Utilization of CESS against payment of excise duty

 In a significant move towards Goods & Service Tax (GST), the Central Government had issued Notification No. 14/2015-CE and 15/2015-CE dated 01-03-2015 (as part of the Union Budget – 2015 Notifications) whereby it exempted all goods falling under First Schedule of the Central Excise Tariff Act, 1985 (CETA) from the levy of Education Cess and Secondary and Higher Education Cess (SHE Cess) (collectively referred as CESS) respectively with immediate effect. The underlying objective of the exemption notification was indicated by the Hon’ble Finance Minister Shri Arun Jaitley during his Budget Speech in the Lok Sabha on 28-02-2015 as quoted below:

“As part of the movement towards GST, I propose to subsume the Education Cess and the Secondary and Higher Education Cess in Central Excise duty. In effect, the general rate of Central Excise Duty of 12.36% including the cesses is being rounded off to 12.5%.”

The immediate, shocking but may be unintended fall out of the above notification was that the balance of cenvat credit lying in Ed. Cess and SHE Cess as on 28-02-2015 became un-utilizable and deadstock for all the manufacturers!! This is due to the restriction contained in Rule 3(7)(b) of the Cenvat Credit Rules, 2004 (hereinafter referred as CCR) which provide that cenvat credit availed on Ed. Cess/SHE Cess can be utilized only towards payment of Ed. Cess/SHE Cess respectively.

The issue was raised by various members and associations of the industry and professionals. The manufacturers were deeply concerned about the loss of huge amount of cenvat credit, lawfully availed by them before the amendment would become redundant and sought relief from this hardship inflicted upon them.  The Central Government has responded positively and issued Notification No. 12/2015 – CE (NT) dated 30-04-2015, which is reproduced below for your convenience:

“2. In the CENVAT Credit Rules, 2004 (hereinafter referred to as the said rules), in rule 3, in sub-rule (7), in clause (b), after the second proviso, the following shall be substituted, namely:-

“Provided also that the credit of Education Cess and Secondary and Higher Education Cess paid on inputs or capital goods received in the factory of manufacture of final product on or after the 1st day of March, 2015 can be utilized for payment of the duty of excise leviable under the First Schedule to the Excise Tariff Act:

Provided also that the credit of balance fifty per cent Education Cess and Secondary and Higher Education Cess paid on capital goods received in the factory of manufacture of final product in the financial year 2014-15 can be utilized for payment of the duty of excise specified in the First Schedule to the Excise Tariff Act:

Provided also that the credit of Education Cess and Secondary and Higher Education Cess paid on input services received by the manufacturer of final product on or after the 1st day of March, 2015 can be utilized for payment of the duty of excise specified in the First Schedule to the Excise Tariff Act.”.

At the first glance, it appears that the Central Government has resolved all the issues raised by the industry. But in effect, this is not TRUE. The relief sought by the industry has ACTUALLY NOT been given to them. This notification is just an eye wash!! If I may be permitted, I would like to go a step further to say that the ‘industry has been fooled’ by the government.

The above notification does allow the manufacturers to utilize the cenvat credit on CESS towards payment of basic excise duty and to that extent it is welcome step. But when we minutely read the newly inserted proviso, the amendment is applicable only to CESS paid on inputs, capital goods and input services received in the factory of the manufacturer on or after 01-03-2015. Consequently, this beneficial amendment is not at all applicable to inputs, capital goods and input services received in the factory of the manufacturer upto February 28, 2015. In simple words, the industry was expecting to utilize the balance of CESS lying as on 28-02-2015 towards payment of excise duty, which is not yet possible even after the amendment of Rule 3(7)(b) of CCR. Further, the same difficulty will also be faced by the output service providers after the withdrawal of CESS on service tax from the date to be notified.

