2010 (2) TMI 335 - AT - Central Excise

Tribunal rules against department, finds demand for education cess under Finance Act incorrect.

SARLA PERFORMANCE FIBERS LTD. Versus COMMISSIONER OF C. EX., VAPI

The tribunal allowed the appeal filed by the appellants, concluding that the department's demand for education cess under the relevant provisions of the ... 100% EOU- The appellant-company is a 100% Export Oriented Unit, inter alia, engaged in manufacture of polyester yarn. As per show cause notice, the duty paid by the appellants is excise duty under proviso to Section 3(1) of the Central Excise Act, 1944. According to Revenue the appellants ought to have paid Education cess @ 2% levied under Section 93 of the Finance Act, 2004 and Rs. 1,98,122/- was recoverable from appellants. Held that- computation of aggregate of customs duty for levy of excise duty gets completed once percentage addition made fot custom duty purpose and by adding another percentage, something extra to custom duty added by department and the same not sustainable. Aggregate of custom duties once worked out, question of arriving at quantum of excise duty by adding education cess again not arises. Education cess not payable for third time as contended by the department. Issues Involved:1. Levy of Education Cess on goods cleared by 100% Export Oriented Units (EOUs) to the Domestic Tariff Area (DTA).2. Interpretation of the proviso to Section 3(1) of the Central Excise Act, 1944.3. Nature and application of Education Cess under the Finance Act, 2004.Issue-wise Detailed Analysis:1. Levy of Education Cess on goods cleared by 100% Export Oriented Units (EOUs) to the Domestic Tariff Area (DTA):The primary issue was whether the department was correct in demanding education cess under the Finance Act, 2004, in addition to the aggregate of duties of customs leviable when goods are cleared by a 100% EOU to the DTA. The appellants argued that once the aggregate of customs duties is determined, adding education cess again under Section 93 of the Finance Act, 2004, would be incorrect. The tribunal agreed, stating that education cess is a surcharge, meaning an additional imposition that enhances the tax. Once the customs duty is determined and education cess on the whole customs duty under Section 94 of the Finance Act is added, the question of adding education cess under Section 93 does not arise.2. Interpretation of the proviso to Section 3(1) of the Central Excise Act, 1944:The proviso to Section 3(1) of the Central Excise Act, 1944, mandates that excise duty payable on excisable goods manufactured in a 100% EOU and cleared in DTA should be equal to the aggregate of duties of customs. The tribunal emphasized that the aggregate of customs duties should be considered, and once this is done, the question of adding education cess again does not arise. The tribunal also noted that the Central Excise Act, Customs Tariff Act, and Exim Policy form an integrated scheme of taxation, and they should be interpreted in an integrated manner, supporting the view that once the aggregate of customs duties is determined, applying the provisions of the Finance Act for goods manufactured by 100% EOUs does not arise.3. Nature and application of Education Cess under the Finance Act, 2004:The tribunal held that education cess is a surcharge, which means an additional imposition that enhances the tax rate. The tribunal referred to the Supreme Court's judgments in CIT v. K. Srinivasan and Sarojini Tea Co. (P) Ltd. v. Collector of Dibrugarh, which clarified that surcharge means an additional imposition that results in the enhancement of the tax. The tribunal concluded that once the surcharge is levied on customs duty, the enhancement of customs duty is complete, and there cannot be an enhancement of the duty twice. The tribunal also noted that the very fact that cess is levied as a percentage of customs duty or excise duty and would automatically become nil in case no excise duty or customs duty is leviable supports the appellants' case.Additional Observations:The tribunal also considered various submissions made by other interveners, including the argument that the legislative intent was not to levy excise duty on goods cleared by EOUs, as evidenced by various circulars and resolutions. The tribunal agreed with the appellants' contention that the deemed fiction created by the proviso to Section 3(1) should be carried to its logical end, meaning that goods cleared to DTA from 100% EOUs should be treated as imports for the purpose of determining the duty.Conclusion:The tribunal allowed the appeal filed by the appellants, concluding that the department's demand for education cess under the relevant provisions of the Finance Act, 2004, in addition to the aggregate of duties of customs, was incorrect. The tribunal emphasized that once the aggregate of customs duties is determined, the question of adding education cess again does not arise.