Levy Of Cess- Stand-alone levy or intertwined with the Base Tax/Duty

BACKGROUND

It is not a matter of Sine quo non that when the base Tax/Duty is exempted there is an automatic exemption of the Cess levied.

It has been  about 4 plus years since we saw the advent of GST subsuming in its wake an entire plethora of Indirect taxes both at the Union and at  State level. Customs duties and the related cross border duties continue to be in operation post GST implementation as well.

Various Cess have been levied historically in India under the legacy laws which continues today as well. Some of the levies include Education Cess, Secondary and Higher Education Cess, Swachh Bharath Cess in the legacy laws ecosystem and under the current ecosystem there are levies like Agriculture Infrastructure and Development Cess (AIDC), Social Welfare Surcharge (SWS), Compensation Cess among others.

On import of goods, there are levies of Duties of Customs as and when the goods enter the territory of India and the same are discharged at the time of clearance of such goods. Duties of Customs are levied based on the provisions of the Customs Act 1962. Apart from the levies specified in the Customs Act there are various levies in the form of Cess on imported goods under other enactments such as the Finance Act, which are computed as a percentage of a value which may include BCD or might directly be levied as a percentage of the transaction value component.

Cesses are either levied on the taxable value or on aggregate of taxes and duties or on the aggregate of taxable value and the taxes levied. The ambiguity of chargeability of cess arise where, the Cess or surcharge is to be levied on an underlying base duty and the underlying base duty is exempted under notifications issued. The exemptions may include general exemptions, exemptions under preferential tariff treatment under Free trade agreement and so on.

When the Cess is levied as part of the duty or the tax that is to be levied and actually paid, there is no cause of confusion per se. The cess will therefore be levied as part of the duty or on the value that is levied. The exception or rather the ambiguous aberration comes in when the basic tax or duty on which cess is levied stands exempted, either by way of a General Exemption or by way of a specific exemption. The exceptional aberration also comes in when import of the goods are not subjected to say the Basic Customs Duty since the umbrage of a Free Trade agreement resorted to waiver of BCD.

This note aims to explore the contours of legislative mandates and judicial pronouncement for situations to analyse the impact of Cess when the Base tax/duty is exempted.

WHAT IS A CESS?

A cess is a form of tax levied by the government, in addition to the existing taxes, for specified purposes. The cess so collected shall be utilised to fulfil the purpose as proposed. The levy of cess generally shall be for a specified period of time.

A bird’s eye view of few of the cesses is tabulated as under:

This note aims to explore the contours of such additional levies and for the ease of convenience we have considered three levies which existed previously namely Education cess (EC) on imported goods, Swachh Bharat Cess (SBC) under Service Tax, National Calamity Contingent Duty (NCCD) under Excise and three levies that are being levied today namely agriculture infrastructure and development cess (AIDC), Coal Compensation Cess and Social Welfare Surcharge (SWS) for the purpose of analysis.

While it is more pertinent to understand the legislation first and then to see the judicial interpretation of the legislation has been pronounced, for the sake of convenience this Note puts the two major Judicial interpretation on the subject matter before getting into the nitty gritty.

Critical and Major Judicial Interpretations in this subject matter.

In the matter pertaining to M/s Unicorn Industries Vs Union of India & Others before the Hon’ble Supreme Court of India, it was examined whether NCCD, education cess and secondary and higher education cess formed part of the excise duty and when excise duty was exempted, whether NCCD, Education Cess and Secondary and Higher Education cess were also exempted.

The Hon’ble Supreme Court held that when a particular kind of duty is exempted, other types of duty or cess imposed by different legislation for a different purpose cannot be said to have been exempted. Additional duty cannot be charged, is also equally unacceptable as additional duty can always be determined and merely exemption granted in respect of a particular excise duty, cannot come in the way of determination of yet another duty based thereupon. The proposition urged that simply because one kind of duty is exempted, other kinds of duties automatically fall, cannot be accepted as there is no difficulty in making the computation of additional duties, which are payable under NCCD, education cess, secondary and higher education cess. Moreover, statutory notification must cover specifically the duty exempted. When a particular kind of duty is exempted, other types of duty or cess imposed by different legislation for a different purpose cannot be said to have been exempted.

