Relief for Maruti Suzuki: CESTAT Rules Education Cess Payable on Net Service Tax after Deducting R&D Cess [Read Order]

Maruti Suzuki India Limited,appellant-assessee, manufactured engine and transmission parts for two- and four-wheeler vehicles. During an audit of its records by the Accountant General, Haryana, for 2005-06 to 2007-08, it was found that the assessee had received ‘Consulting Engineering Services’ from M/s Suzuki Motor Corporation Japan, which had no office in India. The assessee was therefore liable to pay service tax as the recipient of these services.

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The department raised a demand for Education Cess and Secondary & Higher Education Cess on services exempted under Notification Nos. 18/2002-ST, 17/2004-ST, and 14/2012-ST. Based on the audit and prior show cause notices, the department issued fresh notices proposing a short-paid cess of Rs. 1,41,98,371/- for October 2011 to March 2012, along with interest and penalties.

The department argued that cess should be calculated on the gross service tax, including R&D Cess, not on the net amount. After following due process, the Commissioner confirmed the demand, leading to the present appeal.

The assessee counsel submitted that the issue in the present case had already been decided in favour of the assessee by this tribunal for earlier periods and by lower authorities for later periods. She provided the relevant orders for reference, showing that the department had accepted that Education Cess and Secondary & Higher Education Cess were payable on net service tax, after deducting R&D Cess, and that these orders had attained finality.

She further submitted that the present proceedings arose from the same audit as the earlier cases, and the department had not appealed against those orders. She argued that the department could not take a contrary position on the same issue, citing relevant Supreme Court and tribunal rulings.

The counsel also stated that there was no short payment, as the demand for October 2011 to March 2012 was based on Best Judgment assessment, and the exercise was revenue neutral.

The department’s representative, however, reiterated the findings of the impugned order.

The two member bench comprising S.S.Garg (Judicial Member) and P.Anjani Kumar (Technical Member) examined the submissions of both parties, the records, and the decisions relied upon by the appellant. It found that the issue had already been settled in the assessee’s favour by this tribunal in Final Order No. 60667/2024 dated 13.12.2024 in Service Tax Appeal No. 58092 of 2013 [2025 (1) TMI 78 CESTAT Chandigarh].

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The tribunal noted that for financial years 2014-15 and 2015-16, the Commissioner, in Order-in-Original dated 29.12.2017, had allowed the assessee’s claim, and the department had accepted the order without filing any appeal. The subsequent Order-in-Original dated 23.03.2021 also recorded that the earlier order had been accepted by the Committee of Chief Commissioners.

It held that the assessee had correctly paid Education Cess and Secondary & Higher Education Cess on the net service tax, after deducting R&D Cess. The tribunal also observed that lower authorities had granted similar relief for later periods, which the department had accepted, making those orders final.

Consequently, the appellate tribunal concluded that the impugned order was unsustainable in law and set it aside, allowing the assessee’s appeal with any consequential relief as per law.

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