By TIOL News Service

NEW DELHI, APRIL 17, 2013: WHY do the framers of legislation become so insensitive to the commotion around although they know very well that a simple clarification from their end revealing their intention in drafting the legislation would solve the disputes in a flash.

What we are referring to is the mathematics and politics of that small component in the taxation schedule called “Education Cess”. It is ironical that what is being collected as “Education Cess” itself involves educating the mighty Revenue Board.

Had the clarification come when the issue raised its ugly hood the first time, neither the assessee nor the department would have required to trudge the steps of the highest court of the land and the High Court and the CESTAT.

But for the moment, the issue seems to have been laid to rest by the Larger Bench of the CESTAT delivering the much awaited decision.

Incidentally, let us also inform netizens a bit of the past - the CESTAT, WZB, Ahmedabad in the case of Sarla Performance Fibres Ltd v CCE, Vapi - 2010-TIOL-408-CESTAT-AHM had held thus -

"What is required for the purpose of proviso to Section 3 of Central Excise Act, 1944 is to arrive at aggregate of customs duties and once we take a view that education cess is part of the customs duty and is an enhancement, the question of adding it again does not arise".

Not happy with this decision, Revenue filed an appeal in the High Court. The Gujarat High Court dismissed the Revenue appeal on the ground that the appeals were not maintainable before the High Court as it was a question of rate of duty and the appeal had to be made to the Supreme Court. 2012-TIOL-359-HC-AMH-CX

So, the Revenue took the matter to the Supreme Court and this appeal was dismissed on the ground of delay.

In the meantime, the Delhi Bench of the CESTAT did not agree with the decision in Sarla Performance and referred the issue to the Larger Bench - 2011-TIOL-1180-CESTAT-DEL which decision is being reported now.

Let us see the dispute involved with the following example.

The goods manufactured by EOUs and cleared in DTA are subjected to duty of excise. In terms of proviso to Section 3 of the Central Excise Act, the duty payable is equivalent to the aggregate duties of Customs leviable on like goods if imported into India. However, Notification 2/95 CE (current Notification 23/2003 CE dated 31.3.2003) provided exemption in excess of 50% of the aggregate duties of customs. While computing the total duty, education cess is levied on the CVD part of the duty and again cess is paid on the total customs duty. The department has taken a view that the total amount of duty computed under Notification 2/95 CE is only EXCISE duty payable under Section 3 of the Central Excise Act read with Notification 2/95 CE and since education cess is levied under clause 83 of the Finance Act 2004, the EOUs have to pay education cess again on the total duty. The computation of the duties under the present Notification 23/2003 would be as under:

Now, as per the Department, Rs 19.97/- is only excise duty under Section 3 and in addition to this, 2% Education Cess and another 1% towards Secondary and Higher Education Cess is payable on Rs 19.97/-.

The issue circumambulated for more than eight years and it was high time that it stopped dead in its tracks.

Thankfully, the Larger Bench has delivered its decision in the case of Kumar Arch Tech P. Ltd. since it was referred by the Division Bench on 29.07.2011 - 2011-TIOL-1180-CESTAT-DEL

The Larger Bench has meticulously culled out the genesis of the issue and is worth every moment spent in reading it.

This was the reference before it -

"Whether education cess and S&H cess are chargeable on DTA clearance made by 100% EOU even if such cesses were added while calculating the aggregate duties of customs payable under the Customs Act or any other law in force at the time imported or like goods."

The Bench tackled the issue with a clinical precision by observing -

“5. We have considered the submissions from both the sides and perused the records. The issue for determination is as to whether education cess and S&H Cess is to be levied again in respect of DTA clearances of a 100% EOU on the aggregate of the duties of customs which already includes the education cess and S&H cess. To illustrate, according to the appellant, the duty payable on the DTA clearances made by a 100% EOU is as under:-

According to the appellant, central excise duty payable on the DTA clearances is Y and on this no further education cess and S&H cess under Section 93 of Finance Act, 2004 and Sec. 138 of Finance Act, 2007 is payable. However, according to the department, since aggregate of duties of customs including education cess and S&H cess thereon is the measure of the excise duty payable on the goods, the appellant would be liable to pay education cess and S&H education cess once again on the amount Y as mentioned above, under Section 93 of Finance Act, 2004 and Section 138 of Finance Act, 2007.

