2024 (9) TMI 1769 - AT - Service Tax

Refund allowed for unutilized education cess and Krishi Kalyan Cess credit upon unit closure

TATA BUSINESS EXCELENCE GROUP Versus THE COMMISSIONER OF CENTRAL EXCISE& SERVICE TAX-PUNE-I

CESTAT Mumbai allowed the appeal regarding refund of unutilized education cess, secondary & higher education cess, and Krishi Kalyan Cess. The ... Refund in respect of education cess, secondary & higher education cess and Krishi Kalyan Cess - rejecton of refund on the ground that the assessee is not entitled to carry forward and set off of unutilized cess - HELD THAT:- There are contrary decisions of several High Courts wherein Hon’ble Punjab & Haryana High Court in the case of Shree Krishna Paper Mills [2019 (12) TMI 1348 - PUNJAB AND HARYANA HIGH COURT] examined whether refund could be ordered or unutilized credit on closure of the unit and held, in view of the earlier decision of the Punjab & Haryana High Court in Rama Industries Ltd. vs. CCE, Chandigarh [2009 (2) TMI 136 - PUNJAB AND HARYANA HIGH COURT] and the decision of Karnataka High Court in Slovak India [2006 (7) TMI 9 - KARNATAKA HIGH COURT]. That refund should be granted. It is therefore, seen that there are conflicting decisions of the Karnataka High Court and the Punjab & Haryana High Court on the one hand and the Rajasthan High Court on the other hand, the decision of the Karnataka High Court in Slovak India was affirmed by the Supreme Court. As there are contrary decisions of several High Courts on the issue, in that circumstance, reliance placed on the decision of the Tribunal in the case of Emami Cement Ltd. [2022 (3) TMI 1254 - CESTAT NEW DELHI] wherein after examining the decisions of Hon’ble Punjab & Haryana High Court in the case of Shree Krishna Paper Mills and in Rama Industries, wherein it has been held that the appellant is entitled for refund of balance of amount of cess. The appellant is entitled to claim refund of unutilized education cess, secondary & higher education cess and Krishi Kalyan Cess lying in their account as on 30.06.2017 - Appeal allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether unutilized balances of Education Cess (EC), Secondary & Higher Education Cess (SHEC) and Krishi Kalyan Cess (KKC) as on 30.06.2017 are refundable in cash under section 11B of the Central Excise Act, 1944 read with section 83 of the Finance Act, 1994. 2. Whether such unutilized cess balances could be transited or carried forward for set-off under section 140 of the Central Goods and Services Tax Act, 2017 (CGST Act) after introduction of GST from 01.07.2017, or whether they became inadmissible/dead credits. 3. How conflicting decisions of various High Courts and Tribunals on refundability of cess balances should be reconciled and which precedents govern the present factual matrix. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Refundability of unutilized EC, SHEC & KKC balances as on 30.06.2017 Legal framework: The claim is founded on section 11B of the Central Excise Act, 1944 (refund of duty) read with section 83 of the Finance Act, 1994 (provisions relating to cesses), seeking cash refund of unutilized cess balances that could not be transitioned to GST. Precedent Treatment: Several High Court and Tribunal decisions are considered. Karnataka High Court and the Supreme Court (on appeal from Slovak India) and the Punjab & Haryana High Court (Rama Industries; Shree Krishna Paper Mills) have recognized refundability in analogous circumstances (e.g., closure or exit from MODVAT/credit scheme). Conversely, certain Benches of the Madras High Court (Double Member) have treated unutilized cess as dead credit post-2015/1.7.2017 and disallowed carry-forward/set-off. Interpretation and reasoning: The Court examined the line of authorities holding that when an assessee is unable to utilize input credit (or equivalent cess balances) due to structural change in law or cessation/exit from the credit scheme, the balance is refundable. The Tribunal's earlier analysis in the cited Emami decision is applied: where the facts show unutilized cess lying in the account on transition date, the statutory scheme contemplated refund rather than creation of a non-existent carry-forward right after the cess levy was dropped or became inapplicable for GST set-off. Ratio vs. Obiter: The conclusion that unutilized cess balances as on 30.06.2017 are refundable is treated as ratio applicable to the present appeal; reliance on prior decisions (Slovak India, Punjab & Haryana) is relied upon as binding/precedential in the Tribunal's approach. The discussion of competing Madras High Court views is explanatory/obiter with respect to the reasoning adopted. Conclusion: The appellant is entitled to refund of unutilized EC, SHEC and KKC balances lying in their account as on 30.06.2017; the adjudicating authority's denial is set aside and the refund claim is allowed with consequential relief. Issue 2 - Transit/carry-forward under section 140 CGST Act vs cash refund Legal framework: Section 140 of the CGST Act deals with transitional provisions for credits on introduction of GST; the question is whether cess balances could be transited as input tax credit or otherwise carried forward for set-off against GST liabilities, or whether cash refund under pre-GST provisions was the correct remedy. Precedent Treatment: Some authorities and counsel for revenue argued absence of any provision to transit EC/SHEC/KKC balances under section 140, and reliance was placed on Madras High Court decisions that declined carry-forward and treated cess as non-transitable. Other High Courts and the Tribunal (following Slovak India and Punjab & Haryana line) treated refund as the remedy where carry-forward/set-off was not feasible. Interpretation and reasoning: The Tribunal reasoned that the absence of a transitional mechanism for cess in section 140 does not ipso facto deny a remedy of refund under the pre-existing statute where the levy itself stood extinguished or the credit scheme ceased to afford utilization. Where statutory provisions do not permit migration of the specific cess-credit into the GST regime, the lawful alternative is a refund under the provisions applicable prior to GST commencement. Ratio vs. Obiter: The holding that inability to transition cess under section 140 supports entitlement to refund is a central ratio applied to the facts; distinctions drawn from Madras High Court contrary rulings are noted but not followed by the Tribunal in the present factual matrix. Conclusion: Non-availability of transit under section 140 does not preclude refund under section 11B/section 83 where unutilized cess remained on 30.06.2017 and could not lawfully be carried forward as credit into GST; refund is the appropriate remedy. Issue 3 - Treatment of conflicting authorities and selection of precedent Legal framework: Principles of precedent require reconciliation of conflicting High Court decisions and adherence to binding Supreme Court authority and consistent Tribunal jurisprudence where applicable. Precedent Treatment: The Tribunal identified divergent lines: (a) Karnataka High Court/Slovak India and Punjab & Haryana High Court decisions (and subsequent Supreme Court affirmation of Slovak India) supporting refund; (b) Madras High Court double bench decisions treating cess as dead credit and disallowing carry-forward/refund. The Tribunal relied upon its own prior decision (Emami Cement Ltd.) which analyzed and followed the refund-favouring authorities. Interpretation and reasoning: Given the existence of contradictory High Court rulings, the Tribunal applied its prior reasoning which aligns with the Karnataka/Supreme Court line that refund must be granted where credit cannot be utilized due to cessation/exit from the credit scheme or structural change in law. The Tribunal explained that conflicting High Court views justify application of the Tribunal's consistent approach and reliance upon higher court affirmation where present. Ratio vs. Obiter: The guidance that in the presence of conflicting High Court authorities the Tribunal will follow the line consistent with Supreme Court precedent and its own considered decision is operative ratio for this appeal. Comments on the weight of the opposing High Court decisions are obiter insofar as they are noted but not followed. Conclusion: In light of conflicting authorities, the Tribunal follows the decision that grants refund where unutilized cess balances cannot be transited to GST; consequently, the appellant's refund claim succeeds.