Department violates natural justice by demanding interest on education cess while ignoring appellant's protest on differential duty payment

The CESTAT Chennai held that the department failed to follow natural justice principles when it demanded interest for delayed payment of education cess but did not vacate the appellant's protest regarding differential duty payment. The appellant had deposited money under protest to avoid time bar issues while disagreeing with the department's position. The tribunal found the department's arbitrary decision contradicted legitimate expectation principles, citing Supreme Court precedent. Following the larger bench decision in Kumar Arch Tech, the tribunal ruled that education cess is chargeable only once under relevant Finance Act provisions. The impugned order was set aside and appeal allowed.

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Issues involved:
The issues involved in the judgment are the calculation and payment of education cess by an appellant engaged in the manufacture of surgical gloves, the demand for interest on delayed payment of education cess, and the interpretation of whether educational cess and secondary and higher education cess are chargeable on Domestic Tariff Area (DTA) clearance made by a 100% Export Oriented Unit (EOU).

Calculation and Payment of Education Cess:
The appellant, a 100% EOU manufacturing surgical gloves, had erroneously calculated and discharged the education cess payable on goods cleared to DTA, resulting in short-payment of education cess. The appellant paid the differential amount but did not discharge their interest liability on the delayed payment. The Adjudicating Authority demanded interest for the delayed payment but refrained from vacating the protest for payment of differential duty. The Commissioner (Appeals) upheld the order, leading the appellant to appeal to the Tribunal. The Tribunal noted that the appellant had deposited the money primarily to buy peace with the department and had paid 'under protest' to register disagreement with the department. The Tribunal criticized the Adjudicating Authority for demanding interest on the voluntarily paid amount while refraining from vacating the protest promptly, citing the principle of legitimate expectation.

Interpretation of Cess on DTA Clearance:
The issue of whether educational cess and secondary and higher education cess are chargeable on DTA clearance made by 100% EOU was addressed by the Larger Bench of the Tribunal in a previous case. The Tribunal held that the existing levies, on which the cess is to be levied as a surcharge, would not include the education cess and secondary and higher education cess. Charging education cess on education cess was deemed impermissible, and the Tribunal emphasized the principle against double taxation. The Tribunal concluded that the education cess and secondary and higher education cess would be chargeable only once on the sum of basic customs duty and additional customs duty. In light of this judgment, the Tribunal set aside the impugned order and allowed the appeal with consequential relief, if any.

Separate Judgement:
No separate judgment was delivered by the judges in this case.

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