Can Education Cess be paid by debiting from CENVAT Balance? -The Law Permits -The Return Does Not! DOES THE LAW REALLY PERMIT?
THE DDT piece on this issue on Tuesday evoked mixed response. While everybody agreed with our views, there was a lone dissenting voice from one of the readers (probably a departmental officer). We were under the impression that there is absolutely no doubt that CENVAT Credit of Excise Duty (Let's call it BED) can be used for payment of Education Cess. But there are quite a few departmental officers who strongly believe that it cannot be so used.
This concerned Netizen wrote in, "At the outset, I wish to point out that there is no provision to utilise the BED (CENVAT) credit for payment of ED cess/SHE cess under CCR. The correct legal position in this matter has been spelt out in the case Bharat Box Factory (2011-TIOL-2007-CESTAT-DEL) decided in favour of the Department by a Bench headed by CESTAT President. Your DDT pieceis just opening up a Pandora's box in Central Excise prompting more assessees to utilise the ineligible CENVAT credit for payment of ED cess and SHE Cess thereby affecting revenue collections."
How sad!
Sir, the Bharat Box case was in the peculiar circumstances of Notification No. 56/2002 and is not applicable in general cases.
But the fact is that this issue has travelled to CESTAT several times and it was emphatically held that such credit utilisation is proper and legal. Please see
1. Commissioner of Central Excise, VAPI v BALAJI INDUSTRIES - 2008-TIOL-2629-CESTAT-AHM. This is an appeal by the Revenue on the ground that Education Cess is not excise duty and therefore, the BED cannot be used for payment of Education Cess. Held: Education Cess imposed on manufacture and production of goods under Sections 91 & 93 of Finance Act, 2004 is in a nature of excise duty. Once it is decided that Education Cess is a duty of excise, then in terms of sub-rule 3(4) of the Cenvat Credit Rules, 2004, Cenvat credit can be utilized for payment of any duty of excise including Education Cess on any final product.
2. CCE, Shillong Vs Godrej Consumer Products Ltd - In this Revenue appeal, the Department has objected to availment of basic excise duty credit for payment of education cess. The Tribunal found that the Department's appeals do not have any merit. Rule 7 (b) of the Cenvat Credit Rules, 2004 restricts education cess credit to be utilized for paying education cess. The said rule does not put any restriction of utilization of the Basic Duty Credit.
In the recent case of Commissioner of Central Excise Vs Madura Industries Textiles - , the assessee used Cenvat Credit of basic excise duty available in the Cenvat credit account for payment of Education Cess. The Adjudicating Authority not only demanded duty but also imposed penalty. The Commissioner (Appeals) allowed the appeal, but the Department was not prepared to end litigation and took the matter to the CESTAT. The Tribunal dismissed the appeal of the Department on the ground that the benefit of utilization of credit of basic excise duty for payment of Education Cess could be allowed. Department is not one to keep quiet. It took the matter in appeal to the High Court. The High Court agreed with the Tribunal and dismissed the Revenue appeal as it is devoid of any merit and does not involve any question of law.
Interestingly, I came across a reasoned order passed by an adjudicating authority. The Deputy Commissioner, Gandhidham, Vinod Kumar in his OIO No. 14/2011-12 dated 26.07.2011 observed,
I find that both the cess are leviable on the manufacture of excisable goods and are leviable and collected under the provisions of Central Excise Act, 1944 and rules made there under and section 3 of the Central Excise Act, 1944 is the charging section for levy of duty on manufacture of goods. Hence, it is a type of Central Excise duty.
Rule 3(7) of the CENVAT Credit Rules, 2004 applies restriction to the credit of various duties, such as additional duties on textiles and textile articles, NCCD, Education Cess etc. There is nothing in this rule which restrict the use of CENVAT credit of basic excise duty for payment of Education cess and S. & H. education cess. When there is no restriction prescribed under rule 3(7) of the CENVAT rules about such utilization of credit of basic duty there is no reason to deny it. Therefore, in absence of any restriction and as provided under Rule 3(4) of Cenvat Credit Rules, 2004 the CENVAT credit of basic duty may be utilized for payment of any duty of excise on any final product.
I hold that the noticee is eligible for utilization of the CENVAT credit of basic duty for payment of Education Cess and the S. & H. Education Cess.
Bravo! Vinod Kumar - we need more such officers who have the courage to adjudicate properly and prevent the clogging of the judicial pipeline. We don't know whether the learned Commissioner has accepted this outrageous order of his Deputy Commissioner.
Ultimately, the fact is that CENVAT Credit of Basic Excise Duty can be used for payment of Education Cess - however confused some officers of the Department are.
Board should help in reducing litigation by issuing a clarification immediately.