The Hon’ble Bench overruled the orders given in the matter of SRD Nutrients Private Limited v. Commissioner of Central Excise, Guwahati, (2018) and held the same as per incuriam.

As regards the issue pertaining to SRD Nutrients Private Limited v. Commissioner of Central Excise, Guwahati, (2018), is concerned, the Hon’ble Supreme Court had earlier held, that when at the time of collection, surcharge has taken the character of parent levy, whatever may be the object behind it, it becomes subject to the provision relating to the Excise Duty applicable to it in the manner of collecting the same obligation of the tax payer in respect of its discharge as well as exemption concession by way of rebate attached with such levies.

Circulars that were referred to in the decision in SRD Nutrients Private Limited..

Circular dated 10.8.2004, reference has been made to the notification issued by Member (Customs), wherein it is stated that there is no collection of excise duty; hence, no education cess would be leviable on such clearances.

Circular dated 8.4.2011 had been issued by the Central Board of Excise and Customs with respect to service tax. In case service tax stands exempted, education cess and secondary and higher education cess shall not be levied.

and observed that circulars bind department and held when there is no excise duty, the education cess and secondary and higher education cess could not have been demanded.

LEGISLATIVE PROVISIONS AND ANALYSIS

On all the duties/levies being discussed below, the major aspects looked into are the governing empowering provisions, the objective of such levies and the impact of Exemption granted to the base levy to understand whether the levies are purely dependant on the base levy or are standalone in nature.

EDUCATION CESS ON IMPORTED GOODS

Education Cess is a cess levied on duty of customs when goods are imported, to fulfil the commitment of the Government to provide and finance universalised quality basic education.

Education cess was introduced vide section 91 of the Finance Act 2004 and the same is extracted as:

1. “Without prejudice to the provisions of sub-section (11) of section 2, there shall be levied and collected, in accordance with the provisions of this Chapter as surcharge for purposes of the Union, a cess to be called the Education Cess, to fulfil the commitment of the Government to provide and finance universalised quality basic education.
2. The Central Government may, after due appropriation made by Parliament by law in this behalf, utilise, such sums of money of the Education Cess levied under sub-section (11) of section 2 and this Chapter for the purposes specified in sub-section (1), as it may consider necessary.”

Section 94 of the Finance Act 2004 sets out the provisions for levy on Education Cess on imported goods the extract of the same is as follows:

“The Education Cess levied under section 91, in the case of goods specified in the First Schedule to the Customs Tariff Act, 1975 (51 of 1975), being goods imported into India, shall be a duty of customs (in this section referred to as the Education Cess on imported goods), at the rate of two per cent., calculated on the aggregate of duties of customs which are levied and collected by the Central Government in the Ministry of Finance (Department of Revenue), under section 12 of the Customs Act, 1962 (52 of 1962) and any sum chargeable on such goods under any other law for the time being in force, as an addition to, and in the same manner as, a duty of customs, but not including– 

• the additional duty referred to in sub-section (5) of section 3 of the Customs Tariff Act, 1975(51 of 1975)
• the safeguard duty referred to in sections 8B and 8C of the Customs Tariff Act, 1975 (51 of 1975)
• the countervailing duty referred to in section 9 of the Customs Tariff Act, 1975 (52 of 1975)
• the anti-dumping duty referred to in section 9A of the Customs Tariff Act, 1975 (51 of 1975); and
• the Education Cess, and Secondary and Higher Education Cess levied under section 136 of the Finance Act, 2007 on imported goods.

The Education Cess on imported goods shall be in addition to any other duties of customs chargeable on such goods, under the Customs Act, 1962 (52 of 1962) or any other law for the time being in force.

