2018 (8) TMI 524 - AAAR - GST

Transitional Credit - Krishi Kalyan Cess (KKC) - migration to GST Regime - admissibility of the KKC credit transitioned by the appellant - Utilization of KKC Credit for payment of excise duty/service tax - Held that - It is clear that KKC could be utilized towards payment of KKC only. The KKC cannot be adjusted or cross utilized against the payment of excise duty or service tax. It was made expressly clear that CENVAT credit of input duty specified in the sub rule above i.e. excise duty, additional excise duty cannot be utilized for payment of KKC. Similarly the CENVAT credit in respect of KKC cannot be utilized for payment of excise duty or service tax. It could be utilized only for payment of KKC. Thus the CENVAT rules made an exception in respect of credit of KKC. Delhi High Court in the case of Cellular Operators Association of India v. UOI 2018 (2) TMI 1264 - DELHI HIGH COURT has held that cess and duty are separate levies and cannot be equated - In the present case KKC cannot be treated as excise duty or service tax. It is to be utilized for payment of KKC only. Ruling - The 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 Appellant under CGST Act 2017, shall not be allowed to be taken as admissible input tax credit.

Summary

Issues Involved:
1. Admissibility of accumulated Krishi Kalyan Cess (KKC) as input tax credit under the CGST Act, 2017.
2. Interpretation of Section 140(1) of the CGST Act, 2017 regarding carry forward of CENVAT credit.
3. Applicability of Delhi High Court judgment in the case of Cellular Operators Association of India.
4. Legal binding of CBEC FAQs on the appellant.

Issue-wise Detailed Analysis:

1. Admissibility of Accumulated Krishi Kalyan Cess (KKC) as Input Tax Credit:
The appellant, engaged in the manufacture of paints and provision of works contract services, filed an application for advance ruling to determine if the accumulated KKC credit in their electronic credit ledger could be considered admissible input tax credit under the CGST Act, 2017. The Advance Ruling Authority (ARA) decided that the KKC credit carried forward would not be admissible as input tax credit. The appellant argued that KKC, being subsumed under the CGST liability due to the 101st amendment of the Constitution, should be allowed to be set off against CGST liability. However, the appellate authority upheld the ARA's decision, stating that KKC could only be utilized for payment of KKC and not for other duties or taxes.

2. Interpretation of Section 140(1) of the CGST Act, 2017:
The appellant contended that Section 140(1) of the CGST Act allows a registered person to carry forward the CENVAT credit as captured in the return for the period ended June 30, 2017, to the electronic credit ledger, provided the credit is admissible under the Act. They argued that KKC qualifies as CENVAT credit under the CENVAT Credit Rules, 2004, and there are no restrictions under Sections 16 and 17 of the CGST Act on the admissibility of KKC as CENVAT credit. However, the appellate authority noted that the CENVAT Credit Rules specifically stated that KKC could only be utilized for payment of KKC and not for other duties or taxes, thus rejecting the appellant's interpretation.

3. Applicability of Delhi High Court Judgment in the Case of Cellular Operators Association of India:
The ARA relied on the Delhi High Court's judgment in the case of Cellular Operators Association of India, which denied the cross-utilization of unutilized Education Cess (EC) and Secondary and Higher Secondary Education Cess (SHE) against excise duty and service tax liability. The appellant argued that this judgment was not applicable to their case, as KKC was subsumed under the CGST Act, unlike EC and SHE, which were not subsumed under excise duty or service tax. The appellate authority, however, found the Delhi High Court's reasoning applicable, emphasizing that KKC, like EC and SHE, could not be cross-utilized and must be treated as a separate levy.

4. Legal Binding of CBEC FAQs on the Appellant:
The appellant contended that the FAQs issued by the Central Board of Excise and Customs (CBEC) are not legally binding and should not be relied upon to negate their claim. They cited the case of Ratan Industries, where it was held that a circular contrary to the provision of law cannot be binding. The appellate authority acknowledged the appellant's argument but maintained that the FAQs provided clarity on the issue, stating that ITC of KKC could not be carried forward under GST.

Conclusion:
The appellate authority confirmed the ARA's order, holding that the accumulated KKC credit appearing in the service tax return of the Input Service Distributor (ISD) as of June 30, 2017, and carried forward in the electronic credit ledger under the CGST Act, 2017, shall not be allowed as admissible input tax credit. The appeal filed by the appellant was dismissed.