Madras High Court dismisses petition for credit of Cess under GST Act

The petition seeking credit of Cess under Article 226 of the Constitution of India was dismissed by the Madras High Court. The court held that transitioning unutilized Education Cess, Secondary and Higher Education Cess, and Krishi Kalyan Cess into the GST regime for credit against Output GST Liability was impermissible under Section 140 of the CGST Act. The court emphasized that such non-subsumed Cesses could not be carried forward or set off against GST Output Liability, in line with the plain scheme and object of the GST Law.

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Issues:
Petition seeking credit of Cess under Article 226 of the Constitution of India - Adjudication of the issue by Division Bench of Madras High Court - Controversy over transitioning unutilized Input Tax Credit of Cess into the GST regime - Interpretation of Section 140 of the CGST Act regarding Education Cess, Secondary and Higher Education Cess, and Krishi Kalyan Cess.

Analysis:
The petitioner filed a petition under Article 226 of the Constitution of India seeking a writ for the credit of Cess amounting to Rs. 2,78,322. The Additional Solicitor General pointed out that a Division Bench of the Madras High Court had already adjudicated a similar issue in a previous case. The Madras High Court, in its order dated 16.10.2020, held that the transition of unutilized Input Tax Credit of Cess could only be allowed for taxes and duties subsumed in the new GST Law. Since Education Cess, Secondary and Higher Education Cess, and Krishi Kalyan Cess were not subsumed in the new GST Laws, transitioning them into the GST regime and giving credit against Output GST Liability was not permissible. The court emphasized that the plain scheme and object of the GST Law could not be defeated by allowing such Input Credits for non-subsumed Cesses.

The Madras High Court further noted that the character of levies like Education Cess, Secondary and Higher Education Cess, and Krishi Kalyan Cess was distinct and standalone, and their input credit did not permit cross Input Tax Credit. The court highlighted that Explanation 3 to Section 140 of the CGST Act excluded Cess of any kind for the purpose of Section 140, thus disallowing the transition, carry forward, or adjustment of unutilized Cess other than specified Cess against Output GST liability. Consequently, the court allowed the appeal of the Revenue, setting aside the judgment of the learned Single Judge and ruling that the Assessee was not entitled to carry forward and set off unutilized Cess against the GST Output Liability under Section 140 of the CGST Act, 2017.

In light of the decision by the Madras High Court, the present petition was dismissed. The court upheld the ruling of the Madras High Court in the case of Assistant Commissioner of CGST and Central Excise & Ors. vs. Sutherland Global Services Pvt. Ltd., emphasizing the inadmissibility of transitioning unutilized Education Cess, Secondary and Higher Education Cess, and Krishi Kalyan Cess against the GST Output Liability as per Section 140 of the CGST Act, 2017.

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