2020 (10) TMI 804 - HC - GST

Court rules against carrying forward abolished Cess for GST liability.

The court allowed the Revenue's appeal, overturning the Single Judge's decision. It ruled that the Assessee could not carry forward and set off the ... Transitional arrangements for input tax credit - Exclusion of cesses from 'eligible duties' and 'eligible duties and taxes' under Section 140 - Distinction between cess, tax and duty - Doctrine of dead claim / implied lapse of tax credit - Requirement that only pre GST levies subsumed in GST can be transitionedExclusion of cesses from 'eligible duties' and 'eligible duties and taxes' under Section 140 - Explanation 3 to Section 140 - Transitional arrangements for input tax credit - Whether unutilised CENVAT credit of Education Cess, Secondary and Higher Education Cess and Krishi Kalyan Cess could be carried forward and set off against output GST liability under Section 140 of the CGST Act, 2017 - HELD THAT: - The Court held that Section 140 must be read as a whole together with Explanations 1, 2 and 3. Explanations 1 and 2 specify particular duties and taxes eligible for transition (the seven/eight specified items) and do not include the Education Cess, Secondary and Higher Education Cess or Krishi Kalyan Cess. Explanation 3 expressly excludes any cess not specified in Explanations 1 or 2. The legislative scheme therefore demonstrates that cesses other than those specifically enumerated (e.g., NCCD) were not intended to be transitioned. The Court rejected the contention that subsection (8) operates as an independent code permitting transition of any CENVAT credit carried forward; subsection (8) remains subject to the common Explanations. The Departmental Circular of 02.01.2019 and the purpose and text of Section 140 support excluding the three cesses from transition. Consequently the impugned cesses could not be carried forward and set off against GST output liability. [Paras 30, 34, 36, 41, 62]The assessee was not entitled to carry forward and set off unutilised Education Cess, Secondary and Higher Education Cess and Krishi Kalyan Cess against output GST liability under Section 140 of the CGST Act, 2017.Doctrine of dead claim / implied lapse of tax credit - Vested right in CENVAT credit - Distinction between taking/availing credit and utilisation - Whether the assessee possessed an indefeasible/vested right to transition and utilise CENVAT credit of the cesses by virtue of having taken or carried forward that credit prior to 01.07.2017 - HELD THAT: - The Court held that even if the assessee had 'taken' or reflected the CENVAT credit in its electronic ledger and TRAN 1, that accounting entry does not create a substantive right to transition cesses that are excluded by Section 140 and its Explanations. The cross utilisation rule under the erstwhile CENVAT scheme had already prohibited using these cesses against normal excise/service tax liabilities, and the levy of the cesses (Education Cess and SHE Cess) had been omitted in 2015 so that any unutilised credit became a dead/infructuous claim. Reliance on cases recognising vested rights in ordinary excise credit was distinguished because there the output levy remained available to work out the credit; here the output cesses ceased to exist. The Court therefore rejected the submission that filing TRAN 1 or centralized registration conferred an indefeasible right to transition the excluded cesses. [Paras 39, 42, 47, 54, 62]The assessee did not have a vested or indefeasible right to transition or utilise the unutilised CENVAT credit of the specified cesses; those credits were dead claims and could not be carried forward under Section 140.Final Conclusion: The intra Court appeal is allowed. The judgment of the Single Judge is set aside and it is held that unutilised Education Cess, Secondary and Higher Education Cess and Krishi Kalyan Cess cannot be carried forward or set off against output GST liability under Section 140 of the CGST Act, 2017. 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.