2020 (10) TMI 804 - HC - GST

Whether the Assessee is entitled to utilise and set off the accumulated unutilised amount of Education Cess (EC), Secondary and Higher Education Cess (SHEC) and Krishi Kalyan Cess (KKC), all jointly referred to as the Cess against the Output GST Tax Liability after the switch over of Indirect Taxation System to GST Regime with effect from 01.07.2017, which GST (Goods and Services Tax) levy subsumed within its fold 16 indirect taxes earlier leviable like Excise Duty, VAT, etc.? HELD THAT - Cess is not eligible for carry forward, transition and set off against the Output GST Liability under Section 140 of the CGST Act - Cess being a specially collected or enforced imposition or impost is slightly different from Tax or Duty, even though it may be collected in the form of Taxes or Duty under the parent law with which the charging provisions of Cess under the same Act or separate Act as they are read and applied mutatis mutandis, like Central Excise and Customs Duty Act. Even though the imposition and collection of Cess may be loosely termed as Tax or Duty, the collection of Cess remains distinct, inasmuch as Cess amount collected by the Government is liable to be spent for the avowed and dedicated purpose for which such imposition was made which is usually reflected in the name of the imposition itself like Education Cess, Secondary and Higher Education Cess etc. Mere facility of taking credit of Input Cess paid on Input goods or services just to avoid the cascading effect on the multiple transactions in the series does not militate or alter the character of the imposition of Cess itself. Like any other indirect taxes like Sales Tax, VAT, Excise Duty, etc., the removal of the cascading effect of Taxation in multiple transactions in series is provided by the Legislation to collect such taxes in a reasonable proportion to the value of the transactions, by removing the cascading effect by providing for Input Tax Credit (ITC) system. Section 140 of the CGST Act, 2017, with which we are concerned and which provides for transitional arrangement of Input Tax Credit, though comprises of 10 Sub-sections and the Explanations 1, 2 and 3 after such 10 Sub-sections, are commonly applicable tools of interpretation. The Explanation 1 refers to Sub-sections (1), (3), (4) and (6), because these four Sub-sections use and employ the term Eligible Duties and Explanation 1 confines Eligible Duties to 7 specified duties under that Explanation 1, namely Additional Excise Duty under Additional Duties of Excise (Goods of Special Importance) Act, 1957, Additional Duty under Custom and Tariff Act, 1975, Additional Custom Duty on Taxable Articles, Duty of Excise in the First Schedule to the Central Excise Tariff Act, 1985 and National Calamity Contingency Duty under Section 136 of the Finance Act, 2001, etc.- Therefore, only the seven specified duties as Eligible Duties in respect of inputs held in stock and inputs contained in semi finished or finished goods held in stock on the appointed date i.e. 01.07.2017 will be eligible to be carried forward and adjusted against GST Output Tax Liability. Apparently, Education Cess and Secondary and Higher Education Cess or Krishi Kalyan Cess are absent from the seven categories in Explanation 1. Therefore, on a plain meaning, such three Cesses in question cannot be inserted in Explanation 1 to cover them for being carried forward with reference to Explanation 1 which applies for specified four Sub-sections of Section 140 of the Act. Merely because the Assessee in the present case before us is a person having centralized registration has taken in his Electronic Credit Ledger the amount of such Education Cess and Secondary and Higher Education Cess, it does not entitle him to utilize the said unutilised amount of Education Cess and Secondary and Higher Education Cess against the Output GST Liability. The taking of the input credit in respect of Education Cess and Secondary and Higher Education Cess in the Electronic Ledger after 2015, after the levy of Cess itself ceased and stopped, does not even permit it to be called an input CENVAT Credit and therefore, mere such accounting entry will not give any vested right to the Assessee to claim such transition and set off against such Output GST Liability. Admittedly, since the cross utilization of Education Cess and Secondary and Higher Education Cess was not allowed against Excise Duty and other duties under existing law prior to GST Regime and they could be set off only against the Output Education Cess and Secondary and Higher Education Cess liability, once the levy itself ceased and dropped in 2015, the question of their carry forward and utilization becomes only academic. The learned Single Judge, with great respects, erred in allowing the claim of the Assessee under Section 140 of the CGST Act. The main pitfalls in the reasoning given by the learned Single Judge are (a) the character of levy in the form of Cess like Education Cess, Secondary and Higher Education Cess and Krishi Kalyan Cess was distinct and stand alone levies and their input credit even under the Cenvat Rules which were applicable mutatis mutandis did not permit any such cross Input Tax Credit, much less conferred a vested right, especially after the levy of these Cesses itself was dropped; (b) Explanation 3 to Section 140 could not be applied in a restricted manner only to the specified Sub-sections of Section 140 of the Act mentioned in the Explanations 1 and 2 and as a tool of interpretation, Explanation 3 would apply to the entire Section 140 of the Act and since it excluded the Cess of any kind for the purpose of Section 140 of the Act, which is not specified therein, the transition, carry forward or adjustment of unutilised Cess of any kind other than specified Cess, viz. National Calamity Contingent Duty (NCCD), against Output GST liability could not arise. The Assessee was not entitled to carry forward and set off of unutilised Education Cess, Secondary and Higher Education Cess and Krishi Kalyan Cess against the GST Output Liability with reference to Section 140 of the CGST Act, 2017 - Appeal allowed - decided in favor of Revenue.