The provisions of the Customs Act, 1962 and the rules and regulations made thereunder, including those relating to refunds and exemptions from duties and imposition of penalty shall, as far as may be, apply in relation to the levy and collection of the Education Cess on imported goods as they apply in relation to the levy and collection of the duties of customs on such goods under the Customs Act, 1962 or the rules or the regulations, as the case may be.”

Analysis:

Taxability:

• Education cess is a duty of customs levied on the aggregate duties levied and charged under Section 12 of the Customs Act 1962 or any other law for the time being in force with the exception of duties.
• Education cess is levied at the rate of 2% on the duties levied/charged.
• The levy of Education Cess was introduced under Section 91 of the Finance Act 2004 and is governed by the provisions of the Customs Act, 1962.

Impact of Exemption on Base Duty and judicial interpretations thereof:

• Where the underlying customs duty on which education cess is computed and levied is exempted, as per the circular bearing number 345/2/2004 dated 10.08.2004 issued by the department it had been clarified that where the BCD is exempted, the Education cess which is a surcharge shall also be exempted. This approach was upheld in the case of SRD Nutrients Private Limited v. Commissioner of Central Excise, Guwahati
• But, in the case of M/s Unicorn Industries Vs Union of India and Others, which also reiterated the findings of the case mentioned supra, the court was not in agreement with the decision and held that, an exemption of duty of customs under the Customs Act is granted specifically on certain duties. An education cess introduced through a different act i.e., Finance Act 2004, cannot be included within the scope of exemption. The scope cannot be extended to include duties levied other than the ones that are specifically set out in the notification.

• Therefore, where the duty of customs under the Customs Act is exempted under a notification, the education cess levied on the strength of Finance Act cannot be read into the notification, unless the same has been explicitly specified in the notification, on the grounds that the provisions governing levy of Education cess specifies that the provisions of Customs Act and Rules thereof apply to Education Cess as well.

SWACHH BHARAT CESS (SBC)

SBC is a cess imposed on taxable services, as service tax for the purposes of financing and promoting Swachh Bharat initiatives or for any other purpose relating thereto.

SBC was introduced vide Section 119 of the Finance Act 2015, and the same has been extracted below:

1. “This Chapter shall come into force on such date as the Central Government may, by notification in the Official Gazette, appoint.
2. There shall be levied and collected in accordance with the provisions of this Chapter, a cess to be called the Swachh Bharat Cess, as service tax on all or any of the taxable services at the rate of two per cent. on the value of such services for the purposes of financing and promoting Swachh Bharat initiatives or for any other purpose relating thereto.
3. The Swachh Bharat Cess leviable under sub-section (2) shall be in addition to any cess or service tax leviable on such taxable services under Chapter V of the Finance Act, 1994 (32 of 1994), or under any other law for the time being in force.
4. The proceeds of the Swachh Bharat Cess levied under sub-section (2) shall first be credited to the Consolidated Fund of India and the Central Government may, after due appropriation made by Parliament by law in this behalf, utilise such sums of money of the Swachh Bharat Cess for such purposes specified in sub-section (2), as it may consider necessary.
5. The provisions of Chapter V of the Finance Act, 1994 and the rules made thereunder, including those relating to refunds and exemptions from tax, interest and imposition of penalty shall, as far as may be, apply in relation to the levy and collection of the Swachh Bharat Cess on taxable services, as they apply in relation to the levy and collection of tax on such taxable services under Chapter V of the Finance Act, 1994 or the rules made thereunder, as the case may be.”

The effective date and rate of implementation has been notified vide Notification 21/2015 and 22/2015 dt. 06.11.2015 respectively. The same been extracted as:

“Notification No. 21/2015-Service Tax

In exercise of the powers conferred by sub-section (1) of section 119 of the Finance Act, 2015 (20 of 2015), the Central Government hereby appoints the 15th day of November 2015 as the date with effect from which the provisions of Chapter VI of the said Act, shall come into force.