6. Education cess in respect of excisable goods and imported goods is levied under Section 91 read with Sections 93 and 94 of the Finance Act, 2004. These sections are reproduced below:-

"x x x”

6.1 There are identical provisions (Section 136 read with Section 138 & 139) in Finance Act, 2007 regarding levy of Secondary and Higher Education Cess.

7. From perusal of the above provisions, it will be seen that education cess and S&H Cess are cess levied by the Union Government as a surcharge. This surcharge in case of excisable goods attracting central excise duty is charged on the aggregate of all duties of excise including special excise duty or any other duty of excise but excluding education cess on excisable goods, which are levied and collected by Central Government in the Ministry of Finance (Department of Revenue) under the provisions of Central Excise Act, 1944 or any other law for the time being in force. Similarly, the education cess and S&H Cess on imported goods is levied as surcharge on aggregate of duties of customs which are levied and collected by the Central Government in the Ministry of Finance (Department of Revenue) under Section 12 of the Customs Act, 1962 and any sum chargeable on such goods under any other law for the time being in force as an addition to, and in the same manner as a duty of customs but not including (a) safeguard duty referred to in Section 8B/8C of Customs Tariff Act, 1975, (b) countervailing duty referred to in Section 9 of the Customs Tariff Act, 1975, (c) Anti-dumping duty referred to in Section 9A of the Customs Tariff Act, 1975, and (d) Education Cess on imported goods. Both the Section 93 as well as 94 of the Finance Act, 2004 and Sections 138 and 139 of the Finance Act, 2007 provide that education cess S&H cess on excisable goods or imported gods shall be in addition to any other duties of excise/customs chargeable on such goods under the Customs Act, 1962/Central Excise Act, 1944 or any other law for the time being in force. However, it is also clear that there is no intention to charge cess on cess as the aggregate of duties of excise or the duties of customs on which the cess on excisable goods or imported goods is to be charged, is not to include the cess on excisable goods and cess on imported goods respectively. There would be no cess on cess if the measures for the central excise duty and customs duty are independent and there is no overlapping. However, this does not happen in all the cases and on one such instance when this does not happen is the excise duty payable on the goods cleared by 100% EOU into DTA. In terms of proviso to Section 3(1) of Central Excise Act, 1944, the central excise duty chargeable on the DTA clearance of 100% EOU is an amount equal to the aggregate of duties of customs which would be leviable under the Customs Act, 1962 or any other law for the time being in force on like goods produced or manufactured outside India if imported into India and where the said duties of customs are chargeable at an adv. rate the value of such excisable goods shall be determined in accordance with the provisions of Customs Act, 1962 and the Customs Tariff Act, 1975. The proviso to Section 3(1) is reproduced below:-

x x x

7.1 Thus, the measure of central excise duty payable on the DTA clearance of a 100% EOU is the aggregate of duties of Customs chargeable under Customs Act, 1962 and any other law for the time being in force on import of like goods into India and if the rate of duties of ad valorem, the value for this purpose is to be determined under the provisions of Customs Act, 1962 and Customs Tariff Act, 1975. Here the question arises as to whether the duty of customs leviable under any other law for the time being in force would also include the education cess and S&H Cess on imported goods levied as a duty of customs. According to the department, the proviso to Section 3(1) of the Central Excise Act, 1944 provides only the measure of the excise duty chargeable on the DTA clearance of a 100% EOU and this measure is the aggregate of the duties of customs chargeable on import of like goods into India under the provisions of Customs Act, 1962 or any other law for the time being in force and accordingly, the aggregate of duties of customs would also include the education cess levied as customs duty under Section 94 of the Finance Act, 2004 and S&H Cess levied as customs duty under Section 139 of the Finance Act, 2007 and since this aggregate is the central excise duty payable on the DTA clearances, on this aggregate the education cess and S&H cess on excisable goods would be chargeable once again under the provisions of Section 93 of the Finance Act, 2004 and Section 138 of the Finance Act, 2007.

