Higher Education Cess: On whom and from when?

The new levy has come into force with immediate effect i.e. from 1.3.2007 by virtue of the declaration under the Provisional Collection of Taxes Act, 1931 (Clause 126 read with Clause 128 of the Finance Bill, 2007 refers).

However, the moot question that arises here is 'whether this new levy shall be applicable on the pre-budget stock i.e. the excisable goods manufactured and lying in stock as on 28.2.2007 even if the same are cleared on or after 1.3.2007 ?'.

It is a settled law that the 'taxable event' for central excise is the manufacture or production of goods and not the removal of the goods. Therefore, the levy is created by the charging section 3 of Central Excise Act, 1944 as soon as the goods are manufactured though the collection of duty is postponed till the stage of removal for the sake of convenience of administration.

The principles of law on this issue stand settled by the judgement of the Hon'ble Supreme court in the case of Collector of Central Excise, Hyderabad V/s. Vazir Sultan Tobacco Co. Ltd. "� 1996 (83) ELT 3 (SC).

Undisputedly, 'Secondary and Higher Education Cess' is a new levy introduced for the first time by the Finance Bill, 2007 and therefore, in view of the legal position settled by the Hon'ble Supreme Court as aforesaid, the same will not be attracted in case of excisable goods already manufactured prior to and lying in stock as on 28.2.2007 even though the same are cleared on or after 1.3.2007.

Here, one may advantageously refer to the clarification issued by the Central Board of Excise & Customs vide TRU Letter F. No. 345/2/2004-TRU (Pt.) dated 10.8.2004 in the context of the levy of Education Cess introduced vide Finance Bill, 2004. The relevant abstract of the said Circular are reproduced hereinbelow:

"Subject: Issues relating to imposition of Education Cess on excisable goods and on imported goods, as pointed out by the trade and the field formations "� Regarding "�

Issue No.(1):Whether Education Cess on excisable goods is leviable on goods manufactured prior to imposition of Cess but cleared after imposition of such cess ?

Clarification: Education Cess on Excisable goods is a new levy. In similar cases, it has been held by the Supreme Court that if a levy is not there at the time the goods are manufactured or produced in India, it cannot be levied at the stage of removal of the said goods. Thus, Education Cess is not leviable on excisable goods manufactured prior to imposition of cess but cleared after imposition of such cess".

It is indeed regrettable that the TRU Letter F. No. 334/1/2007-TRU dated 28.2.2007 issued by the Board simultaneously with the Finance Bill, 2007 does not even whisper about the applicability of this new levy on the pre-budget stock though the Circular is explicit on the manner of computation of the levy and also categorical in stating that the levy has come into immediate effect by virtue of declaration made under the Provisional Collection of Taxes Act, 1931.

In fact, the earlier Circular dated 10.8.2004 clarifying the matter had also been issued by the Board nearly after a month of the presentation of Budget, 2004. At least, with the precedent being available, the Board could have clarified the issue vide Circular dated 28.2.2007 itself.

Is it a case of convenient lapse or unintended omission ?

Be that as it may, this levy of 'Secondary and Higher Education Cess' being a new levy, the same will not be attracted in case of the pre-budget stock of excisable goods i.e. the goods manufactured prior to and lying in stock as on 28.2.2007.

This Cess is required to be calculated in the same manner as Education Cess imposed vide Finance Act, 2004. It is provided that the existing Cess of 2% and proposed Cess of 1% are to be excluded while calculating both the Cesses. (Clause 128 of the Finance Bill, 2007 and Notification No. 18/2007-CE refers).

The 'Secondary and Higher Education Cess', like Education Cess, has been made Cenvatable by suitably amending the Cenvat Credit Rules, 2004 vide Budgetary Notification No. 10/2007-CE (NT). However, the credit of the Education Cess/Secondary and Higher Education Cess on excisable goods can be utilized for payment of Education Cess leviable under Finance Act, 2004 or Secondary and Higher Education Cess leviable on excisable goods as proposed.

As regards the applicability of this levy on Service Tax, the same will come into force from the date of enactment of the Finance Bill, 2007.

(The author is an advocate)