Notification No. 22/2015-Service Tax

In exercise of the powers conferred by sub-section (1) of section 93 of the Finance Act, 1994 (32 of 1994) read with sub-section (5) of section 119 of the Finance Act, 2015 (20 of 2015), the Central Government, being satisfied that it is necessary in the public interest so to do, hereby exempts all taxable services from payment of such amount of the Swachh Bharat Cess leviable under sub-section (2) of section 119 of the said Act, which is in excess of Swachh Bharat Cess calculated at the rate of 0.5 percent. of the value of taxable services:

Provided that Swachh Bharat Cess shall not be leviable on services which are exempt from service tax by a notification issued under sub-section (1) of section 93 of the Finance Act, 1994 or otherwise not leviable to service tax under section 66B of the Finance Act, 1994.

This notification shall come into force from the 15th day of November, 2015

Analysis:

Taxability

• SBC is levied, as service tax, on the taxable value on which service tax is paid, at the rate of 0.5% from 15.11.2015.
• The levy of SBC was introduced under Section 119 of the Finance Act 2015 and was made effective vide Notifications 21/2015 and 22/2015, specifying the applicable rates.

Impact of Exemption of Base Duty

• As per the provisions of Notification No. 22/2015, SBC shall not be levied on services which are exempted or not taxable under service tax i.e., if Service tax (Base Tax) is exempted there shall be no levy of SBC.
• Therefore, even though SBC is computed as a percentage of taxable value and is a standalone levy, the same shall not be applicable when the service rendered is exempted from levy of Service tax.

NATIONAL CALAMITY CONTINGENT DUTY

National Calamity Contingent Duty (NCCD) is a surcharge, a duty of excise levied on the goods manufactured specified in the prescribed schedule.

NCCD was introduced vide Section 136 of the Finance Act 2001 which is extracted as:

1. “In the case of goods specified in the Seventh Schedule, being goods manufactured or produced, there shall be levied and collected for the purposes of the Union, by surcharge, a duty of excise, to be called the National Calamity Contingent duty (hereinafter referred to as the National Calamity duty), at the rates specified in the said Schedule.
2. The National Calamity duty chargeable on the goods specified in the Seventh Schedule shall be in addition to any other duties of excise chargeable on such goods under the Central Excise Act, 1944 or any other law for the time being in force.
3. The provisions of the Central Excise Act, 1944 and the rules made thereunder, including those relating to refunds and exemptions from duties and imposition of penalty, shall, as far as may be, apply in relation to the levy and collection of the National Calamity duty leviable under this section in respect of the goods specified in the Seventh Schedule as they apply in relation to the levy and collection of the duties of excise on such goods under that Act or those rules, as the case may be.”

Analysis:

Taxability

• NCCD shall be levied as a surcharge, a duty of excise, on the value on which the Excise duty is paid.
• In addition to any other duties of excise chargeable.
• NCCD shall be levied at the rate specified in the Seventh schedule to Finance act 2001.
• NCCD shall be governed by the provisions of Central Excise Act 1944 and rules there of including the provisions introduced under Section 136 of the Finance Act 2001

Impact of Exemption of Base Duty and Judicial Interpretations thereof:

• In cases where the Excise duty has been exempted, the impact of the exemption on the NCCD, differs from case to case. The observation of various courts (including the case referred Supra) in this matter can be summarised as, when an exemption notification does not specify that the exemption is extended to NCCD in addition to the other duties of Excise, an assumption/interpretation cannot be made to expand the scope of the exemption to be applicable to NCCD, even though the NCCD takes the nature of an excise duty. Therefore, levy of NCCD shall be exempted when other duties of Excise are exempted, only when the exemption notification provides for the same explicitly. (Unicorn Industries vs Union of India and others.)

COMPENSATION CESS ON COAL

Compensation Cess is a levy, introduced vide the Goods and Service Tax (Compensation to States) Act, 2017 to provide compensation to the States for the loss of revenue arising on account of implementation of the GST.

