2017 (11) TMI 655 - SUPREME COURT

Refund claim - EC/SHEC - Area Based Exemption - industrially backward area - whether the Education Cess and Higher Education Cess which were paid along with the excise duty was also liable to be refunded along with the central excise duty in terms of the exemption notifications? - Divergent views.

Held that: - Government itself has taken the position that where whole of excise duty or service tax is exempted, even the Education Cess as well as Secondary and Higher Education Cess would not be payable - Education Cess is on excise duty. It means that those assessees who are required to pay excise duty have to shell out Education Cess as well. This Education Cess is introduced by Sections 91 to 93 of the Finance (No.2) Act, 2004. As per Section 91 thereof, Education Cess is the surcharge which the assessee is to pay. Section 93 makes it clear that this Education Cess is payable on ‘excisable goods’ i.e. in respect of goods specified in the first Schedule to the Central Excise Tariff Act, 1985. Further, this Education Cess is to be levied @ 2% and calculated on the aggregate of all duties of excise which are levied and collected by the Central Government under the provisions of Central Excise Act, 1944 or under any other law for the time being in force. Sub-section (3) of Section 93 provides that the provisions of the Central Excise Act, 1944 and the rules made thereunder, including those related to refunds and duties etc. shall as far as may be applied in relation to levy and collection of Education Cess on excisable goods. A conjoint reading of these provisions would amply demonstrate that Education Cess as a surcharge, is levied @ 2% on the duties of excise which are payable under the Act. It can, therefore, be clearly inferred that when there is no excise duty payable, as it is exempted, there would not be any Education Cess as well, inasmuch as Education Cess @ 2% is to be calculated on the aggregate of duties of excise. There cannot be any surcharge when basic duty itself is Nil.

When two views are possible, one which favours the assessees has to be adopted - there were divergent views in case laws cited, the one which favors the assessee has been followed - reliance placed in the two judgments given in Bharat Box Factory Ltd. [2007 (6) TMI 524 - CESTAT, NEW DELHI] and Cyrus Surfactants Pvt. Ltd. [2007 (6) TMI 325 - CESTAT, NEW DELHI] held that Education Cess and Higher Education Cess would also refundable along with excise duty.

The appellants were entitled to refund of Education Cess and Higher Education Cess which was paid along with excise duty once the excise duty itself was exempted from levy - appeal allowed - decided in favor of appellant.