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 legal basis was that once the aggregate of customs duties is determined by percentage addition for customs purposes, further addition of education cess to compute excise duty is impermissible; adding another percentage beyond the computed aggregate effectively taxes the same component again. Consequently the additional education cess demand seeking to be levied a further time was held unsustainable and not payable.

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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.

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