I fail to understand why a clarificatory amendment can’t be made without adding more confusion and problems.  No real benefit has been extended to the industry through this notification as any clearance of inputs/capital goods made on or after March 01, 2015 is exempted from CESS. It means invoices accompanying such goods won’t have any element of CESS which can be availed and utilized against excise duty. Marginal benefit is available on inputs/capital goods in transit in case the invoicing was done before 01-03-2015 and the actual goods were received in the factory on or after 01-03-2015. However, the value of such transactions would be negligible!! Yes, some relief has come to manufacturers in case of input services as Education Cess and SHE Cess is not yet exempted on service tax. The CESS shall be abolished on service tax from a date to be notified after the enactment of Finance Bill, 2015. Till then, a manufacturer can utilize cenvat credit of CESS on input service received on or after 01-03-2015 towards payment of excise duty. So, in effect, primary concern of the manufacturers is not yet addressed and if the government is seriously serious to mitigate the hardship faced by the industry, then it should immediately make necessary amendments to allow utilization of CESS balance. Expecting prompt corrective action by the Central Govt. as our beloved Prime Sevak Shri Narendra Modi believes in ‘ease of doing business’ in India.

Till then, the only silver lining for the manufacturers is that they can continue to carry forward the un-utilized cenvat credit balance of CESS as it is perpetual and it never lapses!!! They may still utilize the same in the following situations:

1.     For removal of inputs ‘as such’ upon payment/reversal of cenvat credit availed earlier on such inputs.

2.     For payment of CESS on service tax in case any output service is provided by the manufacturer.

For payment of CESS on arrears of duty demanded for any reason.

Author             : Manoj Agarwal

Address           : Opp. Mandir, Lal Building Road, Rourkela – 769012, ODISHA

Contact            : +91-9937041788

E:mail   :           ServiceTaxExpert@yahoo.com

Kindly give your valuable feedback and contact for further clarifications, if any.

Disclaimer: This article is the property of the author and is for information purpose. No one shall publish, copy, reproduce or use it in any manner, except for personal, non-commercial use, without the permission of the author. The author shall not be responsible or liable for anything done or omitted to be done on the basis of this article.


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CBEC increases Excise Duty on Petrol & Diesel by Rs. 2 Per Litre

[TO BE PUBLISHED IN THE GAZETTE OF INDIA, EXTRAORDINARY, PART II, SECTION 3, SUB-SECTION (i)]

     

GOVERNMENT OF INDIA

MINISTRY OF FINANCE

(DEPARTMENT OF REVENUE)

Notification

No. 1/2015-Central Excise

New Delhi, the 1^st January, 2015  

     

G.S.R.    (E). - In exercise of the powers conferred by sub-section (1) of section 5A of the Central Excise Act, 1944 (1 of 1944), the Central Government, being satisfied that it is necessary in the public interest so to do, hereby makes the following further amendments in the notification of the Government of India in the Ministry of Finance (Department of Revenue), No.12/2012-Central Excise, dated the 17^th March, 2012, published in the Gazette of India, Extraordinary, Part II, Section 3, Sub-section (i) vide G.S.R. 163(E), dated the 17^th March, 2012, namely: -

In the said notification, in the Table,-

(i) in serial number 70,-

(a) against item (i) of column (3), for the entry in column (4), the entry “₹ 6.95 per litre” shall be substituted;

(b) against item (ii) of column (3), for the entry in column (4), the entry “₹ 8.10 per litre” shall be substituted;

(ii) in serial number 71,-

(a) against item (i) of column (3), for the entry in column (4), the entry “₹ 5.96 per litre” shall be substituted;

(b) against item (ii) of column (3), for the entry in column (4), the entry “₹ 8.25 per litre” shall be substituted;

2.         This notification shall come into force with effect from the 2^nd day of January, 2015.

[F. No.354/123/2014-TRU]

   

(Akshay Joshi)
Under Secretary to the Government of India

Note.- The principal notification No. 12/2012-Central Excise, dated the 17^th March, 2012 was published in the Gazette of India, Extraordinary, Part II, Section 3, Sub-section (i) vide number G.S.R. 163(E) dated the 17^th March, 2012 and was last amended vide notification No.24/2014-Central Excise, dated the 2^nd December, 2014 published in the Gazette of India, Extraordinary, Part II, Section 3, Sub-section (i) vide number G.S.R. 862(E) dated the 2^nd December, 2014.

