2018 (9) TMI 234 - AAR - GST

Applicant's Input Tax Credit Query Denied Under GST Regime

IN RE: CMI FPE LIMITED

The applicant withdrew the question regarding the availment of input tax credit for excise duty paid under Rule 3(5B) of the Cenvat Credit Rules, 2004. ... Input Tax Credit - transition to GST Regime - transitional provisions u/s 140 - Whether input tax credit is available against unutilised cenvat credit such as Education cess, Secondary & Higher secondary Education cess & Krishi Kalyan cess lying in our books of Accounts? - Sub-rule (5B) of Rule 3 of the CCR. Held that:- Education Cess (EC) was levied under the provisions of the Finance Act, 2004 with effect from 10.9.2004 and the CCR vide Rule 3(1) notified that the manufacturer or provider of taxable (output) service shall be allowed to take credit of EC. The CCR also mandated that such credit of EC could be utilized only for payment of EC on excisable goods or taxable services. Under both, the service tax laws and the central excise laws, EC was not supposed to be used for making duty/ tax payments - Similarly, Secondary and Higher Education Cess (SHEC) was levied by the Finance Act, 2007 and the CCR vide Rule 3(1) notified that the manufacturer or provider of taxable (output) service shall be allowed to take credit of SHEC. The CCR also mandated that such credit of SHEC could be utilized only for payment of SHEC on excisable goods or taxable services. Under both, the service tax laws and the central excise laws, SHEC was not supposed to be used for making duty/ tax payments. The express provisions have been made in the Cenvat Credit Rules from time to time that credit availed in respect of EC, SHEC and KKC can be used for making tax/duty payments only against ECT SHEC and KKC, respectively. The CCR has also expressly provided that items in respect of which CENVAT credit is available, would not be utilized for payment of EC SHEC and KKC. Thus, there was a clear demarcation of the credit in respect of EC, SHEC and KKC. Under GST, there is no levy of the three types of cesses - all the three types of cesses cannot be treated as excise duty or service tax. In view thereof, the CENVAT credit as referred to in subsection (1) of section 140 would not include the credit in respect of KKC. Therefore, the credit of taxes which are not covered in the definition of eligible duties in Section 140 cannot be availed. Ruling - The input tax credit against unutilised cenvat credit such as Education cess, Secondary & Higher secondary Education cess & Krishi Kalyan cess lying in our books of Accounts is not available. Issues Involved:1. Availment of input tax credit for excise duty paid under Rule 3(5B) of the Cenvat Credit Rules, 2004.2. Eligibility to avail input tax credit against unutilized cenvat credit such as Education Cess, Secondary & Higher Secondary Education Cess, and Krishi Kalyan Cess lying in the books of accounts.Detailed Analysis:Issue 1: Availment of Input Tax Credit for Excise Duty Paid Under Rule 3(5B) of the Cenvat Credit Rules, 2004The applicant initially raised the question regarding the availment of input tax credit (ITC) for excise duty paid under Rule 3(5B) of the Cenvat Credit Rules, 2004. However, during the hearing on 04.04.2018, the applicant acknowledged that this question was not covered within the scope of Section 97 of the CGST Act, 2017. Consequently, the applicant withdrew this question, and the authority did not discuss or answer it. The withdrawal was granted, and no further deliberation on this issue was made.Issue 2: Eligibility to Avail ITC Against Unutilized Cenvat Credit Such as Education Cess, Secondary & Higher Secondary Education Cess, and Krishi Kalyan CessThe primary issue to be decided was whether the applicant could avail ITC against unutilized cenvat credit of Education Cess (EC), Secondary & Higher Education Cess (SHEC), and Krishi Kalyan Cess (KKC) lying in their books of accounts.Education Cess (EC) and Secondary & Higher Education Cess (SHEC):- EC was levied under the Finance Act, 2004, and SHEC under the Finance Act, 2007, with corresponding allowances for credit under the Cenvat Credit Rules (CCR). The CCR mandated that such credits could be utilized only for payment of EC and SHEC on excisable goods or taxable services.- The levy of EC and SHEC was abolished by the Finance Act, 2015, effective 01.03.2015 for excisable goods and 01.06.2015 for taxable services.- Notification No. 12/2015-CE (NT) dated 30.04.2015 allowed manufacturers to utilize the Cenvat credit on EC and SHEC towards payment of basic excise duty in certain situations, but this did not provide for the lapse or future utilization of the balance credit.Krishi Kalyan Cess (KKC):- KKC was introduced by Notification No. 28/2016-CE (NT) effective 01.06.2016, allowing providers of output service to take Cenvat credit of KKC on taxable services.- Similar to EC and SHEC, there were no provisions for the utilization of KKC credit under the GST regime.Legal Precedents and Provisions:- The Hon’ble Delhi High Court in the case of Cellular Operators Association of India and Others Vs UOI and Others (2018-TIOL-310-HC-DEL-ST) ruled that there was no provision in the law allowing the cross-utilization of EC and SHEC credits for payment of excise duty or service tax after the respective cut-off dates.- Section 140 of the CGST Act, 2017, and Rule 117 of the CGST Rules, 2017, provide mechanisms for carrying forward eligible duties and taxes. However, EC, SHEC, and KKC are not included in the definition of eligible duties under Section 140.- The GST Guidance Note 11 and the Board's Guidance Note on CGST Transitional Credit explicitly state that credits of EC, SHEC, and KKC are not allowed to be carried forward under GST.Conclusion:The authority concluded that the applicant is not eligible to avail ITC against unutilized cenvat credit of EC, SHEC, and KKC lying in their books of accounts. The credits of these cesses cannot be treated as excise duty or service tax and thus cannot be carried forward or utilized under the GST regime. The application was admitted and decided on merits, and the question was answered in the negative.Order:- Q1: Not answered as the question was withdrawn by the applicant.- Q2: The applicant is not eligible to avail ITC against unutilized cenvat credit such as Education Cess, Secondary & Higher Secondary Education Cess, and Krishi Kalyan Cess lying in their books of accounts.