Summary

Issues Involved:
1. Whether the Assessee is entitled to utilize and set off the accumulated unutilized amount of Education Cess (EC), Secondary and Higher Education Cess (SHEC), and Krishi Kalyan Cess (KKC) against the Output GST Tax Liability after the switch over to GST Regime with effect from 01.07.2017.

Issue-wise Detailed Analysis:

1. Entitlement to Utilize and Set Off Accumulated Unutilized Cess:
The core issue revolves around whether the Assessee can carry forward and utilize the unutilized amounts of EC, SHEC, and KKC against the Output GST Liability post-GST implementation from 01.07.2017. The judgment examines the legislative provisions, particularly Section 140 of the CGST Act, 2017, which provides for transitional arrangements for Input Tax Credit (ITC).

2. Legislative Provisions and Definitions:
Section 140 of the CGST Act, 2017, and its explanations are pivotal. Explanation 1 specifies "Eligible Duties" for inputs held in stock, excluding EC, SHEC, and KKC. Explanation 2 includes "Eligible Duties and Taxes" for inputs and input services received on or after the appointed day but also excludes the said Cesses. Explanation 3 explicitly excludes any Cess not specified in Explanations 1 and 2 from being transitioned.

3. Nature of Cess:
The judgment distinguishes between Cess, Tax, and Duty. Cess, although collected in the form of duty or tax, is dedicated to specific purposes and cannot be cross-utilized against other tax liabilities. The judgment elaborates that the Cess collected is for specific purposes like education and agriculture, and its utilization is restricted by the legislative framework.

4. Contention of the Assessee:
The Assessee argued that the unutilized CENVAT credit of EC, SHEC, and KKC should be allowed to be carried forward under Section 140(8) of the CGST Act, which deals with centralized registration. The Assessee contended that since these Cesses were collected as duties/taxes, they should be eligible for transition.

5. Contention of the Revenue:
The Revenue argued that the unutilized Cess amounts became dead claims after their levy was abolished in 2015 and could not be carried forward under the GST regime. They emphasized that the Cess was collected for specific purposes and could not be cross-utilized against other tax liabilities. The Revenue also highlighted that Explanation 3 to Section 140 explicitly excludes any Cess not specified in Explanations 1 and 2.

6. Judicial Precedents:
The judgment refers to various judicial precedents, including the Hon'ble Supreme Court's decisions in Union of India v. Modi Rubber Ltd., Unicorn Industries v. Union of India, and Eicher Motors Ltd. v. Union of India. These cases emphasize that transitional provisions and the carry forward of credits must be strictly construed as per legislative intent and specific provisions.

7. Interpretation of Section 140 and Explanations:
The judgment concludes that the legislative intent, as reflected in Section 140 and its explanations, does not permit the carry forward and utilization of unutilized EC, SHEC, and KKC against GST liabilities. The court emphasized that the transition provisions must be interpreted harmoniously, and the exclusion of Cess in Explanation 3 applies across all subsections of Section 140.

Conclusion:
The court allowed the appeal of the Revenue, setting aside the judgment of the learned Single Judge. It held that the Assessee was not entitled to carry forward and set off the unutilized Education Cess, Secondary and Higher Education Cess, and Krishi Kalyan Cess against the Output GST Liability under Section 140 of the CGST Act, 2017. The court emphasized that such Cess amounts became dead claims after their levy was abolished and could not be transitioned into the GST regime.