2021 (8) TMI 318 - Commissioner - GST

Transition/Carry forward of accumulated CENVAT credit of EC and SHEC to GST regime, through TRAN-1 - liability of interest and penalty accrues or not when ITC of Cesses is reversed - HELD THAT - 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 after 01.07.2017 - Since Section 140 was changed retrospectively w.e.f. 01.07.2017 (date of origin of GST) vide CGST (Amendment) Act, 2018 and Explanation 3 of Section 140 was also inserted retrospectively w.e.f. 01.07.2017, which makes it categorical that the transition the CENVAT Credit pertaining to cesses is not allowed and intention of legislature was very clear that these are dead claim and ought not to be transitioned. Thus, the amendment vide Section 140 through CGST Amendment Act, 2018 was done retrospectively w.e.f. 01.07.2017 because transition of cesses was never intended by the legislature. Thus, it is ample clear that carry forward of cesses as ITC through TRAN-1 by the appellant was not proper and in the instant case bounteous statutory provisions are available to restrict admissibility of cesses as ITC in GST to appellant. Whether liability of interest and penalty accrues when ITC of Cesses is reversed, or not? - HELD THAT - The intention of the Legislature was never to transition the CENVAT Credit pertaining to cesses for the fact that Explanation (3) to Section 140, which barres transition of any cesses, was made effective retrospectively w.e.f. 01.07.2017. Further, reversing the credit pertaining to Ed. Cess and SHE in GSTR-3B for the month of September-2018 does not mean that the appellant became so entitled to carry forward even a dead claim of unutilised Ed. Cess and SHE after 01.07.2017. Hence, once ineligible ITC has been availed interest liability according to Section 50 sticks to anyone - the contention of the appellant regarding non-applicability of interest and penalty after reversing the Cenvat in question is not tenable as per aforesaid statutory provisions the transition of CENVAT Credit pertaining to cesses is not allowed and intention of legislature was very clear that these are dead claim and ought not to be transitioned. Thus, the amendment vide Section 140 through CGST Amendment Act, 2018 was done retrospectively w.e.f. 01.07.2017 because transition of cesses was never intended by the legislature. Appeal disposed off.

Summary

Issues Involved:
1. Whether Carried forward of Education Cess, Secondary & Higher Secondary Education Cess and Krishi Kalyan Cess (KKC) through TRAN-1, is permissible under GST law or not?
2. Whether liability of interest and penalty accrues when ITC of Cesses is reversed, or not?

Issue-wise Detailed Analysis:

1. Carried forward of Education Cess, Secondary & Higher Secondary Education Cess, and Krishi Kalyan Cess (KKC) through TRAN-1:

The appellant, M/s Parle Biscuits Pvt Ltd., carried forward unutilized CENVAT credit of Education Cess and Secondary Higher Education Cess in their TRAN-1 statement, which was challenged by the adjudicating authority. The appellant argued that Section 140 of the CGST Act, 2017, did not prohibit the transition of accumulated CENVAT credit of EC and SHEC until the provision was amended with retrospective effect from 01.07.2017. They claimed that the credit was validly transitioned as there was no specific prohibition at the time of submission of TRAN-1.

However, the judgment referred to the Hon'ble Madras High Court decision in the case of Assistant Commissioner of CGST and Central Excise vs Sutherland Global Services Private Limited, which held that the credit of Education Cess and Secondary and Higher Education Cess became a dead claim in 2015 and could not be carried forward to the GST regime starting 01.07.2017. Explanation 3 to Section 140 of the CGST Act, inserted retrospectively, explicitly excluded cesses from being carried forward.

The CBIC Circular No.87/06/2019-GST dated 02.01.2019 also clarified that the transition of cesses is not allowed. The judgment concluded that the unutilized Education Cess and Secondary and Higher Education Cess were dead claims and not eligible for transition under GST law.

2. Liability of Interest and Penalty on Reversed ITC of Cesses:

The appellant argued that no interest could be levied on tax liabilities arising from retrospective amendments and that penalty under Section 122(2)(b) of the CGST Act, 2017, was not applicable since the credit was validly claimed at the time of availment and reversed before the amendment was effective.

The judgment found that the intention of the legislature was clear in not allowing the transition of cesses, as evidenced by the retrospective amendment to Section 140. The reversal of credit in GSTR-3B for September 2018 did not entitle the appellant to carry forward the dead claim of unutilized cesses after 01.07.2017. Once ineligible ITC is availed, interest liability under Section 50(3) of the CGST Act, 2017, applies at 24%. The CBIC Circular No.58/32/2018-GST dated 04.09.2018 also clarified that interest and penalty apply to such reversals.

The judgment held that the appellant was liable for interest and penalty as per statutory provisions, as the transition of CENVAT credit pertaining to cesses was not allowed. The cited case laws by the appellant were found not applicable to the present case.

Conclusion:

The appeal was rejected, affirming that the carried forward of cesses through TRAN-1 was not permissible under GST law, and the appellant was liable for interest and penalty on the reversed ITC of cesses. The judgment upheld the impugned order, finding no infirmity in the adjudicating authority's decision.