2025 (10) TMI 396 - AT - Service Tax

Appeal allowed: Education Cess and Secondary & Higher Education Cess not payable on short-paid BJA after R&D cess deduction

Maruti Suzuki India Limited Versus Commissioner of Central Excise and Service Tax, Gurgaon-II

CESTAT CHANDIGARH - AT allowed the appeal, holding the demand for short-paid Education Cess and Secondary & Higher Education Cess (BJA for Oct 2011-Mar ... Recovery of short paid Education Cess and Secondary & Higher Education Cess - demand has been computed based on Best Judgment assessment for the period October 2011 to March 2012 - revenue neutrality - HELD THAT:- The issue involved in the present case is no longer res integra and has been settled in favour of the appellant in their own case by this Tribunal in MARUTI SUZUKI INDIA LTD VERSUS COMMISSIONER OF CENTRAL EXCISE, GOODS & SERVICE TAX, GURUGRAM [2025 (1) TMI 78 - CESTAT CHANDIGARH] wherein this Tribunal has held that 'the Appellant had rightly paid the education cess and secondary & higher education cess on the amount of net service tax i.e. service tax after deducting the amount of R&D cess i.e. exempted amount.' Further, it is found that for the subsequent period, even the lower authorities have given the relief to the appellant and have held that the Education Cess and Secondary & Higher Education Cess is to be paid on the net service tax. It is also found that the department has accepted the said orders as no appeal has been filed by the Revenue and therefore, the said orders have attained finality. The impugned order is not sustainable in law - Appeal allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether Education Cess and Secondary & Higher Education Cess are payable on the gross amount of service tax inclusive of R&D Cess, or on the net service tax after deducting the R&D Cess. 2. Whether the Revenue is precluded from asserting a contrary position in later proceedings where it has accepted earlier orders (by lower/adjudicating authorities and this Tribunal) holding cesses payable on net service tax - i.e., the effect of departmental acceptance and finality of orders on subsequent demands arising from the same audit. 3. Applicability and effect of Best Judgment assessment under Section 72 (and recovery under Sections 73, 75, 76, 77 of the Finance Act) where the quantum of cesses was computed on a contested gross basis; and whether such assessment results in a short payment when assessed contrary to settled position. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Proper taxable base for Education Cess and Secondary & Higher Education Cess (gross vs net service tax) Legal framework: The levy of Education Cess and Secondary & Higher Education Cess is imposed as a percentage on the service tax liability under the relevant provisions of the Finance Act; the controversy concerns whether the cess must be calculated on service tax inclusive of amounts classified as R&D Cess (exempted amount) or on service tax after deducting the R&D Cess. Precedent treatment: The Tribunal relied on its own earlier final order in the appellant's subsequent periods and on lower authorities' orders that granted relief by directing cesses to be paid on net service tax (i.e., after deduction of R&D Cess). The Revenue did not appeal those orders, and they have been accepted by the department. Interpretation and reasoning: The Court examined earlier orders in the same assessee's subsequent periods arising from the same audit and noted that the Commissioner and adjudicating authorities had allowed the benefit of calculating Education Cess and Secondary & Higher Education Cess on the net service tax. Given identical legal and factual matrix and departmental acceptance of those orders (no appeal filed), the Tribunal treated the reasoning of those earlier orders as directly applicable. The Tribunal found that the assessee had correctly computed cesses on net service tax and that computing cesses on the gross service tax (inclusive of R&D Cess) as done in the impugned order was inconsistent with the accepted position for the same audit chain of transactions. Ratio vs. Obiter: The holding that cesses are payable on net service tax, where R&D Cess had been deducted (in an identical factual matrix and with departmental acceptance of prior orders), was applied as the operative ratio in disposing of the appeal. Any broader dictum regarding interpretation of cess base beyond the identical factual matrix is obiter. Conclusions: The Tribunal concluded that Education Cess and Secondary & Higher Education Cess are to be calculated on the net service tax (i.e., after deducting the amount of R&D Cess) in the facts of the present proceedings, and that the impugned demand computed