Utilisation of credit of Education and SHE Cess for payment of basic excise duty

CA Arpit Arora

Interpreting Notification 12/2015

Amendment to clause (b) of sub-rule (7) of Rule 3 of Cenvat Credit Rules,2004

Understanding Notification 12/2015

Rule 3(7)(b) of the CCR, 2004 has been amended  vide Notification No.12/2015-Central Excise (N.T.), dated 30.04.2015 so as to allow utilisation of credit of Education Cess and Secondary & Higher Education Cess for payment of basic excise duty.

Insertion of 3rd Proviso to clause (b) of sub-rule (7) of Rule 3 of Cenvat Credit Rules,2004.

“Provided also that the credit of Education Cess and Secondary and Higher Education Cess paid on inputs or capital goods received in the factory of manufacture of final product on or after the 1st day of March, 2015 can be utilized for payment of the duty of excise leviable under the First Schedule to the Excise Tariff Act:

Deciphering the above proviso:-

It is well known to all that from 01.03.2015, no cess is leviable on inputs and capital goods as it was subsumed in the excise duty .The excise duty structure was enhanced from aggregate of duty and cess @ 12.36% to a consolidated and subsumed duty of 12.50%.

Hence, Notification 12/2015 has come into purview to decide the fate of cenvat of cess a on 28.02.2015.

Illustration

Let’s lay down the facts:

Date of bill- say 25.02.2015 & education cess- Rs 100

Date of Receipt of goods in factory – say 02.03.2015

One of the conditions of availing Cenvat in respect of inputs or capital goods as per Rule 9 is receipt of goods in the factory.

Hence, inputs and capital goods would have suffered the incidence of cess prior to 01.03.2015 only. Such goods would have reached the factory of the manufacturer on or after 01.03.2015.

So utilization of credit of unutilized cess Rs 100 , lying as on 28.02.2015 ,towards payment of excise duty is allowed as per the said proviso.

However, let us consider that good have been received prior to 01.03.2015.

Date of bill- say 25.02.2015 & education cess- Rs 100

Date of Receipt of goods in factory – say 26.02.2015

Now we have reached to a rhetoric question:

Will balance of education cess paid on purchase of inputs & capital goods entered in factory on or before 28.02.2015 lapse?

Here comes the need of thinking wider, can refund be claimed for that balance of education cess?

Or, the words used in the notification “Cess paid on inputs or capital goods” are interpreted in isolation without applying strict interpretation?

Similarly insertion of 5^th proviso (in respect of cess paid in respect of input services) has the same implications.

Provided also that the credit of Education Cess and Secondary and Higher Education Cess paid on input services received by the manufacturer of final product on or after the 1st day of March, 2015 can be utilized for payment of the duty of excise specified in the First Schedule to the Excise Tariff Act.

I close this article with an open end with a need to think and understand that plain reading of the notification is making havoc across the country.

(Author can be reached at arpit.arora@icai.org)