JANUARY 31, 2005

By R Raghavendra Rao

EoUs are given special treatment by both the Finance and Commerce Ministries. They are provided with a number of concessions, exemptions, and procedural simplifications keeping in mind their contribution to the economy by way of foreign exchange earnings. The Foreign Trade Policy provisions also contain some high sounding words like fast track clearances etc. But during the last one year the EOUs have been languishing on one simple (?) issue of how much education cess they have to pay on DTA clearances and no clarification is in sight.

In terms of the proviso to Section 3 of the Central Excise Act, goods manufactured in a 100% EOU and cleared in DTA are leviable to duty of excise equivalent to aggregate duties of customs leviable on like goods if imported into India. In addition to this excise duty under Section 3, they have to pay Education Cess leviable under Section 83 of the Finance Act 2004.

Assuming the rate of customs duty is 20%, and the excise duty is 16%, for a value of Rs 1000, the total excise duty payable by the EOU in terms of Section 3 of the Central Excise Act will be :

As per Section 83 of the Finance Act 2004, education cess shall be levied at the rate of 2% on aggregate of all excise duties leviable under Section 3 of the Central Excise Act or under any other law for the time being in force and this cess shall be in addition to any other duties of excise chargeable on such goods.

What follows form the above is that the EOUs in addition to the above excise duty of Rs 201.88 payable under Section 3 of the Central Excise Act read with Notification 23/2003 dated 31.3.2003, have to pay another 2% Education Cess on 201.88, amounting to Rs 4/- Thus the total duty payable by an EOU on goods cleared in DTA would be Rs 205.88/-

Now just recap the cess payable by an EOU. The first cess is Rs 1.92 ( 50% of 3.84 cess on the CVD part), the second cess is Rs 3.96 ( 50% of 7.92 cess on aggregate duties of customs) and last but not least is Rs 4 on the excise duty of Rs 201.88.

In 1984, in an identical situation of double levy of Additional Excise duties and Cess leviable under the allied Acts, Board had accepted the peculiar circumstances leading to computation of these duties twice, once as part of CVD and second time as duties in addition to Excise duty under Section 3, and issued exemption from one of the two levies. The Circular dated 29.3.1984 had clarified that:

�(5) under the provisions of Section 3 of the Central Excise Act, 1944 duties of excise leviable is the basic excise duty. However, by virtue of Section 52 of the Finance Act, 1984 and Section 3 of the Additional Duties of Excise ( Goods of Special Importance) Act, 1957, special excise duty and additional excise duty is also leviable on the excisable goods. In addition, Cess is also leviable on such excisable goods. However, by virtue of the proviso to the Section 3 of the said central Excise and Salt Act, the basic excise duty leviable is equal to the aggregate of basic customs duty, additional (customs) duty and auxiliary duty. When working out additional (customs) duty, one has to add up the basic excise duty, additional excise duty and special excise duty and cess leviable on like goods imported from abroad. It is therefore seen that special excise duty, additional excise duty and cess would be payable once again on the said goods. In order to avoid double levy, excisable goods produced /manufactured in the undertakings and cleared to domestic tariff area have been exempted from Special Excise Duty and Additional Duty vide Notification No 126/84 CE and 127/84 CE both dated 26th May 1984. However, special excise duty and additional excise duty would be payable as part of additional (customs) duty�.

However, no such exemption is available now for Education Cess and the Cess is charged twice, once as part of CVD and again on total excise duty. Some fast track clarification on the issue is required immediately to put an end to the confusion prevailing among the EOUs.

(The author is working with the Department and the views expressed are personal )