Tribunal case, emphasizing that when an assessee is covered by the DEPB scheme and has a NIL liability, exempting them from duty payment, the education cess as per Finance Act should not be levied.

Issue 2:
The Ministry of Finance clarified that when goods are fully exempted from excise or customs duty or cleared without payment under specified procedures, such as clearance under bond, the education cess should not be levied. This understanding was supported by Circular No. 5/2005-Cus., dated 31-1-2005, reinforcing that education cess should not apply in cases where duty liability is NIL due to exemptions or specific clearance procedures.

Conclusion:
Considering the Ministry's clarification and subsequent Circular, the Court affirmed the Tribunal's decision, dismissing the Revenue's appeal. The Court found no grounds to overturn the Tribunal's ruling, thereby upholding that education cess should not be collected on items fully exempted from duty or cleared without payment under certain procedures. As a result, the Civil Miscellaneous Appeal was dismissed, with no costs incurred, and the connected MP was closed.