Friday, 30 October 2015

CBEC Allows Education Cess Credit to be used for payment of Service Tax

A recap on the facts:
Education Cess exempted on excise duty: Consequent to the increase in excise duty to 12.5% from 12% with effect from 1.3.2015, the Government by Notification Nos. 14/2015-CE and 15/2015-CE dated 1.3.2015 exempted ‘education cess' and ‘Secondary and Higher Education Cess' on all excisable goods. So, from 1.3.2015, no education cess was payable on excise duty.
The Law - Credit of Education Cess can be used only for payment of education cess: As per Rule (3)(7)(b) of the CENVAT Credit Rules, the CENVAT Credit of education cess can be used only for payment of education cess - that is this credit cannot be used for payment of excise duty or Service Tax.
But from 1.3.2015, there was no education cess on excise duty. Then what to do with the credit of education cess? The Government rectified this anomaly by Notification No. 12/2015-CENT dated 30.4.2015, after keeping the assessees under utter confusion for two months. By this notification, the CENVAT Credit Rules were amended to allow utilisation of CENVAT credit of education cess:
1. Paid on inputs or capital goods received in the factory of manufacture of final product on or after the 1st day of March, 2015.
2. 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, and
3. paid on input services received by the manufacturer of final product on or after the 1st day of March, 2015,
for payment of excise duty.
Education Cess exempted on Service Tax: Consequent to the increase in Service Tax to 14% from 12% with effect from 1.6.2015, ‘education cess' and ‘Secondary and Higher Education Cess' was done away with effect from 1.6.2015.
The same problem as relating to excise duty arose now for Service Tax, but the Government allowed the assessees to wallow in confusion for five months without granting the same benefits as in the case of excise.
Now they have woken up and amended the CENVAT Credit Rules again to allow utilisation of CENVAT credit of education cess:
1. on inputs or capital goods received in the premises of the provider of output service on or after the 1st day of June, 2015
2. balance fifty per cent. Education Cess and Secondary and Higher Education Cess paid on capital goods received in the premises of the provider of output service in the financial year 2014-15, and
3. on input service in respect of which the invoice, bill, challan or Service Tax Certificate for Transportation of Goods by Rail (referred to in rule 9), as the case may be, is received by the provider of output service on or after the 1st day of June, 2015
for payment of service tax on any output service.
See how confusing the whole situation is. It will take these babus a few centuries to improve the ease of doing business, notwithstanding whatever the Finance Minister or Prime Minister or anybody wants.

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