2020 (10) TMI 804 - HC - GST

Court rules against carrying forward abolished Cess for GST liability.

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

Assistant Commissioner of CGST and Central Excise, Commissioner CGST and Central Excise, Union of India, Central Board of Excise and Customs Versus ... Issues Involved:1. Whether the Assessee is entitled to utilize and set off the accumulated unutilized amount of Education Cess (EC), Secondary and Higher Education Cess (SHEC), and Krishi Kalyan Cess (KKC) against the Output GST Tax Liability after the switch over to GST Regime with effect from 01.07.2017.Issue-wise Detailed Analysis:1. Entitlement to Utilize and Set Off Accumulated Unutilized Cess:The core issue revolves around whether the Assessee can carry forward and utilize the unutilized amounts of EC, SHEC, and KKC against the Output GST Liability post-GST implementation from 01.07.2017. The judgment examines the legislative provisions, particularly Section 140 of the CGST Act, 2017, which provides for transitional arrangements for Input Tax Credit (ITC).2. Legislative Provisions and Definitions:Section 140 of the CGST Act, 2017, and its explanations are pivotal. Explanation 1 specifies 'Eligible Duties' for inputs held in stock, excluding EC, SHEC, and KKC. Explanation 2 includes 'Eligible Duties and Taxes' for inputs and input services received on or after the appointed day but also excludes the said Cesses. Explanation 3 explicitly excludes any Cess not specified in Explanations 1 and 2 from being transitioned.3. Nature of Cess:The judgment distinguishes between Cess, Tax, and Duty. Cess, although collected in the form of duty or tax, is dedicated to specific purposes and cannot be cross-utilized against other tax liabilities. The judgment elaborates that the Cess collected is for specific purposes like education and agriculture, and its utilization is restricted by the legislative framework.4. Contention of the Assessee:The Assessee argued that the unutilized CENVAT credit of EC, SHEC, and KKC should be allowed to be carried forward under Section 140(8) of the CGST Act, which deals with centralized registration. The Assessee contended that since these Cesses were collected as duties/taxes, they should be eligible for transition.5. Contention of the Revenue:The Revenue argued that the unutilized Cess amounts became dead claims after their levy was abolished in 2015 and could not be carried forward under the GST regime. They emphasized that the Cess was collected for specific purposes and could not be cross-utilized against other tax liabilities. The Revenue also highlighted that Explanation 3 to Section 140 explicitly excludes any Cess not specified in Explanations 1 and 2.6. Judicial Precedents:The judgment refers to various judicial precedents, including the Hon'ble Supreme Court's decisions in Union of India v. Modi Rubber Ltd., Unicorn Industries v. Union of India, and Eicher Motors Ltd. v. Union of India. These cases emphasize that transitional provisions and the carry forward of credits must be strictly construed as per legislative intent and specific provisions.7. Interpretation of Section 140 and Explanations:The judgment concludes that the legislative intent, as reflected in Section 140 and its explanations, does not permit the carry forward and utilization of unutilized EC, SHEC, and KKC against GST liabilities. The court emphasized that the transition provisions must be interpreted harmoniously, and the exclusion of Cess in Explanation 3 applies across all subsections of Section 140.Conclusion:The court allowed the appeal of the Revenue, setting aside the judgment of the learned Single Judge. It held that the Assessee was not entitled to carry forward and set off the unutilized Education Cess, Secondary and Higher Education Cess, and Krishi Kalyan Cess against the Output GST Liability under Section 140 of the CGST Act, 2017. The court emphasized that such Cess amounts became dead claims after their levy was abolished and could not be transitioned into the GST regime.