Introduction
The announcement of the exemption to the levy of Education Cess and SHE Cess levied on Excise duty with effect from 01.03.2015 and that levied on service tax with effect from 01.06.2015 created new hopes in the minds of the assessees as regards ‘Ease of doing business’ with reduction in the compliance procedure for maintaining separate accounting records for Education Cess and SHE Cess. However, the assessees forgot that everything comes for a cost. The hapeless assessees did not realise that the exemption brought the inbuilt cost in the form of unutilised balance of Education Cess and SHE Cess for which there was no amendment or clarification. This article is an attempt to highlight the probable difficulties faced by the assessees on account of no clarification as regards utilisation of the balance of Education Cess and SHE Cess available as on 01.03.2015 and 01.06.2015.
Backdrop of recent amendments made by government:- Inspite of the much hype created as regards the fate of the balance of Education Cess & SHE Cess available with the assessees, the government has not responded in the correct perspective. The summarized version of the two notifications issued by the government is presented as follows:-
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NOTIFICATION NO. 22/2015-C.E. (N.T.) DATED 29.10.2015
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NOTIFICATION NO. 12/2015-C.E. (N.T.) DATED 30.04.2015
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Cenvat Credit Rules amended with effect from 30.04.2015.
2. Education Cess & SHE Cess on inputs or capital goods received in the factory of manufacturer of final product on or after 01.03.2015 can be utilised for payment of excise duty.
3. Balance 50% credit of Education Cess & SHE Cess paid on capital goods received in the factory of manufacturer of final product in financial year 2014-15 can be utilised for payment of excise duty.
4. Education Cess & SHE Cess on input services received by the manufacturer of final product on or after 01.03.2015 can be utilised for payment of excise duty.
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Cenvat Credit Rules amended with effect from 29.10.2015.
2. Education Cess & SHE Cess on inputs or capital goods received in the premises of the provider of output service on or after 01.06.2015 can be utilised for payment of service tax on any output service.
3. Balance 50% credit of Education Cess & SHE Cess paid on capital goods received in the premises of the provider of output service in financial year 2014-15 can be utilised for payment of service tax on any output service.
4. The credit of Education Cess and Secondary and Higher Education Cess paid on input service in respect of which the invoice, bill, challan or Service Tax Certificate for Transportation of Goods by Rail (referred to in rule 9), as the case may be, is received by the provider of output service on or after the 1st day of June, 2015 can be utilized for payment of service tax on any output service.
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In-depth analysis of the scenario
The assessees were waiting for the confirmation from the side of the government as regards utilisation of balance of Education Cess and SHE Cess as on 01.03.2015 and 01.06.2015 but on the contrary, the amendments were made for permitting utilisation of Education Cess & SHE cess on ‘Transit goods and services’. Anyways, following points are worth noting:-
- The government took around 5 months to amend Cenvat Credit Rules so as to enable service providers to utilise the education cess and SHE cess levied on transit goods and services whose invoices were issued after 01.06.2015. Furthermore, in author’s opinion, as exemption was granted to levy of education cess and SHE cess with effect from 01.03.2015, it is a very remote possibility that service provider would receive inputs/capital goods with education cess and SHE cess on or after 01.06.2015. But, as it is in favour of the assessee, we may appreciate the government’s action.
- The delay in making the amendment vide notification no. 22/2015-CE (NT) dated 29.10.2015 has also lead to inability to utilise the cenvat credit of education cess and SHE cess of inputs/capital goods/invoices of input services received on or after 01.06.2015 in the months of June, July, August and September, 2015 itself because the amendment is prospectively applicable with effect from 29.10.2015 whereas the last date of filing service tax return for the half year ending 30.09.2015 was 25.10.2015. Furthermore, even assessees revising returns are unable to utilise the said credit and reflect it in their service tax returns. The government should have released this amendment timely. Furthermore, there must have been certain assessees who have already availed and utilised cenvat credit of education cess and SHE cess on invoices received after 01.06.2015 on the presumption that similar amendment was made for manufacturers also and they might be probably receiving show cause notice for the same soon.
- The government’s silence on utilisation of Education Cess and SHE Cess balance will also lead to complications in computing the quantum of cenvat credit wrongly availed under amended Rule 14 of the Cenvat Credit Rules, 2004. This is for the reason that Rule 14 presupposes that the opening balance of the month has been utilised first, thereafter the credit taken during the month is utilised next. However, as per above amendments, the balance of education cess and SHE cess as on 01.03.2015 and 01.06.2015 are intact while the education cess and SHE cess on inputs/capital goods/input services whose invoices are received after 01.06.2015 are in reality utilised first than the prevalent balance. If there is a case of wrong availment of cenvat credit after 01.03.2015, the calculations under Rule 14 will definitely be complicated.
- Apart from this, there is no restriction under the Cenvat Credit Rules, 2004 that the balance 50% cenvat credit of capital goods is to be availed in the next year itself. However, express provisions as regards utilisation of balance cenvat credit of capital goods are being made for capital goods received in the financial year 2014-15 only.
- It may also be noted that while manufacturers were permitted to utilise the education cess and SHE cess on input services received by them on or after 01.03.2015 against payment of excise duty, the service providers were continued to follow the restriction of utilising cenvat credit of education cess and SHE cess towards payment of Education cess and SHE cess only. This definitely placed service providers under a disadvantageous position and they should also have been permitted to utilise the education cess and SHE cess against payment of service tax on or after 01.03.2015.
Winding up:- The government is not clarifying what the assessees want and rather is making situations more complicated. When the government can permit utilisation of Education Cess and SHE Cess on transit goods received on or after 01.03.2015 by manufacturer and transit goods received on or after 01.06.2015 by service providers and services for which invoices are received after 01.06.2015, that too towards payment of excise duty and service tax, then there is no loss in permitting utilisation of the balance of education cess and SHE cess available with assessees as on 01.03.2015 and 01.06.2015. Well, all assessees are waiting a simple YES for utilising the balance of Education Cess and SHE Cess available with them as on 01.03.2015 and 01.06.2015.
