Jammu Units face unwarranted excise litigation

NEW DELHI. Central Excise Department of Jammu & Kashmir is denying the refund of Education Cess and SHE Cess to manufacturing Units located in Jammu & Kashmir claiming that Education Cess and SHE Cess are not duties of excise.

Under a special procedure; the manufacturers located in Jammu & Kashmir first pay excise duty and Cess and thereafter claim the refund under Central Excise Tariff Notification No. 56/2002-CE dated 14.11.2002.

Even in those cases where the refund of Education Cess has been granted to the manufacturers; the Department has filed appeal in Tribunal. The contention of the department is that the said Notification exempts duty of excise liviable under Central Excise Act, 1944, Additional Duties of Excise (Goods of special importance) Act, 1957 (58 of 1957) and Additional Duties of Excise (Textile and Textile Articles) Act, 1978 (40 of 1978). It does not exempt E Cess leviable under section 91 to 93 of Finance Act, 2004 read with clause 81 to 83 of Finance (No. 2) Bill, 2004. The refund granted under the said notification is only operationalization of exemption granted from duty of excise leviable under Central Excise Act, 1944, Additional Duties of Excise (Goods of Special Importance) Act, 1957 (58 of 1957) and Additional Duties of Excise (Textile and Textile Articles) Act, 1978 (40 of 1978). Since the said Notification does not provide any exemption for payment of E Cess and SHE Cess, it is apparent that refund of E Cess and SHE Cess, refund of Cess is beyond the scope of exemption granted in the said notification.

According to RS Sharma Advocate, who is handling litigation on behalf of several Jammu based manufacturers in Delhi Bench of CESTAT (Customs Excise & Service Tax Tribunal), the manufacturers are entitled to refund as Education Cess and SHE Cess are also duties of excise. Even Section 93(1) of the Finance Act, 1994 provides as under:

“The Education Cess levied under section 91, in the case of goods specified in the First Schedule to the Central Excise Tariff Act, 1985, being goods manufactured or produced, shall be a duty of excise”

Rajasthan High Court in case of BANSWARA SYNTEX LTD. Versus UNION OF INDIA reported by allindiantaxes vide AIT-2007-459–HC also held as under in a similar matter where rebate claim of Cess paid was involved:

“The very fact that the surcharge is collected as part of levy under three different enactments goes to show that scheme of levy of Education Cess was by way of collecting special funds for the purpose of Government project towards providing and financing universalised quality of basic education by enhancing the burden of Central Excise Duty, Customs Duty, and Service Tax by way of charging surcharge to be collected for the purpose of Union. But, it was made clear that in respect of all the three taxes, the surcharge collected along with the tax will bear the same character of respective taxes to which surcharge was appended and was to be governed by the respective enactments under which Education Cess in the form of surcharge is levied & collected.

Apparently, when at the time of collection, surcharge has taken the character of parent levy, whatever may be the object behind it, it becomes subject to the provision relating to the Excise Duty applicable to it in the manner of collecting the same obligation of the tax payer in respect of its discharge as well as exemption concession by way of rebate attached with such levies. This aspect has been made clear by combined reading of sub-sections (1), (2) & (3) of Section 93.

Impugned orders are set aside to the extent the petitioner has been denied the claim to rebate on surcharge on Excise Duty appropriated by Union of India as Education Cess for funding Universalised quality basic education programme but was paid by the petitioner only as Duty of Excise”

Further, in case of Bharat Box Factory Ltd Versus CCE, Jammu AIT-2007-460-CESTAT the issue was decided against the department but the Department has taken a plea that their SLP is pending in Supreme Court.

It is high time that FinMin should issue a clarification the refund of Education Cess and SHE Cess, which are in the nature of piggy back duty on the excise duties under the said Acts, are also required to be refunded, because these were not at all leviable, in view of the entitlement to exemption worked out under Paragraph 2 of the said Notification, will also be admissible so that unwarranted litigation being faced by Jammu units can be avoided. Otherwise there will be almost 5000 appeals in Delhi Bench of CESTAT on this issue as every unit is regularly claiming refund of Education Cess and SHE Cess.



  1. alwaysindian said,

    July 2, 2009 at 1:36 pm

    hey amazing article..interesting info…thank you for sharing it wid us 🙂

  2. ghanjir said,

    July 9, 2009 at 11:48 am

    good comment

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