Inputs obtained from EOUs - No credit on Education Cess?

By Vijay Kumar

A Netizen writes in,

CENVAT Credit on goods received from a 100% EOU is governed by proviso to Rule 3(7) of the CENVAT Credit Rules, 2004, according to which,

Provided further that the CENVAT credit in respect of inputs and capital goods cleared on or after the 7th September, 2009 from an export-oriented undertaking or by a unit in Electronic Hardware Technology Park or in a Software Technology Park, as the case may be, on which such undertaking or unit has paid-

(A) excise duty leviable under section 3 of the Excise Act read with serial number 2 of the notification no. 23/2003-Central Excise, dated 31st March, 2003 [G.S.R. 266(E), dated the 31st March, 2003]; and

(B) the Education Cess leviable under section 91 read with section 93 of the Finance (No. 2) Act, 2004 and the Secondary and Higher Education Cess leviable under section 136 read with section 138 of the Finance Act, 2007, on the excise duty referred to in (A), shall be the aggregate of - (I) that portion of excise duty referred to in (A), as is equivalent to - (i) the additional duty leviable under sub-section (1) of section 3 of the Customs Tariff Act, which is equal to the duty of excise under clause (a) of sub-section (1) of section 3 of the Excise Act; (ii) the additional duty leviable under sub-section (5) of section 3 of the Customs Tariff Act; and

(II) the Education Cess and the Secondary and Higher Education Cess referred to in (B).]

In the Budget 2012, Notifications No 13/2012 Cus and 14/2012 Cus both dated 17.03.2012 were issued exempting education cess and secondary and higher education cess on the CVD component. The purpose of these notifications has been explained vide para 19 of the JS(TRU) letter D.O.F.No.334/ 3/2012-TRU, Dated: March, 16, 2012 as under:

19. Computation of Customs Duties:

19.1 The method of computation of Education Cess and Secondary & Higher Education cess on imported goods is being simplified. Currently, these cesses are first charged on the CVD portion of customs duty and thereafter on the aggregate of customs duties (excluding special CVD). The portion of cesses leviable on the CVD portion of customs duty is being exempted so as to avoid computation of such cesses twice.

Illustration:

Hence, the purpose of the exemption is to avoid computation of cess on CVD portion twice. Which means, the education cess of Rs 0.42 and SHE Cess of Rs 0.21 in the above table at H and I includes cesses on CVD portion also. Obviously, the customs duty of Rs 21/- includes CVD of Rs 11/-. So, the Ed. Cess of Rs 0.42 has customs component of Rs 0.20 and CVD component of Rs 0.22. Therefore CENVAT credit should be allowed on cess component of Rs 0.22 on CVD. However, since Rule 3(7) allows only credit on Education Cesses paid on CVD, which are exempted under Notifications No 13 & 14 Cus dated 17.03.2012, credit is being denied to the buyers of goods from EOUs.

Since the Board itself had clarified that the purpose of exemptions is only to avoid computation of Cesses twice, Rule 3(7) needs to be revisited in the aftermath of exemption notifications No 13&14.

This problem is faced not only by EOUs, but other importers also, who are not able to claim CENVAT credit of education cesses on CVD though they are paying cesses on CVD portion.