2021 (8) TMI 318 - Commissioner - GST

Appeal rejected: Cesses in TRAN-1 not allowed under GST. Liability for interest and penalty upheld.

The appeal was rejected, affirming that the carried forward of cesses through TRAN-1 was not permissible under GST law. The appellant was found liable for ... Transition of CENVAT/ITC through TRAN-1 - scope of Section 140 of the CGST Act and Explanation 3 thereto - distinction between cess and tax/duty for transitional credit - retrospective amendment and legislative intent - liability to interest under Section 50(3) on inadmissible ITC - penalty under Section 122 for wrongful availment of input tax creditTransition of CENVAT/ITC through TRAN-1 - scope of Section 140 of the CGST Act and Explanation 3 thereto - distinction between cess and tax/duty for transitional credit - Carrying forward Education Cess, Secondary & Higher Education Cess and Krishi Kalyan Cess through TRAN-1 is not permissible under the GST transitional provisions. - HELD THAT: - The authority held that cesses are distinct levies independent of the basic levy and therefore do not fall within the definition of 'eligible duties/taxes' for transition under Section 140. Explanation 3 to Section 140, inserted retrospectively w.e.f. 01.07.2017, excludes cesses from transition; this exclusion must be applied to Section 140 as a whole. The decision of the Madras High Court and the larger bench of the Supreme Court recognizing the separate character of cesses, together with CBIC Circular No.87/06/2019 reiterating that transition of cesses is not allowed, support the conclusion that unutilised cess credits became dead claims and could not be carried forward via TRAN-1. Reversal of such credits in GSTR-3B does not validate a prior impermissible transition where the levy itself is not an 'eligible duty.'The claim of the appellant to carry forward the cited cesses as ITC through TRAN-1 was disallowed.Liability to interest under Section 50(3) on inadmissible ITC - penalty under Section 122 for wrongful availment of input tax credit - effect of retrospective amendment on interest and penalty - Interest and penalty are leviable where inadmissible transitional ITC of cesses has been availed and not legitimately permissible under Section 140. - HELD THAT: - Having concluded that transition of cess credit was impermissible, the authority applied Section 50(3) to hold that interest is payable on the inadmissibly availed ITC; CBIC guidance indicates that reversals of inadmissible transitional credit do not preclude interest and penalty liability. Further, the act of availing inadmissible ITC amounted to contravention attracting penalty under Section 122. The retrospective amendment and Explanation 3 are taken as clarifying legislative intent that such cess credits were never intended to be transitioned; therefore interest and penalty follow from the inadmissibility rather than being negated by the retrospective change.Interest under Section 50(3) and penalty under Section 122 were held to be exigible in respect of the reversed cess credits.Final Conclusion: The appeal was dismissed: the carry forward of Education Cess, Secondary & Higher Education Cess (and related cesses) through TRAN-1 was held impermissible under Section 140 (having regard to Explanation 3 and relevant judicial and administrative pronouncements), and interest and penalty were confirmed on the inadmissible transitional ITC. Issues Involved:1. Whether Carried forward of Education Cess, Secondary & Higher Secondary Education Cess and Krishi Kalyan Cess (KKC) through TRAN-1, is permissible under GST law or notRs.2. Whether liability of interest and penalty accrues when ITC of Cesses is reversed, or notRs.Issue-wise Detailed Analysis:1. Carried forward of Education Cess, Secondary & Higher Secondary Education Cess, and Krishi Kalyan Cess (KKC) through TRAN-1:The appellant, M/s Parle Biscuits Pvt Ltd., carried forward unutilized CENVAT credit of Education Cess and Secondary Higher Education Cess in their TRAN-1 statement, which was challenged by the adjudicating authority. The appellant argued that Section 140 of the CGST Act, 2017, did not prohibit the transition of accumulated CENVAT credit of EC and SHEC until the provision was amended with retrospective effect from 01.07.2017. They claimed that the credit was validly transitioned as there was no specific prohibition at the time of submission of TRAN-1.However, the judgment referred to the Hon'ble Madras High Court decision in the case of Assistant Commissioner of CGST and Central Excise vs Sutherland Global Services Private Limited, which held that the credit of Education Cess and Secondary and Higher Education Cess became a dead claim in 2015 and could not be carried forward to the GST regime starting 01.07.2017. Explanation 3 to Section 140 of the CGST Act, inserted retrospectively, explicitly excluded cesses from being carried forward.The CBIC Circular No.87/06/2019-GST dated 02.01.2019 also clarified that the transition of cesses is not allowed. The judgment concluded that the unutilized Education Cess and Secondary and Higher Education Cess were dead claims and not eligible for transition under GST law.2. Liability of Interest and Penalty on Reversed ITC of Cesses:The appellant argued that no interest could be levied on tax liabilities arising from retrospective amendments and that penalty under Section 122(2)(b) of the CGST Act, 2017, was not applicable since the credit was validly claimed at the time of availment and reversed before the amendment was effective.The judgment found that the intention of the legislature was clear in not allowing the transition of cesses, as evidenced by the retrospective amendment to Section 140. The reversal of credit in GSTR-3B for September 2018 did not entitle the appellant to carry forward the dead claim of unutilized cesses after 01.07.2017. Once ineligible ITC is availed, interest liability under Section 50(3) of the CGST Act, 2017, applies at 24%. The CBIC Circular No.58/32/2018-GST dated 04.09.2018 also clarified that interest and penalty apply to such reversals.The judgment held that the appellant was liable for interest and penalty as per statutory provisions, as the transition of CENVAT credit pertaining to cesses was not allowed. The cited case laws by the appellant were found not applicable to the present case.Conclusion:The appeal was rejected, affirming that the carried forward of cesses through TRAN-1 was not permissible under GST law, and the appellant was liable for interest and penalty on the reversed ITC of cesses. The judgment upheld the impugned order, finding no infirmity in the adjudicating authority's decision.