Can Education Cess be paid by debiting from CENVAT Balance? - The Law Permits - The Return Does Not!
WE received a query from an assessee seeking clarification whether education cess can be paid by debiting from credit accumulated in excise duty account. Though the query looks naïve, we came to know that this dilemma is faced by most of the assessees post removal (exemption) of education cess on the Customs CVD vide Notification No. 13/2012-Customs dt. 17.03.2012. The assessees who use mostly imported inputs in the manufacture of their final products will not be having sufficient balances of Education Cess and SHE Cess in their CENVAT Credit account because the imported inputs are exempted from payment of education cesses on the CVD portion, at the time of importation, by virtue of exemption notification mentioned above. The assessee who does not have sufficient balance in their education cess (es) account are being forced to discharge their liability towards education cess through cash deposit (in PLA), despite having sufficient / huge balance in their CENVAT (excise duty) credit account. This is putting lot of financial pressure on small assessees who run their industry under tight financial conditions.
For example an assessee who imports Rs.1000 worth of inputs pays a CVD of Rs. 100 (on an assumed 10% excise duty), with no Education Cess as it is exempted. So he takes CENVAT Credit of Rs. 100/-. If this is his first transaction, he would have a CENVAT Credit of Rs. 100 under excise duty and nil under Education Cess and nil under SHE Cess. Another similar import will give him a credit of Rs. 200 in excise duty and nil under both the Education Cesses. Now suppose he clears final products valued at Rs. 1000 - he has to pay an excise duty of Rs. 100; Education Cess of Rs.2 and SHE Cess of Re. 1.
He has a credit of Rs. 200 in his CENVAT account; so he can pay Rs. 100 excise duty from the CENVAT credit but from where should he pay the Rs. 3 of Education Cesses - he has no credit of Cesses?
The law (CENVAT Credit Rules) does not restrict/prohibit adjustment (payment) of Education cess from the balance available in CENVAT (excise duty) account, though the converse is not permissible. The relevant provision of Rule 3 (7)(b) of CCR reproduced below, reveals that the only restriction is for utilization of education cess only for payment of education cess only and there is no restriction on the utilization of balance available in CENVAT (excise duty) for payment of education cess .
(b) CENVAT credit in respect of -
(i) the additional duty of excise leviable under section 3 of the Additional Duties of Excise (Textiles and Textile Articles) Act, 1978 (40 of 1978);
(ii) the National Calamity Contingent duty leviable under section 136 of the Finance Act, 2001 (14 of 2001);
(iii) the education cess on excisable goods leviable under section 91 read with section 93 of the Finance (No.2) Act, 2004 (23 of 2004);
(iiia) the Secondary and Higher Education Cess on excisable goods leviable under section 136 read with section 138 of the Finance Act, 2007 (22 of 2007) ;
(iv) the additional duty leviable under section 3 of the Customs Tariff Act, equivalent to the duty of excise specified under items (i), (ii) and (iii) above;
(v) the additional duty of excise leviable under section 157 of the Finance Act, 2003 (32 of 2003);
(vi) the education cess on taxable services leviable under section 91 read with section 95 of the Finance (No.2) Act, 2004 (23 of 2004); and
(via) the Secondary and Higher Education Cess on taxable services leviable under section 136 read with section 140 of the Finance Act, 2007 (22 of 2007); and
(vii) the additional duty of excise leviable under 24[Section 85 of Finance Act, 2005 (18 of 2005),
shall be utilised towards payment of duty of excise or as the case may be, of service tax leviable under the said Additional Duties of Excise (Textiles and Textile Articles) Act, 1978 or the National Calamity Contingent duty leviable under section 136 of the Finance Act, 2001 (14 of 2001), or the education cess on excisable goods leviable under section 91 read with section 93 of the said Finance (No.2) Act, 2004 (23 of 2004), or the Secondary and Higher Education Cess on excisable goods leviable under section 136 read with section 138 of the Finance Act, 2007 (22 of 2007) or the additional duty of excise leviable under section 157 of the Finance Act, 2003 (32 of 2003), or the education cess on taxable services leviable under section 91 read with section 95 of the said Finance (No.2) Act, 2004 (23 of 2004), or the Secondary and Higher Education Cess on taxable services leviable under section 136 read with section 140 of the Finance Act, 2007 (22 of 2007), or the additional duty of excise leviable under section 85 of the Finance Act, 2005 (18 of 2005) respectively, on any final products manufactured by the manufacturer or for payment of such duty on inputs themselves, if such inputs are removed as such or after being partially processed or on any output service
Provided that the credit of the education cess on excisable goods and the education cess on taxable services can be utilized, either for payment of the education cess on excisable goods or for the payment of the education cess on taxable services:
Provided further that the credit of the Secondary and Higher Education Cess on excisable goods and the Secondary and Higher Education Cess on taxable services can be utilized, either for payment of the Secondary and Higher Education Cess on excisable goods or for the payment of the Secondary and Higher Education Cess on taxable services.
There is no restriction in law other than what has been mentioned above, and it can be inferred from the above provisions of CCR that there is no specific prohibition/bar in the law, for utilization of credit available in the CENVAT (excise duty) account for payment of both the education cess (es ) on the final products cleared by an assessee, which is the subject matter of query discussed in the beginning.
However, the predicament that would be faced by the assesses is how to show such adjustment (payment) of Education Cess (es) from the balance available in the CENVAT ( excise duty ) account in the ER1 filed by them online and whether the system recognizes such debiting from CENVAT (excise duty) account as due discharge of liability towards Education cess. We also find that there is no column for such adjustment in the ER1. It's a clear case where the law permits but the returns do not.
We hope the Government understands the problems faced by small assesses on this count and gives a clarification to guide both field formations and the assessees..