2022 (1) TMI 744 - Commissioner - GST

Carry forward of credit - Refund claim - Other Category of Cesses which was carry forwarded in TRAN-1 and later on, the said amount was reversed in GSTR-3B return - adjudicating authority has rejected the refund claim by taking the main ground that credit of cesses could not be carried forward as per amended explanation 3 of Section 140 of CGST Act, 2017 - Section 54(1) of the CGST Act, 2017 - HELD THAT - There is no iota of doubt in the fact that after insertion of explanation 3 of Section 140 of CGST Act vide S. 28 of the CGST (Amendment) Act, 2018 (31 of 2018) which were made effective from 1-7-2017, accumulated credit of cesses could not be carry forwarded and also could not be utilized for payment of outward supply. The Hon ble Madras High Court in ASSISTANT COMMISSIONER OF CGST AND CENTRAL EXCISE, COMMISSIONER CGST AND CENTRAL EXCISE, UNION OF INDIA, CENTRAL BOARD OF EXCISE AND CUSTOMS VERSUS SUTHERLAND GLOBAL SERVICES PRIVATE LIMITED, GOVERNMENT OF TAMIL NADU, THE CHAIRMAN GSTN 2020 (10) TMI 804 - MADRAS HIGH COURT hold that the assessee was not entitled to carry forward and set off of unutilized Education Cess, Secondary Higher Education Cess and Krishi Kalyan Cess against the GST output liability with reference to explanation 3 in Section 140 of CGST Act of the CGST Act, 2017. Further, it is observed that there is no explicit provision has been provided under Section 54 of CGST Act, 2017 for refund of such credit. From the provision of GST Law as well as in the light of the above Hon ble Madras High Court judgment it is abundantly clear that once transition of cesses to GST credit ledger is held as inadmissible, as natural corollary, cash refund of the same would also not be permissible. The issue whether the balance of credit of cesses was liable to be refunded or not, was also raised in case of BANSWARA SYNTEX LTD. VERSUS THE COMMISSIONER, CENTRAL EXCISE SERVICE TAX 2018 (10) TMI 1064 - RAJASTHAN HIGH COURT before the Hon ble Rajasthan High Court wherein also given the answered in negative. In view of the provision of Section 140 (explanation 3 of the said section), Section 54 of the CGST Act, 2017 and various judgments in favour of the department, it is held that the adjudicating authority has rightly rejected the said refund claim and there are also no infirmity in the said order - appeal dismissed.

Summary

Issues Involved:
1. Admissibility of refund claim for cesses carried forward through TRAN-1 and reversed in GSTR-3B.
2. Applicability of Explanation (3) to Section 140 of the CGST Act, 2017.
3. Relevance of case laws cited by the appellant.
4. Legal position on refund of unutilized cesses under GST regime.

Detailed Analysis:

1. Admissibility of Refund Claim for Cesses Carried Forward Through TRAN-1 and Reversed in GSTR-3B:
The appellant filed a refund claim under Section 54(1) of the CGST Act, 2017 for ?5,72,604/- pertaining to inadvertent reversal of cesses carried forward through TRAN-1 and later reversed in the GSTR-3B return for August 2018. The adjudicating authority rejected the refund claim, stating that cesses credit cannot be carried forward through TRAN-1 as per Explanation (3) to Section 140 of the CGST Act, 2017, which was inserted via the Central Goods and Services Tax Amendment Act, 2018 and made effective from 1-7-2017. Consequently, the refund claim was deemed inadmissible.

2. Applicability of Explanation (3) to Section 140 of the CGST Act, 2017:
The adjudicating authority referenced Explanation (3) to Section 140, which explicitly excludes any cess from being carried forward in the GST regime. The appellant argued that this provision should not affect the refund claim, as the credit of cesses was validly earned and not explicitly withdrawn by the legislature. However, the adjudicating authority maintained that since the credit of cesses could not be carried forward, the refund of the same under the GST regime does not arise.

3. Relevance of Case Laws Cited by the Appellant:
The appellant cited the cases of M/s. Eicher Motors Limited v. Union of India and M/s. Bharat Heavy Electricals Ltd. v. Commissioner Central Goods and Services Tax, Central Excise, and Customs, Bhopal, arguing that these cases supported their claim for refund of unutilized cesses. The adjudicating authority dismissed these references, stating that they pertain to the old regime (Central Excise) and do not hold relevance under the GST regime. Furthermore, it was noted that the decision in the case of Bharat Heavy Electricals Ltd. is under appeal and has not attained finality.

4. Legal Position on Refund of Unutilized Cesses Under GST Regime:
The adjudicating authority highlighted that there is no explicit provision under Section 54 of the CGST Act, 2017 for the refund of such credit. The Hon’ble Madras High Court, in the case of Commissioner of CGST & Central Excise v. Sutherland Global Services Pvt. Ltd., held that the assessee was not entitled to carry forward and set off unutilized cesses against GST output liability. This judgment supported the view that once the transition of cesses to the GST credit ledger is held inadmissible, cash refund of the same is also not permissible.

Conclusion:
The appeal was dismissed on the grounds that the adjudicating authority rightly rejected the refund claim based on the provisions of Section 140 (Explanation 3) and Section 54 of the CGST Act, 2017, and relevant judicial precedents. The appellant's arguments and cited case laws were found to be inapplicable under the GST regime. The judgment emphasized that the legislative intent and judicial interpretations do not support the refund of unutilized cesses carried forward through TRAN-1 and reversed in GSTR-3B.