Compensation Cess is levied in terms of the provisions of Section 8 of the Goods and Services Tax (Compensation to States) Act, 2017 which is extracted as follows:

1. There shall be levied a cess on such intra-State supplies of goods or services or both, as provided for in section 9 of the Central Goods and Services Tax Act, and such inter-State supplies of goods or services or both as provided for in section 5 of the Integrated Goods and Services Tax Act, and collected in such manner as may be prescribed, on the recommendations of the Council, for the purposes of providing compensation to the States for loss of revenue arising on account of implementation of the goods and services tax with effect from the date from which the provisions of the Central Goods and Services Tax Act is brought into force, for a period of five years or for such period as may be prescribed on the recommendations of the Council:

Provided that no such cess shall be leviable on supplies made by a taxable person who has decided to opt for composition levy under section 10 of the Central Goods and Services Tax Act.

2. The cess shall be levied on such supplies of goods and services as are specified in column (2) of the Schedule, on the basis of value, quantity or on such basis at such rate not exceeding the rate set forth in the corresponding entry in column (4) of the Schedule, as the Central Government may, on the recommendations of the Council, by notification in the Official Gazette, specify: Provided that where the cess is chargeable on any supply of goods or services or both with reference to their value, for each such supply the value shall be determined under section 15 of the Central Goods and Services Tax Act for all intra-State and inter-State supplies of goods or services or both: Provided further that the cess on goods imported into India shall be levied and collected in accordance with the provisions of section 3 of the Customs Tariff Act, 1975, at the point when duties of customs are levied on the said goods under section 12 of the Customs Act, 1962, on a value determined under the Customs Tariff Act, 1975.

The Compensation Cess shall be levied at the rates specified under Notification No. 1/2017 – Compensation Cess (rate) dt. 28.06.2017 [Schedule to Central Goods and Service Tax (Compensation to states)]. The notification sets out the rates in variants i.e., a percentage on the value of transaction, a percentage on the value of the transaction plus a specified amount per Rs. 1000 or a specific amount of duty per unit.

In the case of Coal, the compensation cess shall be Rs. 400 per tonne as per entry 40 of the notification.

Analysis:

Taxability:

• The Compensation Cess is levied on the taxable value derived as per the provisions of Section 15 of the CGST Act (in case of Inter/Intra state transactions) or a value that is the sum of Value derived under the provisions of Section 14 of Customs Act 1962 and the duties of customs leviable (in the case of Imports).
• The Levy of compensation cess is governed by the provisions of Goods and Services Tax (Compensation to States) Act, 2017 at the rates specified in Notification No. 1/2017 – Compensation Cess (rate) as amended.
• The provisions of the CGST/IGST Act and rules thereto, and Section 3 of the Customs Tariff Act of 1975 shall apply to the levy of Compensation Cess.
• The Compensation Cess shall be an independent levy as the same is levied directly on value of the transaction determined under either Section 15 of the CGST Act or Section 14 of the Customs Act 1962 as the case may be.

Impact of Exemption on Base Duty:

• Compensation cess shall not be levied on supplies made by a taxable person who has opted for composition levy.
• Since Compensation Cess is an independent levy and the rates for certain applicable goods have been specified, where the levy of GST or BCD as the case maybe are exempted, the same shall not affect the levy of Compensation Cess i.e., Compensation Cess, as specified under Notification 1/2017 compensation cess (rate) is either levied as specified figure per unit of quantity or on a value determined, shall be levied even where the base duty is Exempt when the rates have been specified.

SOCIAL WELFARE SURCHARGE (SWS)

SWS is a levy, on the aggregate duties, taxes and cesses levied under section 12 of the Customs Act, 1962 or any other law for the time being in force, for the purpose of fulfilling the commitment of the Government to provide and finance education, health and social security.

