The Kolkata Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that accumulated CENVAT credit of Education Cess and Secondary & Higher Education (SHE) Cess cannot be utilized for payment of central excise duty after the statutory changes introduced in 2015. 

However, the bench of R. Muralidhar (Judicial Member) granted partial relief to the assessee by setting aside the penalty, observing that the issue had remained under judicial consideration before various High Courts and a Larger Bench of the Tribunal. 

The dispute centered around the appellant’s utilization of accumulated CENVAT credit comprising Education Cess of ₹64,370 and SHE Cess of ₹81,349, aggregating ₹1,45,719, towards payment of excise duty liability during March 2015.

The Department took the view that after the abolition of these cesses, the accumulated credit could not be cross-utilized for payment of basic excise duty. Consequently, a show cause notice dated January 5, 2017 was issued proposing recovery of the wrongly utilized credit along with applicable interest and penalty. The adjudicating authority confirmed the demand, which was subsequently upheld by the Commissioner (Appeals), leading to the present appeal before the Tribunal. 

Although no one appeared on behalf of the appellant during the hearing, the company requested that the appeal be decided based on the written grounds already filed.

The principal argument advanced by the appellant was that the CENVAT Credit Rules, 2004 had not been amended with effect from March 1, 2015 to expressly provide that the closing balance of Education Cess and SHE Cess would lapse. Therefore, according to the appellant, the accumulated credit continued to remain valid and could legitimately be utilized for payment of excise duty. 

The Department relied upon the decision of the Delhi High Court in Cellular Operators Association of India, contending that accumulated Education Cess and SHE Cess credit could not legally be utilized towards payment of excise duty after the legislative changes. On this basis, the Revenue sought dismissal of the appeal. 

The Tribunal noted that the controversy had already been authoritatively settled by the CESTAT Larger Bench in KEI Industries Ltd. v. CCE-CGST, Alwar (Order No. 08/2025 dated November 20, 2025), authored by the same Judicial Member.

The Larger Bench had concluded that the CENVAT Credit Rules, 2004 did not contain any provision permitting the merger of blocked Education Cess and SHE Cess credit with excise duty or service tax. Refund of such blocked credit under Section 11B of the Central Excise Act was also not permissible. Rule 5 of the CENVAT Credit Rules applied only to export-related refunds and had no application to blocked Education Cess or SHE Cess credit. Earlier reliance on the Slovak India judgment was misplaced, as it had subsequently been revisited by the Bombay High Court in Gauri Plasticizers, while the Delhi High Court in Cellular Operators Association of India had also held that such precedents did not govern the issue.

The Tribunal also endorsed the reasoning of the Madras High Court in DB Sutherland, which held that Education Cess and SHE Cess effectively became “dead CENVAT credit” from March 1, 2015 and June 1, 2015 respectively, leaving no question of refund or further utilization. 

Applying the ratio of the Larger Bench decision, the Tribunal held that the appellant was not entitled to utilize accumulated Education Cess and SHE Cess credit for payment of excise duty.

Accordingly, the Tribunal sustained the confirmed demand and directed that the excise duty along with applicable interest remained payable. 

While upholding the duty demand and interest, the Tribunal granted significant relief by deleting the penalty.

The Bench observed that the legal issue regarding utilization of Education Cess and SHE Cess credit had remained the subject matter of extensive litigation before various High Courts as well as the CESTAT Larger Bench. Given this genuine legal uncertainty, the Tribunal held that no case for imposition of penalty was made out and accordingly set aside the penalty imposed on the appellant. 

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