Referral to Larger Bench: Education Cess on DTA Clearances

The Tribunal referred the case to a Larger Bench to determine whether Education Cess and Secondary and Higher Education Cess are applicable on Domestic Tariff Area clearances by a 100% Export Oriented Unit, despite being included in the calculation of the 'aggregate of duties of customs' payable under the Customs Act or any other relevant law at the time of import of similar goods. The matter was forwarded to the Hon'ble President for further review.

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Issues Involved:
1. Levy of Education Cess on DTA clearances by a 100% EOU.
2. Applicability of Notification No. 23/2003-C.E. regarding exemption from duty.
3. Interpretation of Sections 93 and 94 of the Finance (No. 2) Act, 2004.
4. Contradictory judicial precedents on the levy of Education Cess.

Detailed Analysis:

1. Levy of Education Cess on DTA clearances by a 100% EOU:
The primary issue is whether Education Cess and Secondary and Higher Education Cess are applicable on clearances made by a 100% Export Oriented Unit (EOU) in the Domestic Tariff Area (DTA). The Adjudicating Authority held that duty is leviable under Section 3 of the Central Excise Act, 1944, which includes the aggregate of duties of customs, and thus, Education Cess is also applicable. This was upheld by the Commissioner (Appeals).

2. Applicability of Notification No. 23/2003-C.E.:
The appellants argued that Notification No. 23/2003-C.E. provides the manner of payment of duty in case of DTA clearances by a 100% EOU and does not necessitate the additional levy of Education Cess. However, the Tribunal noted that the notification grants exemption only from the duty of excise and not from the cesses. The Supreme Court's decision in UOI & Others v. M/s. Modi Rubber Limited & Others was cited, stating that exemption notifications referring only to the Central Excise Act imply exemption from basic excise duty and not from other duties or cesses.

3. Interpretation of Sections 93 and 94 of the Finance (No. 2) Act, 2004:
Sections 93 and 94 of the Finance (No. 2) Act, 2004, were examined to understand the levy of Education Cess on excisable and imported goods. Section 93 levies Education Cess on excisable goods, while Section 94 levies it on imported goods. The Tribunal concluded that the levy of cess is on the activity (import or manufacture) and not on the aggregate duties themselves. Therefore, the contention that cess on DTA clearances by a 100% EOU would be a cess on cess was found untenable.

4. Contradictory Judicial Precedents:
The Tribunal noted conflicting decisions: the Sarla Performance Fibres Ltd. case, which argued against double cess, and the Sarla Polyester case, which supported the Department's view. Additionally, the Himachal Pradesh High Court in Indo Farm Tractors & Motors Ltd. v. Union of India held that Education Cess can be calculated on notional excise duty even if excise duty is exempted.

Conclusion:
The Tribunal, after considering the rival submissions and existing judicial precedents, referred the matter to a Larger Bench to resolve the following legal question:
"Whether Education Cess and Secondary and Higher Education Cess are leviable on DTA clearances made by a 100% EOU, even if such cesses were added when calculating the 'aggregate of duties of customs' payable under Customs Act or any other law in force at the time of import of like goods."

The case was directed to be placed before the Hon'ble President for further consideration.

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