Area based excise exemption prevents levy of education cess and higher secondary education cess, making collected amounts refundable.

Where excise duty is exempt under an area based exemption notification, education cess and higher secondary education cess, being surcharge levies on excise duty, do not survive and cannot be retained if collected. The text notes that this entitlement to refund was already settled by the Supreme Court, and that the interpretation favouring the assessee also supported the claim. On that basis, refund of both cesses was held to be allowable and rejection of the refund claims was unsustainable.

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Issues: Whether the appellants were entitled to refund of Education Cess and Higher Secondary Education Cess under the area based exemption notification.

Analysis: The entitlement to refund of education cess and higher education cess was already settled by the Supreme Court. The cess was treated as a surcharge on excise duty, payable only when excise duty itself was payable. Since the underlying excise duty stood exempted under the area based exemption, no education cess or higher education cess could survive. The principle that a view favouring the assessee should be adopted where two views are possible also supported the claim.

Conclusion: The appellants were entitled to refund of Education Cess and Higher Secondary Education Cess, and the rejection of their refund claims was unsustainable.

Ratio Decidendi: Where the basic excise duty is exempt under an area based exemption, education cess and higher education cess, being surcharge levies on excise duty, are not payable and are refundable if collected.

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