Levy of Education cess where Excise Duty is exempt.

Refund of education cess where service tax or excise duty is nil:

Circular is dated April 08, 2011 issued by the Central Board of Excise and Customs, New Delhi on the subject “education cess and secondary and higher education cess-reg. is as under:

“Education Cess and Secondary and Higher Education Cess also exempted when notifications exempt whole of Service tax Circular No. 134/3/2011-S.T., dated 8-4-2011 F.No. 354/42/2011-Tru Government of India Ministry of Finance (Department of Revenue) Central Board of Excise & Customs, New Delhi Subject : Education Cess and Secondary and Higher Education Cess – Reg.

Representations have been received from the field formations, seeking clarification regarding the applicability of service tax exemption to Education Cess (refers to both Education Cess leviable under Finance (No.2) Act, 2004 and Secondary and Higher Education Cess leviable under Finance Act, 2007), under notifications where ‘whole of service tax’ stands.exempted. Apparently the doubt arises in the context of Tribunal’s Order in the matter of MIs.

Though Tribunal’s Order referred above is in favor of revenue, it is inconsistent with the policy intention of the Government to exempt education cess in addition to service tax, where ‘whole of service tax’ stands exempted. 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 Page 1 of 2 service tax, when and wherever service tax is NIL by virtue of exemption, Education Cess would also be NIL.

This being the principle, field formations are directed not to initiate proceedings to recover the education cess, where ‘whole of service tax’ stands exempted under the notification. Extending the same principle, 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……”

Conclusion of Supreme Court

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.

Accordingly 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.

[Source: SRD Nutrients Pvt.Ltd. vs Commissioner Of Cent.Excise, decided by SC on 10 November, 2017]

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