7.2 The plea of the appellant on the other hand is that - (a) proviso to Section 3(1) is a legal fiction under which the goods manufactured by 100% EOU and cleared into DTA are to be treated as the goods imported into India and since on the aggregate of duties of Customs, Education Cess and S&H Cess leviable on imported goods @ 2% and 1% respectively have already been added, there is no need to add the education cess and S&H cess once again, and (b) the Education cess and S&H Cess being charged as surcharge in terms of Section 91 of Finance Act, 2004 and Section 136 of the Finance Act, 2007, in view of the Apex Court's judgment in the case of Sarojini Tea Co. Pvt Ltd. reported in (1992) 2 SCC 156, the same have treated as mere enhancement of the tax on which the same are levied and not a different tax and therefore once the aggregate of duties of customs i.e. basic customs duty plus additional customs duty has been enhanced by 2% and 1%, there is no need to charge education cess and S&H cess once again.

7.3 The Coordinate Bench in the case of Sarla Performance Fibers Ltd. reported in 2010 (253) E.L.T. 203 (Tribunal-Ahmd.) = (2010-TIOL-408-CESTAT-AHM) accepting the above mentioned contentions of the appellant has held that education cess is not chargeable once again on aggregate of duties of customs, which also include the education cess on the total of the basic customs duty and additional customs duty.

8. We do not agree with the Appellant's plea that the education cess and S&H cess being levied as surcharge is not a separate levy, as from the wordings of Section 91 of the Finance Act, 2004 and Sec. 136 of the Finance Act, 2007, it is clear that what has been levied is a cess to be called education cess and S&H cess to fulfil the commitment of the Central Government to provide and finance universalized quality of basic education and Secondary and Higher education cess and this cess is to be levied as to be as surcharge. Thus, the character of this levy is cess and the mode of the levy is surcharge and merely because it is levied as surcharge to finance the Government's commitment to provide universalized quality of basic education and Secondary and Higher education, it cannot be said to be a mere surcharge having the same character as the tax on which it is charged. The education cess and S&H cess could as well have been levied as a percentage of the value of the goods. In fact cess is a term generally used for taxation for some special administrative purpose. In addition to the education cess and S&H cess, there are a number of other cesses, which are levied by different ministries and a number of them are collected by the Department of Revenue as duty of excise. Cenvat Credit Rules, 2004 also treats education cess and S&H cess as levies distinct and different from the excise duties. Hon'ble Gauhati High Court in case of CCE, Shillong v. Dharampal Satyapal Ltd. reported in 2012 (275) E.L.T. 71 (Gauhati) = (2012-TIOL-165-HC-GAUHATI-CX) has held that exemption Notification No. 32/99-C.E. does not cover education cess and levy of education cess is completely independent of the levy of excise duty. Therefore, we are of the view that just because the education cess and S&H cess are levied as surcharge on the aggregate of excise duties or customs duties, levied and collected by the Ministry of Finance (Department of Revenue), this cannot be treated as mere addition to the excise duty or customs duty. In, our view, therefore, the education cess and S&H cess have to be treated as different and distinct levies from the excise duties and customs duties on which the same are charged.