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10% Excise Duty Payable on capital goods and automobile continue to be 10/% till 31.12.2014

[TO BE PUBLISHED IN PART II, SECTION 3, SUB-SECTION (i) OF THE GAZETTE OF INDIA, EXTRAORDINARY]

GOVERNMENT OF INDIA

MINISTRY OF FINANCE

(DEPARTMENT OF REVENUE)

Notification No. 06/2014-Central Excise

New Delhi, the 25^th June, 2014

            G.S.R.     (E).- In exercise of the powers conferred by sub-section (1) of section 5A of the Central Excise Act, 1944 (1 of 1944), the Central Government, on being satisfied that it is necessary in the public interest so to do, hereby makes the following further amendment in the notification of the Government of India, in the Ministry of Finance (Department of Revenue), No. 12/2012-Central Excise, dated the 17^th March, 2012, published in the Gazette of India, Extraordinary, Part II, Section 3, Sub-section (i), vide number G.S.R. 163(E), dated the 17^th March, 2012, namely:-

            In the said notification, in the opening paragraph, in the second proviso, for the figures, letters and words “30th day of June, 2014”, the figures, letters and words “31st day of December 2014” shall be substituted.

[F.No. 354/85/2014-TRU]

(Akshay Joshi)

Under Secretary to the Government of India

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What is Excise Duty ????

The Customs Act was formulated in 1962 to prevent illegal imports and

exports of goods. Besides, all imports are sought to be subject to a duty with a view to affording protection to indigenous industries as well as to keep the imports to the minimum in the interests of securing the exchange rate of Indian currency. 

Duties of customs are levied on goods imported or exported from India at the rate specified under the customs Tariff Act, 1975 as amended from time to time or any other law for the time being in force. For the purpose of exercising proper surveillance over imports and exports, the Central Government has the power to notify the ports and airports for the unloading of the imported goods and loading of the exported goods, the places for clearance of goods imported or to be exported, the routes by which above goods may pass by land or inland water into or out of Indian and the ports which alone shall be coastal ports 

In order to give a broad guide as to classification of goods for the purpose of duty liability, the central Board of Excises Customs (CBEC) bring out periodically a book called the "Indian Customs Tariff Guide" which contains various tariff rulings issued by the CBEC. The Act also contains detailed provisions for warehousing of the imported goods and manufacture of goods is also possible in the warehouses. 

For a person who do not actually import or export goods customs has relevance in so far as they bring any baggage from abroad. 

Importance of Central Excise Duty 

Central excise revenue is the biggest single source of revenue for the Government of India. The Union Government tries to achieve different socio-economic objectives by making suitable adjustments in the scope and quantum of levy of Central Excise duty. The scheme of Central Excise levy is suitably adapted and modified to serve different purposes of price control, sufficient supply of essential commodities, industrial growth, promotion of small scale industries and like Authority for collecting the Central Excise duty. 

Article 265 of the Constitution of India has laid down that both levy and collection of taxes shall be under the authority of law. The excise duty is levied in pursuance of Entry 45 of the Central List in Government of India Act,1935 as adopted by entry 84 of List I of the seventh Schedule of the Constitution of India. Charging section is Section 3 of the Central Excises and Salt Act,1944. 

Liability to pay Central Excise Duty 

Section 3 of the Central excises and Salt Act,1944 provides that there shall be levied and collected in such manner as may be prescribed, duties of excise on all excisable goods other than salt which are produced or manufactured in India at the rates set forth in the schedule to the Central excise Tariff Act,1985.it is therefore clear that as soon as the goods in question are produced or manufactured, they will be liable to payment of Excise duty. However for convenience duty is collected at the time of removal of the goods. While Section 3 of the Central Excises and salt Act,1944 lays down the taxable event, Rules 9 and 49 of the Central excise Rules,1944 provides for the collection of duty.

                                 

This Article is written by CMA Samir Biswal. He can be reached at cmasamirbiswal@gmail.com

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