2021 (7) TMI 1 - Commissioner - GST

Carry Forward of credit of Education Cess, SHE Cess and KKC - carry forward through TRAN-1 is permissible under GST law or not? - Circular No. 87/06/2019-GST - HELD THAT - It does not mean that the Appellant became so entitled to carry forward even a dead claim of unutilised Education Cess and Secondary and Higher Education Cess against the Output GST Liability after 01.07.2017. The set off and such adjustments could be allowed only if it clearly fell within the definition of Eligible Duties or Eligible Taxes and Duties as defined in Explanations 1 and 2. On the contrary, Explanation 3 clearly excluded Cess to be so eligible for carry forward and set off. Therefore, there is no iota of doubt that Cess of any kind except National Calamity Contingent Duty (NCCD), which was so specified in Explanations 1 and 2 specifically could be allowed to be carried forward and adjusted against Output GST Liability. It may be noted here that this NCCD is allowed to be transitioned not as CENVAT credit, but because it is specifically included as Eligible Duties in Explanations 1 and 2 of Section 140 of the Act. The credit of such Education Cess and Secondary and Higher Education Cess which could not be utilised against the Output Education Cess and Secondary and Higher Education Cess Liability, while the said impost was in force prior to Finance Act, 2015, became a dead claim in the year 2015 itself and therefore, there was no question of allowing a carry forward and set off after a gap of two years against the Output GST Liability with effect from 01.07.2017. The unutilised Education Cess and Secondary and Higher Education Cess in the hands of the appellant had become dead CENVAT Credit claim in the year 2015 itself with these levies dropped by the Finance Act 2015 and therefore, there is no question of it being claimed as a right to be carried forward and set off after 01.07.2017 against Output GST Liability - it can be stated that while Cess is collected from the person on whom such liability is fixed to meet a particular kind of expenditure incurred by the Government and its collection and expenditure is dedicated to that particular object or purpose of imposition of Cess such as Krishi Kalyan Cess imposed for the purpose of agriculture advancement or Education Cess imposed for the purpose of education enhancement. While Tax is a General Revenue, which can be spent by the Government for general public purposes. The three types of Cess involved, namely Education Cess, Secondary and Higher Education Cess and Krishi Kalyan Cess were not subsumed in the new GST Laws, either by the Parliament or by the States. Therefore, the question of transitioning them into the GST Regime and giving them credit under against Output GST Liability cannot arise. The plain scheme and object of GST Law cannot be defeated or interjected by allowing such Input Credits in respect of Cess, whether collected as Tax or Duty under the then existing laws and therefore, such set off cannot be allowed. The appellant 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 - it is clear that carry forward of cesses as ITC through TRAN-1 by the appellant is not proper and in the instant case ample statutory provisions are available to restrict admissibility of cesses as ITC in GST to appellant - Appeal dismissed - decided against appellant.

Issues Involved:
1. Whether the carried forward of Education Cess, Secondary & Higher Secondary Education Cess, and Krishi Kalyan Cess (KKC) through TRAN-1 is permissible under GST law.

Detailed Analysis:

1. Carried Forward of Cess under GST Law:
The primary issue for consideration was the permissibility of carrying forward Education Cess, Secondary & Higher Secondary Education Cess, and Krishi Kalyan Cess (KKC) through TRAN-1 under GST law. The judgment concluded that the appellant was not entitled to carry forward these cesses as Input Tax Credit (ITC) against the Output GST Liability after 01.07.2017. It was emphasized that the set-off and adjustments could only be allowed if they fell within the definition of “Eligible Duties” or “Eligible Taxes and Duties” as defined in Explanations 1 and 2 of Section 140 of the CGST Act. Explanation 3 explicitly excluded cesses from being eligible for carry forward and set-off.

2. Dead Claim of Unutilized Cess:
The judgment found that the credit of Education Cess and Secondary and Higher Education Cess, which could not be utilized against the Output Education Cess and Secondary and Higher Education Cess Liability before the Finance Act, 2015, became a dead claim in 2015. Therefore, there was no question of allowing a carry forward and set-off after a gap of two years against the Output GST Liability from 01.07.2017.

3. Nature of CENVAT Credit:
It was stated that CENVAT credit or Input Tax Credit under the GST Regime is a concession and a facility, not a vested right. The transition and carry forward of the Input Tax Credit of taxes and duties paid under earlier Indirect Tax Regimes were subject to conditions specified in Section 140 of the CGST Act. The unutilized Education Cess and Secondary and Higher Education Cess in the hands of the appellant had become dead CENVAT Credit claims in 2015, thus there was no question of carrying them forward and setting them off against Output GST Liability post 01.07.2017.

4. Distinction Between Cess and Tax:
The judgment highlighted the distinction between cess and tax. Cess, such as Education Cess and KKC, is levied for specific purposes (e.g., education enhancement, agriculture advancement) and is not a general tax or duty. The GST Law did not subsume these cesses, and hence their transition into the GST regime was not permissible.

5. Commodities Excluded from GST:
The judgment noted that only six commodities were left out of the GST regime and continued to be covered by earlier existing laws of Excise Duty and VAT Law. The three types of cesses involved were not subsumed in the new GST Laws, and therefore, transitioning them into the GST regime and giving them credit against Output GST Liability was not possible.

6. Statutory Provisions and Case Laws:
The judgment referred to several statutory provisions and case laws to support its conclusions. It cited the CGST Amendment Act, 2018, and relevant circulars clarifying the non-inclusion of cesses in the definition of eligible duties. The judgment also referred to the decisions of the Hon’ble Supreme Court in cases like CCE Vs. Dai Ichi Karkaria Ltd., Eicher Motors Limited Vs. CCE, and Unicorn Industries vs UOI, which emphasized that additional levies like Education Cess and KKC do not take the color of basic levy and cannot be transitioned as CENVAT Credit under GST.

Conclusion:
The appeal was rejected, and the impugned Order-in-Original was upheld. The appellant was not entitled to carry forward and set off unutilized Education Cess, Secondary and Higher Education Cess, and Krishi Kalyan Cess against the GST Output Liability. The judgment emphasized that the statutory provisions and legislative intent were clear in excluding these cesses from being transitioned into the GST regime.

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