9. We also find it difficult to accept the other plea of the appellant that proviso to Section 3(1) is a legal fiction under which the goods manufactured by a 100% EOU and cleared into DTA are to be treated as goods imported into India. On perusal of the proviso, we find that what this proviso provides is a measure of central excise duty leviable on the DTA clearance of 100% EOU and this measure is the aggregate of the duties of customs on the import of like goods into India and if the rate of duty is ad valorem, duty is to be calculated on the value determined under the provisions of Customs Act, 1962 and Customs Tariff Act, 1975. In fact a Larger Bench of the Tribunal in the case of Vikram Ispat reported in 2000 (120) E.L.T. 800 (Tribunal-LB) = (2002-TIOL-32-CESTAT-DEL-LB) has held that the duty chargeable on the DTA clearance of a 100% EOU is a central excise duty and the method adopted by the law makers in recovering this duty cannot alter its character and what the proviso to Section 3(1) of Central Excise Act, provides is only the measure of the central excise duty leviable on the DTA clearances of a 100% EOU. Therefore, in our view, it would not be correct to treat the clearance of the goods manufactured by 100% EOU into DTA as deemed imports into India.

10. However, we are not in agreement with the stand of the Revenue for another reason. The charging provisions of education cess and S&H cess are Section 91 of the Finance Act, 2004 and Section 136 of the Finance Act, 2007 respectively according to which,' this levy is a 'cess' levied as surcharge to enable the Central Government to finance its commitment to provide universalized quality of basic education and secondary and higher education. Surcharge on a tax means additional tax on that tax. As discussed above, though education cess and S&H cess being cess to enable the Government to finance its expenditure on providing basic education and secondary and higher education, is a levy different and distinct from the tax on which it is levied as surcharge, the mode or measure of this levy is surcharge at the rate of 2% and 1% on the existing levies i.e. the taxes being collected by the Government as -

(a) Central excise duties under Central Excise Act, 1944 or any other law in force;

(b) customs duties under Customs Act, 1962 read with Customs Tariff Act, 1975 or any other law in force; and

(c) Service tax levied under Section 66 of the Finance Act, 1994.

Since the cess levied as surcharge under Section 91 of Finance Act, 2004 and Section 136 of Finance Act, 2007 has to be on the existing levies, the existing levies, obviously, would not include this cess.

For this reason only, Sections 93 & 94 of Finance Act, 2004 and Sections 138 and 139 of Finance Act, 2007 while defining the measure of education cess and S&H cess in respect of excisable goods and imported goods respectively, specifically provide that the aggregate of duties of excise or aggregate of duties of customs levied by the Central Government in the Ministry of Finance (Deptt. of Revenue), on which this cess is to be levied as surcharge, would not include the education cess and S&H cess. Thus, the intention of the legislature was never to charge education cess on education cess. In fact this is not permissible from very mode of this levy as prescribed in Section 91 of the Finance Act, 2004 and Section 136 of the Finance Act, 2007, as when a new tax is introduced as surcharge on the existing levies, the base on which the new levy as surcharge is to be calculated will include only the existing levies, not the new levy. If the Revenue's stand is accepted, and on the sum of Basic customs duty and Addl. Customs duty, first "cess on imported goods" under Section 94 of Finance Act, 2004 and Section 139 of Finance Act, 2007 is charged as duty of customs and on the aggregate of duties of customs, "cess on excisable goods," under Section 93 of Finance Act, 2004 and Section 138 of Finance Act, 2007 is charged, it would amount to charging education cess on education cess for which there is no sanction in law. Apex Court in case of Jain Brothers v. U.O.I., reported in (1970) 77 ITR 107 has held that there can be no objection for double taxation if the legislature has distinctly enacted it, but while interpreting general words of taxation, the same cannot be so interpreted as to tax the subject twice over to the same tax. In our view, it is this principle which has to be kept in mind while calculating education cess and S&H cess on DTA clearances of a 100% EOU. Since the DTA clearance of a 100% EOU attract central excise duty and in terms of proviso to Section 3(1) of Central Excise Act, 1944, the measure of the excise duty leviable is aggregate of duties of customs charged on import of like goods into India under Customs Act, 1962 read with Indian Customs Tariff Act, 1975 or any other law for the time being in force, this aggregate of duties of customs on which education cess under Section 93 of Finance Act, 2004 and S&H cess under Section 138 of Finance Act, 2007 is to be charged, would not include education cess and S&H cess under Section 94 of Finance Act, 2004 and Section 139 of Finance Act, 2007. In other words, the education cess and S&H cess would be chargeable only once under Section 93 of Finance Act, 2004 and Section 138 of Finance Act, 2007 on the sum of basic customs duty and Additional customs duty.”

