CA Pradeep Jain
CA Neetu Sukhwani
Introduction:- Since the announcement of the exemption being granted to the levy of Education Cess and SHE Cess by the Finance Minister in Budget 2015-16, the issue as regards the utilisation of the accumulated balance of Education Cess and SHE Cess has been a sensational issue and a topic for discussion among the assessees and the consultants. This is also evidenced by a number of articles, write ups, representations being made on this issue. Moreover, recent amendments in the Cenvat Credit Rules, 2004 permitting utilisation of the inputs/capital goods/input services received on or after 01.03.2015/01.06.2015 against payment of excise duty/service tax added a ray of hope that probably the amendment as regards utilisation of accumulated cenvat credit is on the way. However, the hopes of the assessees were shattered in the Tariff Conference of Central Excise on technical matters organised by the Board on 28th and 29th October, 2015. Recently, CBEC has released the minutes of the meeting for circulation among the departmental officers wherein it has been stated that the utilisation of accumulated balance of education cess is not available for utilisation and shall stand lapse. This article is an attempt to analyse the justification given for denial of utilisation of cenvat credit balance of education cess and SHE Cess.
Extracts from the Minutes:- As per provisions contained in sub-rule 7(b) of Rule 3 of Cenvat Credit Rules, 2004, it is specified that cenvat credit of specified duties shall be utilized for payment of those specified duties only. Accordingly, the Cenvat Credit of Education Cess and Secondary & Higher Education Cess can be utilized only for payment of Education Cess and Secondary & Higher Education Cess, respectively. Consequent upon grant of exemption, there is issue of utilization of the accumulated credit of the past. It was suggested that an amendment to sub-rule 7(b) of Rule 3 of CENVAT Credit Rules, 2004 may be made to allow the utilization of balance CENVAT Credit of Education Cess and Secondary & Higher Education Cess towards payment of either duty of excise or Service Tax.
The conference after discussion and briefing from the officers from the Board noted that it was Government’s conscious policy decision to withdraw the Education Cess and Secondary & Higher Education Cess. It is a policy decision to not allow utilization of accumulated credit of Education Cess and Secondary and Higher Education Cess after these Cesses have been phased out. As these Cesses have been phased out and no new liability to pay such Cess arises, no vested right can be said to exist in relation to the accumulated credit of the past. The rule and notifications as they exist need to be followed and do not need any amendment.
Whether conclusion arrived at justifiable? The outcome of the discussion in meeting was that as the government purposely decided to scrap off the levy of cess in excise and service tax, and since the credit of Education Cess and SHE cess could be utilised only for payment of Education Cess and SHE Cess respectively; there was no intention to permit utilisation of the accumulated balance of education cess and SHE Cess. The justification given was that since there was no new liability for such cess, the accumulated balance shall lapse. However, the fact that the recent amendments made in the Cenvat Credit Rules, 2004 vide Notification no. 12/2015-C.E. (N.T.) dated 30.04.2015 and Notification no. 22/2015-C.E. (N.T.) dated 29.10.2015 permitting utilisation of the credit of education cess and SHE Cess against payment of excise duty and service tax respectively has not been brought into picture. If at all the government’s intention was not to allow the utilisation of the credit of education cess and SHE Cess towards payment of excise duty or service tax, the said amendments would not have been made by them. On the contrary, the reason and justification given in the meeting for restricting the utilisation of the accumulated balance of education cess and SHE Cess appears to be a mere lame excuse.
Look at the judicial pronouncements on the issue:- In this context, we may also refer to the judgment given by the Hon’ble High Court in the case of Shankeshwar Fabrics Private Ltd Vs Union of India [2002 (142) E.L.T. 42 (Raj.)] wherein it was concluded that the right to Modvat Credit accrues to assessee on the date he pays tax on raw materials or inputs and if the credit has been validly earned, the same cannot be denied to him. This decision was given by placing reliance on the Supreme Court judgment in the case of Eicher Motors Ltd. Vs Union of India [1999 (106) E.L.T. 3 (S.C.)] wherein it was held that the modvat credit cannot be declared as lapsed because provision of facility of credit is as good as tax paid till it is adjusted for future liability. It is submitted that although, the minutes of the meeting do not specifically state that the credit balance of education cess would be lapsed but putting restriction as regards utilisation tantamounts to treating the accumulated education cess credit as lapsed because the said credit can be utilised only for payment of education cess itself and not for other duties like excise duty, service tax etc. Accordingly, the conclusion of the meeting renders the analogy of the above cited decision as futile and meaningless. Furthermore, in the opinion of the authors, when the education cess credit for inputs/input services/capital goods received on or after 01.03.2015/01.06.2015 can be permitted for payment of excise duty and service tax, then there should be no embargo in permitting utilisation of accumulated education cess balance. Such a decision indicates adopting two different stands on the same issue as on one hand, the accumulated credit is denied for utilisation on the ground that cess do not exist while on the other hand, for the credit earned after a particular date, the said cess are permitted for utilisation against payment of excise duty and service tax. Such a discriminatory approach is not understandable.
Before parting:- Inspite of repeated representations made by the assessees, there is no clear cut amendment or circular issued with respect to utilisation of the accumulated balance of cenvat credit of education cess and SHE cess. Furthermore, the above minutes released by CBEC merely represent the view of the departmental officers and cannot be said to have binding effect on the assessees. This is first time that the minutes of a meeting and the discussion thereon is being released by the Board for reference of the departmental officers but the precedential value of the discussion is highly doubtful. Moreover, if the discussion and conclusion arrived by the departmental officers on technical matters is considered to have binding effect, then what is the significance of Tribunals and Courts established for interpreting the statutory provisions. It is pertinent to note that as far as the accumulated balance of education cess is concerned, the amount would not be substantial in case of individual assessees and so it is not feasible to go in for litigation for such small amounts to the appellate authorities. Furthermore, even monetary limits fixed for admission of appeals would serve as a barrior for the assessees, even if the assessees are willing to litigate the matter. Not only this, if the above conclusion arrived at the meeting is implemented by the field formations, it will only lead to treating the tax paid in the form of cess as cost by the assessees and lead to cascading effect, which is definitely not the intention of the government. Furthermore, this will also lead to doubts raised in the minds of the assessees as regards the fate of their cenvat balance after implementation of the unified tax reform, GST. This is for the reason that when the government is not willing to permit utilisation of accumulated education cess balance, which is insignificant amount and which is validly earned by them, then there is far possibility that the cenvat credit balance of service tax, excise duty etc. would be allowed to be utilised post GST tax regime. If the above conclusion reflects the tax policy of the government, the hapless assessees definitely have a strong cause to worry in the near future. Lets hope, the above conclusion of the meeting does not turns into a bitter reality for the assessees!
