MARCH 16, 2015

By Kalirajan D

"EDUCATION Cess levied on all excisable goods as a duty of excise under section 91 read with section 93 of the Finance Act, 2004 is being fully exempted … Similarly Secondary& Higher Education Cess leviable on excisable goods as a duty of excise under section 136 read with 138 of the Finance Act, 2007 is also being fully exempted "

- Is the statement fully correct?

The above are the initial lines of Annexure II to the TRU Letter issued pursuant to latest Union Budget 2015. It is also stated under the said TRU letter that since there will be no levy of Cesses either on CVD or on Excise Duty, the entries 1A and 1B of Notification No. 23/2003-C.E. dated 31.03.2003 which provided exemption from payment of Education Cess and Secondary Education Cess (hereinafter collectively referred to as 'cesses') leviable on goods supplied by an EOU to DTA, are being omitted by a Notification No. 16/2015-C.E. dated 01.03.2015.The said TRU letter reiterates in various paragraphs that there is no levy of cesses on excise duty.

Notification No. 14/2015-C.E. and No. 15/2015-C.E. both dated 1 st March, 2015 which providing exemption from payment of Education Cess and Secondary & Higher Education Cess respectively, are notified by virtue of powers conferred under Section 5A of the Central Excise Act, 1944 (for brevity 'Excise Act').

Now the basic question which emerges is that whether the exemption provided by way of notification issued under Section 5A of the Excise Act would take away the levy itself,though Section 93 of the Finance Act, 2004 and Section 138 of the Finance Act, 2007 which are sections providing for powers to levy cesses are not being omitted.

Will the Budget notification exempt Cesses levied on supplies from EOUs

Though duties levied on excisable goods manufactured by an EOU and brought to any other place in India (hereinafter referred to as 'DTA') are equal to the aggregate of the duties of customs, such duties levied are 'Duties of Excise' only. Therefore exemption from payment of such duties of excise shall be provided by a notification issued under Section 5A of the Excise Act. Moreover, first proviso to the Section 5A prescribes that unless specifically provided in such notification, exemption provided therein shall not apply to goods manufactured by EOUs and brought to DTA. The said proviso reads as follows.

"Provided that, unless specifically provided in such notification, no exemption therein shall apply to excisable goods which are produced or manufactured —

- in a free trade zone or a special economic zone and brought to any other place in India; or

- by a hundred per cent export-oriented undertaking and brought to any place in India"

It follows from the above that since cesses are levied as duty of excise, exemption from payment of such cesses shall be provided by an exemption notification issued under Section 5A of the Act. It is to be noted that mere issuance of exemption notification would not suffice, such notification shall also specifically provide about applicability of notification to supplies from an EOU to DTA.

Though Notification No. 14/2015-C.E and No. 15/2015-C.E. exempt cesses levied on Central Excise Duty, nowhere it provides that such exemption is available for supplies from an EOU to DTA. Therefore exemption provided under these notifications is not available for supplies from an EOU to DTA.

Inadvertently,the entries No. 1A and 1B of the Notification No. 23/2003-C.E. dated 31.03.2003 which provided exemption from payment of cesses on excisable goods supplied by an EOU to DTA have been omitted. Therefore the statement with which this article began may not be correct as there is a levy of cess on excisable goods supplied by EOUs to DTAs.

Before parting…

As the cesses levied on supplies from an EOU to DTA is in the nature of duties of excise there should be an exemption notification issued under Section 5A of the Excise Act and the same shall specifically provide for applicability of exemption provided therein to supplies from an EOU to DTA. Therefore to fully exempt the cesses as said in TRU letter, the following measures may be adopted.

- The entries No. 1A and 1B of Notification No. 23/2003-C.E. dated 31.03.2003 may be restored; or

- The exemption provided under Notification No. 14/2015-C.E. and No. 15/2015-C.E. both dated 01.03.2015 may be made applicable to supplies from an EOUs to DTA also; or

- Section 93 of the Finance Act, 2004 and Section 138 of the Finance Act, 2007 may be omitted with necessary changes in other provisions, so that the cesses would really be subsumed in excise duty.

It would also be a big concern of an assessee that though cesses paid by a DTA unit on procurement of goods from EOUs are available as Cenvat credit, such DTA may not be in a position to utilize the same as cess levied on supplies between units in DTA is exempted. Thus, such accumulated Cenvat credit would become a cost which is a burden on the DTA unit receiving goods from EOU,as a result of inadvertent mistake which has crept in the Union Budget.

[The author is associated with Lakshmi kumaran & Sridharan, Bangalore and the views expressed are personal]