While agreeing with the finding recorded as above, the Member (Technical) added his reasoning in a different manner thus –

“13. The whole matter is centred around Section 3 of Central Excise Act, 1944 in so far as it relates to duties payable on goods cleared from a hundred per cent export oriented undertaking when goods are cleared to Domestic Tariff Area (DTA). The said provision is reproduced below:

"3(1) There shall be levied and collected in such manner as may be prescribed, -

(a) a duty of excise to be called the Central Value Added Tax (CENVAT) on all excisable goods (excluding goods produced or manufactured in special economic zones) which are produced or manufactured in India as, and at the rates, set forth in the First Schedule to the Central Excise Tariff Act, 1985 (5 of 1986);

(b) a special duty of excise, in addition to the duty of excise specified in clause (a) above, on excisable goods (excluding goods produced or manufactured in special economic zones) specified in the Second Schedule to the Central Excise Tariff Act, 1985 (5 of 1986) which are produced or manufactured in India, as, and at the rates, set forth in the said Second Schedule :

Provided that the duties of excise which shall be levied and collected on any
excisable goods which are produced or manufactured, -

(i) * * * * * * *

(ii) by a hundred per cent export-oriented undertaking and brought to any other place in India, shall be an amount equal to the aggregate of the duties of customs which would be leviable under the Customs Act, 1962 (52 of 1962) or any other law for the time being in force, on like goods produced or manufactured outside India if imported into India, and where the said duties of customs are chargeable by reference to their value; the value of such excisable goods shall, notwithstanding anything contained in any other provision of this Act, be determined in accordance with the provisions of the Customs Act, 1962 (52 of 1962) and the Customs Tariff Act, 1975 (51 of 1975)."

14. We are concerned with clause (ii) of the proviso. The sum and substance of Revenue's argument is that the expression "duties of excise" used in the proviso will not include education cess and secondary & higher education cess. But the expression "duties of customs" used in the same proviso will include education cess and secondary & higher education cess. So first "duties of customs" have to be calculated including education cesses (Twice - once as a part of duty under Section 3(1) of Customs Tariff Act, 1975, as per provisions of Section 93 of Finance Act, 1994 and Section 138 of Finance Act, 2007 imposing cesses on excisable goods and again as per provisions of Section 94 of Finance Act, 1994 and Section 139 of Finance Act, 2007 imposing such cesses on goods imported into India). Then it is argued that the said cesses should again be applied for a third time under Section 93 of Finance Act, 1994 and Section 138 of Finance Act, 2007 on the said aggregate so worked out for the reason that "duties of excise" mentioned in the proviso does not include such cesses.

15. I do not agree with the argument because it disturbs the principle that duties payable on goods cleared into DTA from a hundred per cent export oriented unit should be on par with the duties payable on goods imported from abroad into the country. Secondly if the expression "duties of customs" in the said proviso is interpreted to mean duty including education cesses the expression "duties of excise" used in the same expression should also be interpreted in a similar manner in which case there is no scope for including the cesses for a third time in the calculation.”

So, the end result is that there cannot be any third time Cess and it is the Larger Bench which has come to this conclusion.

Hope the benign Board accepts this ratio gracefully!

(See 2013-TIOL-614-CESTAT-DEL-LB)