2018 (5) TMI 458 - AAR - GST

Whether accumulated credit by way of Krishi Kalyan Cess (KKC) as appeared in the Service tax return of Input Service Distributor (ISD) ON June 30, 2017 which is carried forward in the electronic credit ledger maintained by the company under CGST Act 2017, will be considered as admissible input tax-credit? Held that - The enumerated list of items in respect of which CENVAT credit is available makes no reference to the KKC. By the Notification No. 28/ 2016 - Central Excise (N.T.), the 26th May, 2016, the Central Government made the rules, which came into force on 1st of June, 2016, to amend the CENVAT Credit Rules, 2004 - in respect of these rules, CENVAT credit was available in respect of KKC. KKC would be utilised towards payment of KKC only, Further, it was expressly provided that the list of items in respect of which CENVAT credit is available, as enumerated above, would not be utilized for payment of KKC. Thus, there was a clear demarcation of the credit in respect of KKC. Under GST, there is no levy of KKC. In the present case, KKC is to be utilized for payment of KKC only. Therefore, KKC cannot be treated as excise duty or service tax. in view thereof, the CENVAT credit as referred to in sub-section (1) of section 140 would not include the credit in respect of KKC. The non-availability of carry forward of credit with respect to KKC has been clarified to the Trade - accumulated credit by way of Krishi Kalyan Cess (KKC) as appeared in the Service tax return of Input Service Distributor (ISD) on June 30, 2017 which is carried forward in the electronic credit ledger maintained by the company under CCST Act 2017, will not be considered as admissible input tax-credit. The question in the present case is answered in negative.

Summary

Issues Involved:
1. Whether accumulated credit by way of Krishi Kalyan Cess (KKC) as appeared in the Service tax return of Input Service Distributor (ISD) on June 30, 2017, which is carried forward in the electronic credit ledger maintained by the company under the CGST Act 2017, will be considered as admissible input tax credit.

Detailed Analysis:

1. Facts and Contentions by the Applicant:
- The applicant, a company engaged in the manufacture of paints and provision of works contract services, had centralized registration for its Head Office and separate registration as an Input Service Distributor (ISD) under the pre-GST regime.
- The company received CENVAT credit, including KKC, at its head office but could not distribute KKC to its factories as KKC credit could only be utilized against KKC liability, which the manufacturing units did not have.
- The company carried forward the accumulated KKC credit to the electronic credit ledger under the CGST Act 2017 but did not utilize it.
- The applicant argued that KKC is subsumed under GST and should be considered as admissible CENVAT credit under the CGST Act 2017.

2. Legislative Provisions:
- KKC was levied under Section 161 of the Finance Act 2016 and was applicable as service tax on taxable services.
- Section 140(1) of the CGST Act 2017 allows a registered person to carry forward CENVAT credit to the electronic credit ledger, provided the credit is admissible under the CGST Act 2017.
- The applicant contended that since CGST liability includes KKC liability, KKC credit should be admissible under the CGST Act 2017.

3. Contentions by the Concerned Officer:
- The officer argued that Section 140(1) of the CGST Act permits carry forward of credit to the extent admissible as input tax credit under GST.
- The definition of input tax under Section 2(62) of the CGST Act does not include any cess, implying that KKC cannot be carried forward as input tax credit.

4. Observations:
- The authority examined the transitional provisions under Section 140(1) of the CGST Act, which allows carry forward of CENVAT credit, provided it is admissible under the CGST Act.
- CENVAT credit rules did include KKC, but it was expressly provided that KKC credit could only be utilized for payment of KKC and not for any other tax or duty.
- The authority referred to the Delhi High Court judgment in Cellular Operators Association of India vs. Union of India, which held that cesses like Education Cess and Secondary and Higher Education Cess could not be cross-utilized for payment of excise duty or service tax.
- The FAQs issued by CBEC clarified that credit of SBC and KKC could not be carried forward under GST.

Conclusion:
- The authority concluded that KKC cannot be treated as excise duty or service tax and hence, cannot be carried forward as input tax credit under the CGST Act 2017.
- The accumulated credit by way of KKC as appeared in the Service tax return of ISD on June 30, 2017, and carried forward in the electronic credit ledger maintained by the company under the CGST Act 2017, will not be considered as admissible input tax credit.

Order:
- The question of whether accumulated credit by way of Krishi Kalyan Cess (KKC) as appeared in the Service tax return of Input Service Distributor (ISD) on June 30, 2017, which is carried forward in the electronic credit ledger maintained by the company under CGST Act 2017, will be considered as admissible input tax credit is answered in the negative.