SC Allows ‘Education cess’ refund to units availing ‘area-based’ excise exemption

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SC allows refund of Education Cess and Secondary & Higher Education Cess (‘Ed. Cesses’) to units located in north-east areas availing area-based excise exemption under Notification No. 20/2007-CE; Rejects Revenue’s reliance on Delhi CESTAT ruling in Jindal Drugs Ltd. and contention that there is no obligation on Department to refund Ed. Cesses as the Notification exempts only excise duty and since duty had to be paid first, such Cesses also become payable thereon; Observes, a conjoint reading of provisions contained in Sections 91 to 93 of Finance Act, 2004, amply demonstrate that, “Education Cess as a surcharge, is levied @ 2% on the duties of excise which are payable under the Act…when there is no excise duty payable, as it is exempted, there would not be any Education Cess as well…There cannot be any surcharge when basic duty itself is Nil”; Referring to Circulars dated August 10, 2004 and April 8, 2011 which are binding on Revenue, SC observes that Government itself has taken a position that Ed. Cesses would not be payable where whole of excise duty or service tax stood exempted;

Finds force in assessee’s plea that CESTAT could not take a view contrary in Jindal Drugs to that propounded in its earlier two decisions in Bharat Box factory Ltd. and Cyrus Surfactants Pvt. Ltd., remarks, “Judicial discipline warranted reference of the matter to the Larger Bench which it did not do”; Opines that “when two views are possible, one which favours the assessee has to be adopted”, and same is more rational in view of clarification issued by Ministry of Finance that Education Cess is on excise duty; Also refers to Rajasthan HC decision in Banswara Syntex Ltd. which held that surcharge taken in the form of Ed. Cess shall also be refundable, stating that same is in consonance with legal principle enunciated by Apex Court

Citation: TS-339-SC-2017-EXC

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