Education Cess paid alongwith Excise Duty is Refundable in cases where no Duty is Payable, says Supreme Court [Read Judgment]

Educational Cess - Education Cess Tax - Taxscan

A two-judge bench of the Supreme Court, on Friday held that the manufactures who paid excise duty in terms with the exemption notification No. 20/2007-Ex can claim refund of education cess and higher education cess as there was no liability to pay duty.

A bench of Justices A K Sikri and Ashok Bhushan was hearing a series of appeals wherein the manufacturers claimed refund of cess paid by them alongwith the excise duty.

In the year 2007, the Central Board of Excise and Customs (CBEC) notified exemption of excise duty in respect of the goods manufactured and cleared from units located in States like the North-Eastern States, viz. Assam, Jammu & Kashmir, Meghalaya, Tripura, Mizoram, Manipur, Nagaland, Arunachal Pradesh as well as Sikkim.

As per the Notification, the manufacturer should pay the excise duty leviable on such goods at the time of clearance as per the Tariff Act and thereafter can claim the refund. The exemption was subject to the condition that the manufacturer first utilises whole of the CENVAT credit available to him on the last date of the month under consideration for payment of duty of goods cleared during such period and was to pay only the balance amount in cash. It is this balance amount which was refundable to him.

The sole grievance of the manufacturers in the instant case was that the department refused to refund the amount of Education Cess and Higher Education Cess paid along with the excise duty.

The department was of the view that the since the exemption was only in respect of excise duty as per the notification, the Excise Department was under no obligation to refund the Education Cess and Higher Education Cess. It cited the Delti Tribunal’s decision in Commissioner of Central Excise, Jammu v. Jindal Drugs Ltd in support of its contention.

On appeal, the CESTAT upheld the view taken by the department.

While analyzing the provisions of the CBEC circulars, the bench noted that the 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.

The bench found that these circulars are binding on the department.

Allowing the appeals, the bench ruled 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”.

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