Utilization of CESS against payment of excise duty: Whether industry has been fooled?
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
“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.
3. 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.
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
“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.
3. 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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