Education Cess - A very educative discussion
Within a few minutes after we uploaded the story on the judgement of Shimla High Court, mails started pouring in from different sections and there are a couple of posts on the Message Board also.
For more clarity, the effect of ruling of the Shimla HC is explained as under:
Tractors manufactured in Himachal are exempted - say if the tariff rate is 16%, duty of excise payable is NIL
Though excise duty is exempted, there is no exemption from automobile cess and the assessee has to pay automobile cess at 1/8% ad valorem
The assessee is also liable to pay education cess at 2% on the excise duty payable, but for the exemption. If excise duty payable is Rs 16/-, but exempted, still the assessee is liable to pay education cess on Rs 16/-. The High Court did not go into the aspect whether 1/8% automobile cess should also be taken into account for computation of education cess or not.
The debatable issues:
Point No 1 : What if excise duty is exempted?
Education Cess on excisable goods, imported goods and the services is levied vide Sections 93, 94 and 95 respectively of the Finance Act 2004.
All the above three sections contain provisions that:
The provisions of the Central Excise Act, 1944 (1 of 1944) ( Customs Act or Finance Act as the case may be) and the rules made thereunder, including those relating to refunds and exemptions from duties and imposition of penalty shall, as far as may be, apply in relation to the levy and collection of the Education Cess on excisable goods as they apply in relation to the levy and collection of the duties of excise on such goods under the Central Excise Act, 1944 or the rules, as the case may be.
So if the excise duty/customs duty or service tax is exempted, education cess is also exempted. This has also been clarified by the CBEC in F. No. 345/2/2004-TRU (Pt.), dated 10-8-2004
Point No 2: Whether education cess is payable on other cesses which are collected as excise duty?
Again section 93 of the Finance Act reads:
The education Cess shall be calculated on the aggregate of all duties of excise (including special duty of excise or any other duty of excise but excluding Education Cess, and Secondary and Higher Education Cess levied under section 136 of the Finance Act, 2007 on excisable goods) which are levied and collected by the Central Government in the Ministry of Finance (Department of Revenue), under the provisions of the Central Excise Act, 1944 (1 of 1944) or under any other law for the time being in force.
So, the other allied Cesses like Sugar Cess, Tea Cess or Automobile Cess are not levied by the Central Government in the Ministry of Finance, but are levied under different Acts and the Ministry of Finance does the job of collection of these duties as duties of excise, to be paid to the respective departments. Therefore no Education Cess is leviable on such Cesses in terms of Section 93 of the Finance Act 2004. Precisely this is what has been clarified by the TRU in F.No 345/2/2004 TRU dated 10/8/2004
(4) : Whether duties/ cesses which either not collected as duty of excise/customs or are collected so but by a Department other than Department of Revenue, should be included for the purposes of calculation of Education Cess ?
Clarification:
As the Education Cess is calculated on the aggregate duties of excise/customs (excluding certain duties of customs like anti-dumping duty, safe guard duty etc.) levied and collected by the Department of Revenue, only such duties, which are (a) levied and collected as duties of excise/customs and (b) are both levied and collected by the Department of Revenue should be taken into account for calculating Education Cess
Take the case of Sugar. In addition to excise duty, cess is also levied under Sugar Cess Act 1982. While calculating the education cess, the sugar cess need not be included as clarified above by TRU.
So if the duty structure is 16% (excise) plus 5% ( cess), education cess is payable only on 16%. In case of Tractors manufactured in Himachal, since 16% is exempted, no education cess needs to be paid either on excise duty or on the automobile cess.
Today we are carrying another important judgement on this issue wherein the CESTAT relying on the TRU letter dated 10/8/2004 has held that no education cess need be paid on the Tea Cess as the same is not levied by the Central Government in the Ministry of Finance but levied by the Government in the Ministry of Commerce.