on a gross basis is unsustainable. Issue 2 - Effect of departmental acceptance of earlier orders and finality on subsequent assessments/demands Legal framework: Principles of finality and consistency in revenue administration; estoppel by conduct/representation where the department accepts an adjudicatory order and refrains from filing appeal, particularly in proceedings arising from the same audit and involving identical issues affecting the same assessee. Precedent treatment: The Tribunal relied on authority recognizing that the department cannot take contradictory stands in identical proceedings against the same assessee (cited authorities supporting the proposition that inconsistent positions by Revenue are impermissible). The Tribunal also relied on the fact that the Commissioner's earlier order had been accepted by the Committee of Chief Commissioners and that subsequent adjudicating authorities had followed the same position. Interpretation and reasoning: The Tribunal observed that the present show cause proceedings stemmed from the same audit as the earlier proceedings where the department had accepted orders favourable to the assessee (and had not appealed). In that factual posture, the Tribunal held that the issue had attained finality in the assessee's favour and that the Revenue was precluded from re-agitating the same point in subsequent assessments arising from the same audit. The Tribunal treated departmental acceptance (and absence of appeal) as conclusive for the identical issue and taxpayer, rendering the impugned demand unsustainable. Ratio vs. Obiter: The conclusion that the department is precluded from reversing its earlier accepted position in later proceedings arising from the same audit - thereby barring fresh demand - constitutes the ratio as applied to the facts. Any generalized proposition about estoppel in different factual contexts is obiter. Conclusions: The Tribunal held the issue to be finally settled in favour of the assessee because earlier orders on the same issue and audit had been accepted by the department and remained unappealed; accordingly, the Revenue could not sustain the present demand. Issue 3 - Validity of Best Judgment assessment and consequent computation of cesses and penalties Legal framework: Best Judgment assessment under Section 72 and demand/recovery provisions under Sections 73, 75, 76, 77 of the Finance Act (interest and penalties for short payment). The legal question was whether the Best Judgment computation resulted in a legitimate short payment when measured against the settled position that cesses are payable on net service tax. Precedent treatment: The Tribunal considered that the impugned demand emanated from a Best Judgment assessment for the period in question, but that the same legal issue had been adjudicated in the assessee's favour for subsequent and prior periods with departmental acceptance. Interpretation and reasoning: Since the base for cess computation was found to be incorrectly taken as gross service tax in the Best Judgment assessment, and since the correct legal position (as settled in the assessee's own case) is net service tax, the Tribunal held that the assessment produced an incorrect demand. The Tribunal also noted the revenue-neutral character of the underlying R&D Cess accounting as contended by the assessee, though the controlling reason for setting aside the demand was settled legal position and departmental acceptance rather than detailed reworking of the Best Judgment figures. Ratio vs. Obiter: The conclusion that the Best Judgment assessment was unsustainable insofar as it computed cesses on an incorrect gross base is ratio in the context of these proceedings. Broader commentary about the scope or limits of Best Judgment assessments beyond this error is obiter. Conclusions: The Tribunal set aside the demand assessed under Best Judgment insofar as it related to Education Cess and Secondary & Higher Education Cess computed on the gross amount, allowed the appeal, and directed consequential relief in accordance with law (interest/penalty adjustments to follow from setting aside the impugned computation). Cross-references 1. Issue 1 and Issue 2 are interlinked: the substantive question of cess base (Issue 1) was resolved in the appellant's favour in earlier orders which the department accepted (Issue 2), and that acceptance formed the primary basis for applying the earlier ratio to the present Best Judgment assessment (Issue 3). 2. The Tribunal's decision rests on the combination of substantive tax-levy interpretation and the procedural fact of departmental acceptance/finality; either element alone would be less determinative than their concurrence in the present record.