SWS was introduced vide Section 110 of Finance Act of 2018 the extract of the same is as follows:

There shall be levied and collected, in accordance with the provisions of this Chapter, for the purposes of the Union, a duty of Customs, to be called a Social Welfare Surcharge, on the goods specified in the First Schedule to the Customs Tariff Act, 1975 (hereinafter referred to as the Customs Tariff Act), being the goods imported into India, to fulfil the commitment of the Government to provide and finance education, health and social security.

The Central Government may, after due appropriation made by Parliament by law in this behalf, utilise such sums of money of the Social Welfare Surcharge levied under this Chapter for the purposes specified in sub-section (1), as it may consider necessary.

The Social Welfare Surcharge levied under sub-section (1), shall be calculated at the rate of ten per cent. on the aggregate of duties, taxes and cesses which are levied and collected by the Central Government in the Ministry of Finance (Department of Revenue) under section 12 of the Customs Act, 1962 and any sum chargeable on the goods specified in sub-section (1) under any other law for the time being in force, as an addition to, and in the same manner as, a duty of customs, but not including— 

1. 1. the safeguard duty referred to in sections 8B and 8C of the Customs Tariff Act;
   2. the countervailing duty referred to in section 9 of the Customs Tariff Act;
   3. the anti-dumping duty referred to in section 9A of the Customs Tariff Act;
   4. the Social Welfare Surcharge on imported goods levied under sub-section (1).
      

The Social Welfare Surcharge on imported goods shall be in addition to any other duties of customs or tax or cess chargeable on such goods, under the Customs Act, 1962 or any other law for the time being in force.

The provisions of the Customs Act, 1962 and the rules and regulations made thereunder, including those relating to assessment, non-levy, short-levy, refunds, exemptions, interest, appeals, offences and penalties shall, as far as may be, apply in relation to the levy and collection of the Social Welfare Surcharge on imported goods as they apply in relation to the levy and collection of duties of customs on such goods under the Customs Act, 1962 or the rules or the regulations, as the case may be.

Analysis:

Taxability:

• SWS is levied on the aggregate duties, taxes and cesses levied under Section 12 of the Customs Act 1962 or any other law for the time being in force with the exception of certain duties.
• SWS is governed by the provisions of Customs Act 1962 and the rules thereof, introduced vide the Section 110 of the Finance Act 2018.

Impact of Exemption on Base Duty and judicial interpretations thereof:

In the case of Gemini Edibles and Fats India Pvt. Ltd. Vs Union of India, Madras High Court, discussions were made on the levy of SWS where BCD is exempted. The following were the findings of the case:

• • SWS is an independent levy that is imposed and collected under the Finance Act 2018, does not take the nature of the principal levy i.e., customs duty.
  • Exemption notifications are to be construed strictly and the scope or ambit of the notifications cannot be extended or enlarged.
  • An exemption granted in respect of a particular duty cannot be a bar for determination of, yet another duty levied and collected even if the levy of SWS is based on the duties of customs that is exempted and that when a particular kind of duty is exempted, other duties imposed by legislation cannot be considered as exempted.

Therefore, even if the BCD is exempted, the exemption shall not extend to the SWS.

AGRICULTURE INFRASTRUCTURE AND DEVELOPMENT CESS (AIDC)

AIDC, a cess, takes the nature of a duty of customs, levied on the taxable value of imports (valued under the provisions of Section 14 of the Customs act 1962) which is levied for the purpose of financing the agriculture infrastructure and other development expenditure.

