CENVAT credit may be used for education cess and secondary cess when treated as duties of excise.

Education cess and secondary and higher education cess were treated as duties of excise under the CENVAT scheme, so credit of basic excise duty could be used for their payment where the utilisation rule permits payment of any duty of excise. Applying Rules 3(1) and 3(4) of the CENVAT Credit Rules, 2004 and the consistent view that such cesses are excise duties, the demand was found unsustainable. The appeals succeeded, and the impugned demand, interest and penalties were set aside with consequential relief.

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Issues: Whether CENVAT credit availed on basic excise duty could be utilised for payment of education cess and secondary and higher education cess.

Analysis: Education cess and secondary and higher education cess are levied and collected as duties of excise. Rule 3(1) of the CENVAT Credit Rules, 2004 entitles a manufacturer or service provider to avail credit of the specified duties and taxes, and Rule 3(4) permits utilisation of such credit for payment of any duty of excise on final products. In view of the statutory scheme and the consistent judicial view that such cess is a duty of excise, there is no legal bar to using credit of basic excise duty towards payment of those cesses.

Conclusion: The utilisation of CENVAT credit of basic excise duty for payment of education cess and secondary and higher education cess was held permissible and the demand was unsustainable.

Final Conclusion: The appeals succeeded and the impugned demand, interest and penalties were set aside with consequential relief.

Ratio Decidendi: Where a cess is statutorily treated as a duty of excise, credit available under the CENVAT scheme may be utilised for its payment if the governing utilisation rule authorises payment of any duty of excise.

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