The website of the Central Board of Excise and Customs (CBEC) claims the goods and services tax (GST) will replace all surcharges and cesses, so far as these relate to supply of goods and services. However, the legal provisions show the education cess (EC) and secondary and higher education cess (SHEC) will continue to be imposed on the import of goods.
The EC was introduced in 2004. That year’s Finance Act (FA) imposed a two per cent EC on excisable goods, imported goods and taxable services. Similarly, the Finance Act of 2007 (FA-07) imposed a one per cent SHEC on excisable goods, imported goods and taxable services.
In preparation for transition to the GST regime, the Taxation Laws (Amendments) Bill was enacted last month. This makes several amendments in the excise, customs and other laws, repealing some other provisions, to align these with the GST laws. It is expected to take effect on the same date as the GST laws.
What it has done is to repeal Section 93 of FA-04 and Section 138 of FA-07. These relate only to the EC and SHEC on excisable goods. Section 94 of FA-04 and Section 139 of FA-07, regarding imported goods, have not been repealed. This seems a conscious decision. So, the EC and SHEC on imported goods (known as customs cess) will continue.
When GST comes into force, Integrated GST (IGST) and compensation cess under the GST (Compensation to States) Act will be levied on imported goods covered under the new tax. However, such goods will not attract the countervailing duty (CVD) and special additional duty (SAD), under sections 3(1) and 3(5) of the Customs Tariff Act, 1975. IGST and compensation cess will be levied on the aggregate of assessable value, basic customs duty and any sum chargeable on that article under any law in force, in addition to and in the same manner as duty of customs, except IGST and the compensation cess. This means EC and SHEC will become part of the value for levy of IGST.
On imported goods, the two per cent EC and one per cent SHEC are levied on the total of basic customs duty and any sum chargeable on such goods under any other law in force, as an addition to, and in the same manner as, a duty of customs, except SAD, CVD, safeguard duty, anti-dumping duty, EC and SHEC. This again means IGST and compensation cess will become part of the value for levy of EC and SHEC.
In sum, EC and SHEC will be added to the value for charging IGST and compensation cess. Also, IGST and compensation cess will be added to the value for charging EC and SHEC. An unending cascading of taxes – and an absurd situation.
CBEC should pay attention to these details and get the necessary amendments made in the laws before GST comes into force, to avoid confusion.
E-mail: tncrajagopalan@gmail.com