2010 (2) TMI 335 - AT - Central Excise

100% EOU excise computation: Education cess cannot be added again after aggregate customs duty determination

A 100% Export Oriented Unit manufacturing polyester yarn disputed revenue demand that education cess be levied again while computing excise duty. The ... Education cess as surcharge - proviso to Section 3(1) of the Central Excise Act, 1944 treating EOU clearances as imports for rate/measure - aggregate of duties of customs as measure of excise for EOU DTA clearances - deeming fiction to be given full effect - avoidance of double taxation - integrated interpretation of Customs, Central Excise and Finance Acts in the EOU schemeEducation cess as surcharge - proviso to Section 3(1) of the Central Excise Act, 1944 treating EOU clearances as imports for rate/measure - aggregate of duties of customs as measure of excise for EOU DTA clearances - deeming fiction to be given full effect - avoidance of double taxation - integrated interpretation of Customs, Central Excise and Finance Acts in the EOU scheme - Whether education cess under the Finance Act can be levied again as excise on EOU clearances to DTA after the excise duty has been computed as an amount equal to the aggregate of customs duties under the proviso to Section 3(1) of the Central Excise Act, 1944. - HELD THAT: - The tribunal held that education cess is in the nature of a surcharge which enhances the relevant duty and, once so added, cannot be invoked afresh to produce an additional levy. The proviso to Section 3(1) creates a deeming fiction treating goods cleared by a 100% EOU to DTA as 'imported' for the purpose of measuring excise duty; that fiction must be given full effect and applied consistently across the Customs, Central Excise and Finance enactments dealing with EOUs. Accordingly, when the aggregate of customs duties (including the effect of education cess as an enhancement of customs duty) is worked out for application of the proviso, the enhancement effected by the education cess has already been consumed in arriving at the aggregate and cannot be added again under Section 93 as a separate excise cess. The construction that would result in repeated imposition of the same cess was rejected as amounting to double taxation; an interpretation avoiding such duplication and giving full effect to the deeming fiction and the integrated EOU scheme was preferred. Applying these legal principles to the facts of clearances made by the appellant during April 2004-December 2005, the departmental demand to levy education cess again as excise after computing the aggregate of customs duties was held unsustainable.Demand of education cess under the Finance Act as an additional excise levy after computing the aggregate of customs duties under the proviso to Section 3(1) is not sustainable; appeal allowed.Final Conclusion: The CESTAT allowed the appeal: education cess (being a surcharge) cannot be levied again as excise over and above the aggregate of customs duties computed under the proviso to Section 3(1) for EOU clearances to DTA; the deeming fiction and an integrated reading of the statutory scheme require rejection of the Department's demand. Issues: Whether education cess under the Finance Act (Section 93) is leviable again as excise duty on goods manufactured in a 100% EOU and cleared to DTA after computing the excise payable under the proviso to Section 3(1) of the Central Excise Act, 1944 (i.e., whether department correctly demanded education cess a further time over the aggregate of customs duties).Analysis: The proviso to Section 3(1) of the Central Excise Act treats goods manufactured in a 100% EOU and cleared to DTA as if imported for purposes of computing the excise payable, by equating excise to the aggregate of customs duties that would be leviable on like imported goods. Sections 91, 93 and 94 of the Finance Act frame education cess as a surcharge that enhances the relevant duty (excise or customs) by a percentage. A deeming fiction must be carried to its logical end so that goods treated as imported for rate/measure purposes remain so when computing related surcharges. Once education cess is included in the customs duty computation (as enhancement to customs/CVD), treating Section 93 as an independent additional levy that is again applied after arriving at the aggregate of customs duties would produce cascading taxation and permit double charging. The proviso's requirement to take an amount equal to the aggregate of customs duties is incompatible with adding an extra surcharge under Section 93 over and above the customs-based measure; statutory exclusions and the design of the cess provisions demonstrate an intent to avoid cess-on-cess. Notifications and the integrated scheme governing EOUs support treating the customs-measured amount (including the effect of cess as part of the enhanced rate where applicable) as the final measure for excise purposes, without a separate, subsequent levy of Section 93 education cess.Conclusion: Education cess under Section 93 of the Finance Act, 2004 is not leviable again as an additional excise charge after arriving at the aggregate of customs duties under the proviso to Section 3(1) of the Central Excise Act, 1944; the departmental demand for education cess in that manner is set aside. This conclusion is in favour of the assessee.