NEW DELHI, SEPT 7, 2007 : THE CESTAT traveled all the way to Srinagar to allow this refund.

The claim of the appellants for refund of Education Cess was based on the Notification bearing no. 56/2002 dated 14.11.2002, which provided for exemption to the goods, from so much of the duty of excise or additional duty of excise, as the case may be, leviable thereon under any of the three Acts, namely, The Central Excise Act, 1944; The Additional Duties of Excise (Goods of Special Importance) Act, 1957; and The Additional Duties of Excise (Textiles and Textile Articles) Act, 1978, as was equivalent to the amount of duty paid by the manufacturer of goods, other than the amount of duty paid by utilization of CENVAT Credit. It is not disputed that the appellants paid the excise and additional duties under the said three Acts in cash after having exhausted payments made from the CENVAT account, in respect of which the exemption did not extend. The appellants having paid the duties under the said three Acts and also the Education Cess payable at 2% in respect thereof under Section 93 of the Finance Act, 2004, claimed refunds of the duties and the Education Cess, which was also in the nature of excise duty, as provided by Section 93 of the Finance Act, 2004. Since the Finance Act, 2004 was not mentioned in the exemption Notification and only the three Acts were referred, the Revenue, while upholding the claim for the refund of duties paid in cash under the said three Acts, denied the refund of the Education Cess, which was also in the nature of the excise duty, paid at 2% of the aggregate of the duties which were paid under the said three Acts, on the ground that the Finance Act, 2004 was not specified in the Notification.

The matter is before the Tribunal.

The Tribunal noted that the controversy centres around the interpretation of the provisions of Section 93 of Chapter VI of the Finance Act, 2004, which provides for levy and collection of Education Cess on excisable goods which was in the nature of excise duty, at the rate of 2% calculated on the aggregate of all duties of excise including special duty of excise or any other duty of excise, which are levied and collected under the provisions of the Central Excise Act, 1944 or under any other law for the time being in force, by the Central Government in the Ministry of Finance.

Incidentally, CBEC had issued a clarification that if the goods are fully exempted from excise duty and are chargeable to NIL duty, there is no collection of duty and, therefore, no Education Cess would be leviable on such clearances.

The Tribunal observed,

1. Once the entitlement to exemption of the duty of excise or additional duty of excise, which would otherwise be payable under the three Acts named in the Notification, is established by following the manner indicated in paragraph 2 for ascertaining the extent exemption, there cannot arise any question of imposing Education Cess in the nature of excise duty under Section 93.

2. The ground for rejecting the claim for refund of Education Cess in the nature of excise duty paid at the rate of 2% on the portion of excise duties which were exempted, given by the Commissioner (Appeals) and adopted by the Learned Authorized Representatives for the Department, that there was no mention of the provisions of Education Cess in the nature of excise duty leviable under Section 93 in the said Notification, would be self-defeating and counter-productive.

3. If the provisions of Chapter VI of the Finance Act, 2004 relating to levy and collection of Education Cess in the nature of excise duty were included along with the three Acts in the said Notification, unintended adverse consequences would follow for the Revenue. It is clear from the wordings of Section 93 that the Education Cess in the nature of excise duty which is required to be levied and collected at the rate of 2% of the aggregate of all duties of excise would be applicable not only in respect of the excise duties that can be levied and collected under the Central Excise Act, 1944, Additional Duties of Excise (Goods of Special Importance) Act, 1957 and Additional Duties of Excise (Textiles and Textile Articles) Act, 1978, but also in respect of all other excise duties which are levied and collected by the Union Finance Ministry under any other law for the time being in force.

4. Inclusion of the provisions of Section 93 of the Finance Act, 2004 in the Notification would have created an exemption from levy of Education Cess even in the context of excise duties payable under the other laws in respect of which no excise duty exemption was intended under the said Notification.

5. To illustrate, if the provisions of Finance Act, 2004 were also mentioned in the said Notification along with the said three Acts, then even the Education Cess in the nature of excise duty leviable on Cess in the nature of excise duties under Section 3 of the Sugar Cess Act, 1982, Section 15 of the Oil Industries Development Act, 1974, and Section 3 of the Jute Manufacturers Cess Act, 1983, in respect of which no exemption is granted, would stand exempted.

6. There was no need for including the provisions relating to Education Cess in the nature of excise duty required to be levied and collected under Section 93 of the Act in the said Notification, because the Education Cess was in the nature of piggy back duty, which would not operate in respect of the excise duty exempted under the relevant law.

7. Moreover, inclusion of the said provisions of Section 93 of the Finance Act, 2004 in the said Notification would have led to an anomalous situation as indicated above.

8. It would also to be noticed that the “refund” contemplated in paragraph 2 of the Notification in the context of statement of duty paid in cash, has no relevance with any Education Cess in the nature of excise duty, because the provisions of the Notification, including the manner of giving effect to the exemption contained thereunder, were devised only in the context of the excise duties which otherwise would have been payable under the said three Acts, but for such exemption.

9. It cannot, therefore, be said that Education Cess cannot be refunded because there was no provision for its refund in paragraph 2 of the said Notification. It became refundable because the exemption became operative.

10. It is evident that when the exempted amount of duty was required to be refunded for operationalising the exemption, Education Cess, which was in the nature of piggy back duty on the excise duties under the said three Acts, was also required to be refunded, because it was not at all leviable, in view of the entitlement to exemption worked out under paragraph 2 of the said Notification.

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