Levy of ECess and SHE Cess when services are exempted from ‘whole of service tax' - Board's Clarification
BOARD received representations from field formations, seeking clarification regarding applicability of service tax exemption to Education Cess (refers to both Education Cess leviable under Finance (No.2) Act, 2004 and Secondary and Higher Education Cess leviable under Finance Act, 2007), under notifications where ‘whole of service tax' stands exempted. Apparently, the doubts arise in the context of Tribunal's Order in the matter of M/s. Balasore Alloys Ltd. Vs CCE, Customs and Service Tax, BBSR-I ().
After examining the issue Board clarifies as follows:
Though Tribunal's Order referred above is in favor of revenue, it is inconsistent with the policy intention of the Government to exempt education cess in addition to service tax, where ‘whole of service tax' stands exempted. According to section 95(1) of Finance (No.2) Act, 2004 and section 140(1) of Finance Act, 2007, Education Cess and Secondary and Higher Education Cess are leviable and collected as service tax, and when whole of service tax is exempt, the same applies to education cess as well. Since Education Cess is levied and collected as percentage of service tax, when and wherever service tax is NIL by virtue of exemption, Education Cess would also be NIL.
This being the principle, field formations are directed not to initiate proceedings to recover the education cess, where ‘whole of service tax' stands exempted under the notification. Extending the same principle, where education cess has been refunded to exporters along with service tax, by virtue of exemption notifications where ‘whole of service tax' is exempt, the same need not be recovered.
Please recall our story, Setback to exporting community – Tribunal rules no refund of education cess under Notification No for services used in goods exported, reacting to which a netizen remarked in our “message Board”, “ It is very sad for the exporting community to have such an order which in my opinion is weak on the findings vis-a-vis the levy. xxxx The basic intention of the GOI was to provide the refund of all taxes and levies used for export. Hence in my personal opinion there is an infirmity in the opinion of the Tribunal…. ”
For once, it is refreshing to note that Board has taken a pragmatic view to mitigate unwarranted litigation in such matters even disregarding CESTAT's order in favour of Revenue. This is how the Board should work; maybe the Board should review some more favourable decisions, which it knows to be against the intention of the Law and issue such directions.
Circular No. , Dated: 8th April, 2011