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Credit of Education Cess & SHEC can be used for payment of Excise Duty by Manufacturers and Gist of Other important Notifications - LS passed Finance Bill, 2015

The Lok Sabha passed the Finance Bill, 2015 which includes various tax proposals presented in the Union Budget, 2015, by a voice vote on Thursday, April 30, 2015. The Hon’ble Finance Minister, Shri. Arun Jaitley made certain announcements in Lok Sabha and promised the required Notifications to be followed soon.

In this regard, the Central Board of Excise and Customs (“the CBEC” or “the Board”) has issued various Notifications under the Customs, the Central Excise and the Service tax. The CBEC vide Notification No. 12/2015-Central Excise (N.T.) dated April 30, 2015 (“the Notification”) has amended the Cenvat Credit Rules, 2004 (“the Credit Rules”) to allow use of Credit of Education Cess ("EC") and Secondary and Higher Education Cess ("SHEC") [collectively referred to as“Cess”] for payment of Excise Duty on or after March 1, 2015.

Background:

With the underlying theme of setting the stage for Goods and Services Tax (“GST”), the Union Budget, 2015 had proposed to do away with the Cess. While withdrawal of Cess on Excise duty has been made effective from March 1, 2015, as a parallel change, Cess on Service tax has also been proposed to be withdrawn from the date to be notified after enactment of the Finance Bill, 2015.

The act of withdrawal of Cess presented the Industry at large with a bouquet of concerns in view of the provisions of erstwhile Rule 3(7)(b) of the Credit Rules which permitted utilisation of Cenvat credit of Excise duty/ Service tax for payment of Cess but not vice versa.

Proposed Amendment made in the Credit Rules:

The CBEC vide the Notification has amended the Credit Rules to substitute the following proviso after the second proviso to Rule 3(7)(b) thereof:

"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."

Certain open issues – Still warranting clarification

Though, the CBEC has tried to address the concerns of the Manufacturer to certain extent as regards utilization of Cess availed on or after March 1, 2015 but at the same time, the Notification fails to amend/ clarify certain other open issues, which are also daunting concerns amongst the Trade:

1. What will be the fate of balance of Cess lying unutilized in Cenvat credit account of the manufacturer as on February 28, 2015?

While the afore stated amendment to the Credit Rules allows utilisation of the credit of Cess on Inputs/ Capital goods/ Input services received on or after March 1, 2015, but the Notification fails to clarify as to what will be the destiny of the amount of Cess lying unutilized in the Cenvat credit account of the manufacturers as on February 28, 2015, which may run into big numbers in case of giant manufacturers.

2. What will be the treatment of balance 50% of the Cenvat credit of Cess when Capital goods were received before 2014-15 and balance 50% is not taken yet?

In case of Capital Goods, 50% of the Cenvat credit is taken in the current year and balance 50% Cenvat credit is taken in subsequent financial year. However, it is not mandatory that the balance 50% should be taken only in the immediate next financial year. Now, in a situation where Capital goods were purchased during the financial year prior to 2014-15 but balance 50% of Cenvat credit of Cess is not taken yet, the amendment made in the Credit Rules fails to provide any clarification. Accordingly, the assessee would confront the problem of utilizing the balance 50% Cenvat credit.

The Notification is silent as to the utilization of credit on Cess for payment of Service tax liability after the enactment of Finance Bill, 2015.

List of the Notifications issued on April 30, 2015 under the Customs, the Central Excise and the Service tax:

Customs

Notification No. 28 /2015-Customs

Amends notification No. 12/2012- Customs, dated the 17th March, 2012 - customs duty increased on sugar and many other changes

Notification No. 29 /2015-Customs

Amends notification No. 39/96- Customs, dated the 23rd July, 1996 - Exemption from additional duty of customs levied under section 3 of the Customs Tariff Act (both CVD and SAD) in respect of certain entries of notification No.39/96-Customs, dated 23.07.1996 are withdrawn

Notification No. 30 /2015-Customs

Amends notification No. 27/2011- Customs, dated the 1st March, 2011 - export duty on iron ore fines reduced from 30% to 10%.

CENTRAL EXCISE

Notification No. 23 /2015-Central Excise

Amends notification No. 62/95 - Central Excise, dated the 16th March, 1995 and notification No. 63/95- Central Excise, dated the 16th March, 1995 - exemption to Ordnance Factories & Defence PSUs is withdrawn. These changes will be effective from 01.06.2015.

Notification No. 24 /2015-Central Excise

Amends notification No. 12/2012- Central Excise, dated the 17th March, 2012 - Excise duty exemption on finishing agents, dye carriers to accelerate the dyeing or fixing of dye-stuffs, printing paste and other products and preparations of any kind used in the same factory for the manufacture of textiles and textile articles has been withdrawn.

Notification No. 25/2015-Central Excise

Amends notification No. 16/2010-Central Excise, dated the 27th February, 2010 - Chewing Tobacco.

Notification No. 26/2015-Central Excise

Amends notification No. 14/2015-Central Excise, dated the 1st March, 2015 - exemption from education cess on DTA clearances from EOUs.

Notification No. 27/2015-Central Excise

Amends notification No. 15/2015-Central Excise, dated the 1st March, 2015 - - exemption from education cess on DTA clearances from EOUs.

Notification No. 12/2015-Central Excise (N.T.)

Amends Cenvat Credit Rules, 2004 - Cenvat credit of Education Cess and Secondary & Higher Education Cess for payment of basic excise duty.

Notification No. 13/2015-Central Excise (N.T.)

Amends the Chewing Tobacco and Unmanufactured Tobacco Packing Machines (Capacity Determination and Collection of Duty) Rules, 2010

SERVICE TAX

Notification No. 12/2015- Service Tax

Amends notification No. 25/2012-ST dated the 20th June, 2012 so as to exempt certain specified services.Life Insurance business provided under Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY), Pradhan Mantri Jan Dhan Yojana (PMJDY), General Insurance business provided under Pradhan Mantri Suraksha Bima Yojana (PMSBY), collection of contribution under Atal Pension Yojana (APY).

Hope the information will assist you in your Professional endeavours. In case of any query/ information, please do not hesitate to write back to us.

Thanks & Best Regards.  

Bimal Jain

FCA, FCS, LLB, B.Com (Hons)

Delhi:

Flat No. 34B, Ground Floor, Pocket - 1,

Mayur Vihar, Phase - I,

Delhi – 110091, India

Email: bimaljain@hotmail.com

Web: www.a2ztaxcorp.com

Disclaimer: The contents of this document are solely for informational purpose. It does not constitute professional advice or recommendation of firm. Neither the authors nor firm and its affiliates accepts any liabilities for any loss or damage of any kind arising out of any information in this document nor for any actions taken in reliance thereon.

Readers are advised to consult the professional for understanding applicability of this newsletter in the respective scenarios. While due care has been taken in preparing this document, the existence of mistakes and omissions herein is not ruled out. No part of this document should be distributed or copied (except for personal, non-commercial use) without our written permission.

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