2025 (4) TMI 1321 - AT - Central Excise

Refund of Education Cess Secondary Higher Education Cess and Krishi Kalyan Cess - transitional provisions of the CGST Act 2017 - applicability of amendment to Section 140(1) of the CGST Act 2017 which excludes cesses from the definition of eligible duties and taxes for transitional credit - HELD THAT - Definition of eligible duties and taxes as per the explanation 3 under Section 140 of the CGST Act was amended with retrospective effect from 01.07.2017 whereby it is specified that Cesses are excluded from the definition of eligible duties and taxes. Thus the credit is ab initio not available for utilization for GST. In view of the above Cesses are not be transmitted through Tran -1 as per the transitional provisions specified under CGST Act. As the amount of Cenvat Credit balance of Education Cess Secondary Higher Education Cess was included in the carried forward amount by the appellant as on the appointed day i.e 01.07.2017 in terms of Section 142(3) of CGST Act 2017 refund of the same is not admissible to the appellant. The Cesses are excluded by adding explanation 3 in the Section of the 140 of The Central Goods and Services Tax Act 2017 from definition eligible duties and taxes . The credit is not available as refund. Hon ble Supreme Court different Hon ble High Courts and CESTAT Benches including this Bench held that Education Cess and Secondary Higher Education cess is not refundable as discussed supra. Therefore there are no legal or factual infirmity in the Order-in-Appeal. Conclusion - Refund of Education Cess Secondary Higher Education Cess and Krishi Kalyan Cess credits carried forward under the pre-GST regime is not admissible under the CGST Act 2017 transitional provisions or the existing law. There is no error in the order of the Commissioner (Appeals). Therefore appeal is liable to be dismissed.

The core legal questions considered by the Tribunal revolve around the entitlement to refund of Education Cess and Secondary Higher Education Cess (SHEC) credits carried forward from the pre-GST regime into the GST regime. Specifically, the issues are:

1. Whether the appellant is entitled to refund of Education Cess and SHEC credits carried forward under the transitional provisions of the CGST Act, 2017.

2. The legal effect of the amendment to Section 140(1) of the CGST Act, 2017, which excludes cesses from the definition of "eligible duties and taxes" for the purpose of input tax credit transition.

3. Whether the appellant has any vested or accrued right to claim refund of such cesses under the erstwhile laws or the GST regime.

4. The applicability and interpretation of relevant judicial precedents concerning refund claims of Education Cess and SHEC credits.

Issue-wise Detailed Analysis

Issue 1: Entitlement to Refund of Education Cess and SHEC Credits Carried Forward Under Transitional Provisions

The legal framework governing this issue is primarily Section 140 of the CGST Act, 2017, which provides for transitional arrangements for input tax credit. The appellant had carried forward a closing balance of Rs. 5,07,700/- comprising Education Cess and SHEC credits in the ER-1 return for April to June 2017, which was transitioned into the GST regime via Form GST Tran-1.

However, the CGST (Amendment) Act, 2018, effective from 01.02.2019, inserted Explanation 3 to Section 140(1)(a), explicitly excluding cesses from the definition of "eligible duties and taxes" allowed to be carried forward as input tax credit. The Tribunal interpreted this exclusion as retrospective from 01.07.2017, the appointed day for GST, thereby rendering the cesses ineligible for credit transition or refund.

The Appellate Authority's reasoning, endorsed by the Tribunal, emphasized that the credit of Education Cess and SHEC was abolished by notifications dated 01.03.2015 and 01.06.2015 respectively, and the government consciously did not provide for refund of unutilized credit balances of these cesses. Thus, the transitional provisions of the CGST Act do not create any new right to refund such credits.

The appellant's claim was therefore rejected on the ground that the cesses were not "eligible duties" under the amended Section 140(1), and inclusion of such cesses in the electronic credit ledger did not confer any vested right to refund.

Issue 2: Legal Effect of Amendment to Section 140(1) of CGST Act Excluding Cesses

Section 140(1) entitles a registered person to take credit of "eligible duties" carried forward under the previous law. Explanation 3, inserted by amendment, clarifies that "eligible duties and taxes" exclude any cess not specified in earlier explanations, including Education Cess and SHEC.

The Tribunal held that this exclusion is effective retrospectively from the appointed day (01.07.2017), thereby disallowing the transition or refund of cesses. The appellant's inclusion of cesses in Form Tran-1 was not legally tenable, as the amendment explicitly disallowed such credits.

Judicial precedents including the Jharkhand High Court in Rungta Mines Ltd. and CESTAT decisions in NMDC Ltd. and Bharat Heavy Electricals Ltd. affirmed that Section 142(3) of the CGST Act does not create new rights but preserves only existing rights under the old regime, and since the right to refund cess had extinguished, no refund claim could succeed.

Issue 3: Existence of Vested or Accrued Right to Refund of Education Cess and SHEC Credits

The Tribunal relied on various judicial pronouncements to conclude that CENVAT credit is a statutory concession, not a vested right. The CENVAT Credit Rules, 2004, do not envisage refund of unutilized Education Cess and SHEC credits in cash except in limited circumstances such as export under Rule 5.

Notably, the Rajasthan High Court in Banswara Syntex Ltd. held that no refund provision exists for such cesses unless erroneously paid and not passed on to customers. The Delhi High Court in Cellular Operators Association of India clarified that cross-utilization of Education Cess and SHEC credits was impermissible and that these cesses ceased to be payable after specified cut-off dates in 2015.

The Bombay High Court in Nelco Ltd. reinforced that the credit is conditional and subject to statutory provisions, and cannot be claimed as an absolute right. The Tribunal thus concluded that the appellant had no accrued or vested right to claim refund of these cesses.

Issue 4: Applicability and Interpretation of Judicial Precedents

The appellant relied on decisions such as Granules India Ltd., which allowed refund of CVD and SAD credits post-appointed day. The Tribunal distinguished this case, noting it concerned different duties (CVD and SAD) and is not applicable to Education Cess and SHEC.

The Department cited multiple authorities including Rungta Mines Ltd., CCE Tirupati vs Rani Plastic Pipe Industries, Banswara Syntex Ltd., Cellular Operators Association, NMDC Ltd., Bharat Heavy Electricals Ltd., and Nelco Ltd., all consistently holding that Education Cess and SHEC credits are not refundable post their abolition and exclusion from eligible duties under the CGST Act.

The Tribunal extensively analyzed these precedents, emphasizing the statutory and judicial consensus that refund of such cesses is not permissible under the existing legal framework.

Significant Holdings

The Tribunal held: "The theory that Cenvat credit is a vested right is fallacious and it is settled that the credit is a statutory right bestowed upon the assessee in terms of the provisions of the relevant act. Therefore, the availment, utilization and refund, if any, are governed by the Rules governing the availment and utilization of the credit."

It further observed: "The levy of the impugned Education Cess and Secondary and Higher Education Cesses have been abolished with effect from 01.03.2015, and the government has consciously not provided for refund of the impugned CENVAT credit balances of the said cess. Such being the case, it is unreasonable to assume that the provisions of the GST Acts has provided for such refunds, since there is no provision under the GST Acts expressly providing for such refunds."

On the legal effect of Section 140(1) amendment, the Tribunal stated: "Cesses are excluded by adding explanation 3 in the Section of the 140 of The Central Goods and Service Tax Act, 2017 from definition 'eligible duties and taxes'. The credit is not available as refund."

In conclusion, the Tribunal affirmed the Appellate Authority's order dismissing the refund claim, holding that the appellant is not entitled to refund of Education Cess and Secondary Higher Education Cess credits carried forward under the transitional provisions of the CGST Act.

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