2024 (8) TMI 1407 - AT - Service Tax

Denial of refund of Krishi Kalyan Cess (KKC) not transited as input tax credit to Tran-I GST Register - Transitional provisions for input tax credit under Section 140 of CGST Act - HELD THAT - In the instant case Krishi Kalyan Cess (KKC) was allowed to be taken as CENVAT Credit on inputs but was permitted only to be used towards payment taxes on output services or clearance of goods also as KKC. This being the dictate of the law framed under the CENVAT Credit Rules 2004 KKC being collected for promotion and development of agriculture should not be refunded as specifically denied but this denial has its effect till introduction of CGST Act w.e.f. 01.07.2017 after which the KKC was discontinued. Now the question would arise as to how the accumulated KKC as input credits could be utilised/adjusted when the CESS itself was discontinued and the existing law had authorises its use only for the purpose of payment of KKC. The answer lies in Section 142(6) and was consciously dealt by the legislature to meet such contingency. The provision contained in Section 142(6)(a) comes with a non-obstinate clause and it says that even if contrary provision is available in the existing law then also notwithstanding availability of such provision cash refund of CENVAT Credit lying in balance could be directed to be made in an appeal proceeding and the only exception to it is Section 11B sub- Section 2 which in the present case would not even dictate the Appellant to justify unjust enrichment since Appellant can never go back to the existing law upon introduction of CGST Act to collect the same from any other person. This being the factual and legal position there are no hesitation to hold that Appellant is entitled to get cash refund of KKC against which it had appropriately filed the refund application under Section 11B of the Central Excise Act. The order passed by the Commissioner of CGST Central Excise (Appeals-II) Mumbai hereby set aside - Appellant is entitled to get cash refund of Krishi Kalyan Cess of 28, 30, 992/- with applicable interest as per law and Respondent-Department is directed to pay the same within two months of receipt of this order - Appeal allowed.

Summary

Issues Involved:
1. Denial of refund of Krishi Kalyan Cess (KKC).
2. Jurisdiction of CESTAT to deal with the interpretation of Section 140 of CGST Act.
3. Transitional provisions for input tax credit under Section 140 of CGST Act.
4. Eligibility of refund of KKC under Section 11B of the Central Excise Act.
5. Validity of Explanation 3 to Section 140 of CGST Act.

Detailed Analysis:

1. Denial of Refund of Krishi Kalyan Cess (KKC):
The appellant bank, which provides banking and financial services, had accumulated CENVAT Credit of KKC amounting to Rs. 28,30,992/- as of 30.06.2017. With the introduction of GST from 01.07.2017, the KKC could not be transitioned to the Electronic Credit Ledger. The appellant sought a refund under Section 11B of the Central Excise Act, 1944, but the refund claim was rejected by the adjudicating authority and subsequently by the Commissioner (Appeals). The legality of this order was questioned in the present appeal.

2. Jurisdiction of CESTAT:
During the hearing, the respondent's representative questioned the jurisdiction of CESTAT to interpret Section 140 of the CGST Act, arguing that such matters fall under the purview of the GST Tribunal and Writ Courts. However, the tribunal noted that Section 174 of the CGST Act, dealing with repeal and saving clauses, does not preclude CESTAT from hearing appeals related to existing laws like the Central Excise Act and the amended Finance Act, 1994. The tribunal cited previous decisions, including the Larger Bench decision in M/s. Bosch Electrical Drive India Pvt. Ltd. and Brose India Automotive Systems Pvt. Ltd., to affirm its jurisdiction.

3. Transitional Provisions for Input Tax Credit:
Section 140 of the CGST Act provides for the transitional arrangement for input tax credit, allowing the carry forward of CENVAT Credit of eligible duties to the GST regime. The amendment introduced by Section 28 of the CGST (Amendment Act), 2018, clarified that only "eligible duties" could be carried forward. Explanation 3 to Section 140 excluded certain Cesses from being considered eligible duties. However, the tribunal noted that the amendment and its explanations were not brought into force by a gazette notification, as confirmed by the Hon'ble Bombay High Court in the case of Godrej & Boyce Mfg. Co. Ltd.

4. Eligibility of Refund of KKC:
The tribunal examined the nature of CESS, noting that it is an additional levy collected for specific purposes. The KKC, introduced for the promotion and development of agriculture, was allowed as CENVAT Credit but could only be used for payment of KKC. With the discontinuation of KKC under the GST regime, the accumulated credit could not be utilized. Section 142(6)(a) of the CGST Act provides for the cash refund of such CENVAT Credit, notwithstanding any contrary provisions in the existing law. The tribunal held that the appellant is entitled to a cash refund of KKC under Section 11B of the Central Excise Act.

5. Validity of Explanation 3 to Section 140 of CGST Act:
The tribunal noted that Explanation 3, which excludes certain Cesses from being transitioned, was not notified for implementation. The Hon'ble Bombay High Court's decision in Godrej & Boyce Mfg. Co. Ltd. confirmed that Explanation 3 does not apply to sub-section (1) of Section 140. Therefore, the tribunal concluded that the appellant's claim for a refund of KKC is valid and should be processed.

Order:
The appeal was allowed, and the order passed by the Commissioner (Appeals) was set aside. The appellant was entitled to a cash refund of Rs. 28,30,992/- with applicable interest, to be paid by the respondent department within two months of receipt of the order.