By TIOL News Service

NEW DELHI, NOV 11, 2017: THE appellant is engaged in the manufacture and clearance of Malted Milk Food (Horlicks) using sweetened milk powder since April 12, 2008 and has set up its factory in the State of Assam.

Industrial Policy dated April 01, 2007 for the North-Eastern States, including the State of Assam, was announced by the Ministry of Commerce and Industry (DIPP), GOI to set up a special package for the North-Eastern States to accelerate industrial development of the State. As per this package, new industrial units were entitled to 100% excise duty exemption for a period of 10 years from the date of commencement of commercial production.

Pursuant to the said Industrial Policy, the Central Government issued Notification No. 20/2007-Ex. dated April 25, 2007.

The methodology which was adopted and prescribed in these notifications was that the manufacturer was initially supposed to pay the excise duty leviable on such goods at the time of clearance as per the Tariff Act and thereafter claim the refund thereof. It was also mentioned in these notifications that exemption contained therein shall be available 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. Insofar as payment of the excise duty after availing the CENVAT credit and refund thereof subsequently is concerned, there is no dispute about the same.

It so happened that vide Finance Act, 2004, the Education Cess and Higher Education Cess were also imposed, which are surcharge on the excise duty. These Education Cess and Higher Education Cess were also levied and collected from the manufacturers who had set up their units in the aforesaid areas, along with the excise duty. However, while refunding the excise duty paid by these manufacturers, the Education Cess and the Higher Education Cess that were paid by the manufacturers along therewith were not refunded. The dispute, thus, which arises for consideration in these appeals is as to whether the Education Cess and Higher Education Cess which were paid along with the excise duty was also liable to be refunded along with the central excise duty in terms of the exemption notifications.

As the assessee was denied refund of the Education Cess and Higher Education Cess, he challenged the order of the Assessing Officer by filing appeal before the Commissioner of Central Excise and Customs (Appeals), Guwahati. However, these appeals were dismissed by the Commissioner and the order of the Commissioner has been upheld by the CESTAT.

Said order is the subject matter of these appeals.

The Apex Court observed that the Tribunal had noted the following decisions relied upon by the appellant and wherein it was opined by the Bench that the Education cess and Higher Education Cess were also refundable along with the excise duty.

+ Bharat Box Factory Ltd. =  2007-TIOL-2392-CESTAT-SRINAGAR

+ Cyrus Surfactants Pvt. Ltd. =  2007-TIOL-1262-CESTAT-SRINAGAR

However, the Revenuehad relied upon another judgment of Tribunal in the case of Jindal Drugs Ltd. =  2009-TIOL-2562-CESTAT-DEL wherein a contrary view was taken viz., that the Excise Department was under no obligation to refund the Education Cess and Higher Education Cess as the notification exempted only the excise duty and, therefore, it is the excise duty which was to be refunded. And it was this decision which was followed by the CESTAT in the present case on the ground that it is later in point of time.

After considering the submissions made by both sides, the Supreme Court noted that it was important to take cognisance of the Department view regarding Education Cess and Higher Education Cess which is payable as surcharge on the excise duty, once the excise duty is exempted.

Extracting Circular dated August 10, 2004 which clarifies that Education Cess is part of excise and Circular dated April 08, 2011 issued by the CBEC on the subject "Education cess and Secondary and Higher education cess-reg.", the Supreme Court observed -

++ This Circular dated April 08, 2011 refers to the judgment of the Tribunal in  Balasore Alloys Ltd. v. CCE, Customs and Service Tax, BBSR-I - 2010-TIOL-1659-CESTAT-KOL which was a decision rendered in favour of the Revenue as it was held therein that the Education Cess and Higher Education Cess would not be refunded while giving back the exempted service tax. Notwithstanding the same, the Circular mentions that the said order of the Tribunal is inconsistent with the policy intention of the Government to exempt Education Cess in addition to service tax, where 'whole on service tax' stands exempted.

++ One aspect that clearly emerges from the reading of these two circulars is 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. These circulars are binding on the Department.

++ Even otherwise, we are of the opinion that it is more rational to accept the aforesaid position as clarified by the Ministry of Finance in the aforesaid circulars.

++ 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. … 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.

++ CESTAT in the earlier two judgments given in Bharat Box Factory Ltd. (supra) and Cyrus Surfactants Pvt. Ltd. (supra) held that Education Cess and Higher Education Cess would also be refundable along with excise duty and in view thereof, another co-ordinate Bench of CESTAT could not take a contrary view in Jindal Drugs Ltd. Judicial discipline warranted reference of the matter to the Larger Bench which it did not do.

++ It is also trite that when two views are possible, one which favours the assessees has to be adopted.

The appeals were allowed.

Conclusion: Held that 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.

(See 2017-TIOL-416-SC-CX)