The AIDC was introduced vide Section 124 of the finance act 2021, of which relevant paragraphs are extracted as

1. “There shall be levied and collected, in accordance with the provisions of this section, for the purposes of the Union, a duty of customs, to be called Agriculture Infrastructure and Development Cess, on the goods specified in the First Schedule to the Customs Tariff Act, 1975 (hereinafter referred to as the Customs Tariff Act), being the goods imported into India, at the rate not exceeding the rate of customs duty as specified in the said Schedule, for the purposes of financing the agriculture infrastructure and other development expenditure.
2. The Central Government may, after due appropriation made by Parliament by law in this behalf, utilise such sums of money of the Agriculture Infrastructure and Development Cess levied under this section for the purposes specified in sub-section (1), as it may consider necessary.
3. Where the duty is leviable on the goods at any percentage of its value, then, for the purposes of calculating the Agriculture Infrastructure and Development Cess under this section, the value of such goods shall be calculated in the same manner as the value of goods is calculated for the purpose of customs duty under section 14 of the Customs Act, 1962.
4. The Agriculture Infrastructure and Development Cess on imported goods shall be in addition to any other duties of customs chargeable on such goods, under the Customs Act, 1962 or any other law for the time being in force.
5. The provisions of the Customs Act, 1962 and the rules and regulations made thereunder, including those relating to assessment, non-levy, short-levy, refund, exemptions, interest, appeals, offences and penalties shall, as far as may be, apply in relation to the levy and collection of the Agriculture Infrastructure and Development Cess on imported goods as they apply in relation to the levy and collection of duties of customs on such goods under the said Act, or the rules or regulations, as the case may be.”

Analysis:

Taxability:

• AIDC is levied on the Value as determined under the valuation provisions of Section 14 of the Customs Act 1962.
• AIDC is levied at the rate specified in the prescribed schedule in Finance Act 2021
• The empowering provisions of AIDC is that of Section 124 of the Finance Act 2021 read with the provisions of Annexure C of TRU circular bearing No. 334/02/2020, which also sets out the applicable rates. The provisions of Customs Act 1962 and the relevant rules also shall apply on AIDC.
• AIDC shall be an independent levy, which is levied directly on the taxable value of Imports.

Impact of Exemption on Base Duty:

• The provisions of provisions set out in Annexure C of TRU circular bearing No. 334/02/2020 read with notification bearing no. 11/2021 under serial numbers 18 and 19 sets out that where BCD is exempted under Advance Authorisation, Preferential tariff agreements (Singapore, Malaysia, Korea, ASEAN nations, Japan) and under certain other exemptions (as specified in the annexure to the notification), AIDC shall also be exempted.
• In terms of public notice -14/2021, where an importer claims exemption on AIDC the relevant serial number of such exemption in the notification must be mentioned in the Bill of Entry. Therefore, Where BCD is exempted, AIDC shall not be charged.

CONCLUSION

Considering the discussions above, it is pertinent to note that when the base tax/duty is exempted it cannot be automatically assumed that a Cess levied on the basis of the base duty shall also be exempted. Any exemption notification must strictly construe and the extent and ambit of the notification shall not be expanded to include any additional levy of duty.

Although, the Apex court has clearly set out the parameters where an exemption can extend to an additional levy i.e., only when it has been specifically mentioned in the notification that the said additional levy under any other enactment shall be exempted, the circular released by the department bearing number 345/2/2004 dated 10.08.2004 which sets out that the duties levied on the basis of a base duty shall be exempted when the base duty is exempted has still not be rescinded. This creates an ambiguity as the interpretation of the Apex court is in contrast with that of the clarification given in the Circular.

The following pointers may be kept in mind while taking a position on whether Cess is applicable when the Base Tax/Duty stands exempted.

1. To analyse the nature and levy of Cess. Is it levied on duty or tax per se or is it levied on the taxable value.
2. How interlinked and intertwined the levy of Cess is. Some of the Cess imposed such as AIDC is levied as a duty of Customs and called the AIDC cess. Therefore, it is imperative to understand the nature of the Cess.
3. It is not to be construed suo moto that the Cess levied especially on the value of taxable value will stand extinguished when the base duty/tax is exempted.
4. It may be the case that the Cess is still applicable if the base tax/duty stands exempted is the imposition of the Cess is on the taxable value.
5. It is very vital to understand if there is a notification or circular (that continues to be binding on the Revenue) that gives a waiver of the Cess as well

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