Education cess on clearing of goods fully exempt from Customs duty

When goods are fully exempted from Customs duty or are cleared without payment of Customs duty under specified procedure,Education cess under the Customs would not be levied

Commissioner of Customs, Tuticorin Vs. DCW Limited [2014 (12) TMI 728 – Madras High Court]

DCW Limited(“the Assessee”)was covered by Notification No. 96/2004-Customs dated September 17,2004passed in exercise of powers under Section 25(1) of the Customs Act, 1962 granting exemption of Basic Customs Duty subject to debit of the DEPB Licence. The Department sought to collect Education Cess on Basic Customs Duty which was debited in the DEPB Licence.

Later on, the Hon’ble Tribunal relying on the decision in case of Commissioner of Customs, Mumbai Vs. Reliance Industries Limited [2005 (188) E.L.T. 449], upheld the contention of the Assesseethat

Education Cess under Section 84 of the Finance Act, 2004 was not to be levied on the exempted items. Hence, the question of levy of Education Cess as per the Finance Act, 2004 does not arise. Being aggrieved by the order of the Hon’ble Tribunal, the Department preferred an appeal before the Hon’ble High Court of Madras.

The Hon’ble High Court of Madras relying on clarification made by the Ministry of Finance in D.O.F. No. 334/3/2004-TRU dated July 8,2004 and subsequent Circular No. 5/2005-Customs dated January 31, 2005,held that since Education Cess has to be calculated at the percentage on the duty liability, when the goods are fully exempted from Customs duty or are chargeable to Nil duty or are cleared without payment of duty under specified procedure such as clearance under bond, the question of Education Cess to be levied does not arise.