2025 (11) TMI 1641 - AT - Central Excise

No GST transition or refund for pre-2015 cesses under Section 140(1) CGST and Section 11B CEA

CESTAT (LB) held that Education Cess, Secondary and Higher Education Cess, and Krishi Kalyan Cess, abolished in 2015, could not be transitioned as Cenvat ... Abolition of Education Cess in 2015 could be transited to GST Regime in 2017 in view of decision of M/s NuVista Ltd [2022 (3) TMI 1254 - CESTAT NEW DELHI] or as decided in the matter of M/s NMDC Ltd. [2024 (5) TMI 192 - CESTAT NEW DELHI] - filing of claim of refund after 2017 will be affected by limitation or not. Whether after abolition of Education Cess in 2015, same could be transited to GST Regime in 2017 in view of decision of M/s NuVista Ltd or as decided in the matter of M/s NMDC Ltd.? - HELD THAT:- Tthe appellant on their own had opted for transition of Cesses to GST in terms of Section 140 (1) by showing the consolidated amount at Col 5 and 6 of the TRAN 1 Form. The Board issued Circular No. 267/8/2018-CX8 dated 14-032018 and a check list was communicated to the field formation as to what credit was to be allowed under TRAN-1 and what was not to be allowed. As per para 4.1.1 of the said Circular, transition of Education Cess as well as Secondary and Higher Education Cess was not permitted. A harmonious reading of Section 140 (1) and the Explanations 1 to 3, read with the two Circulars and the format of E R 1 Return and the Clause 5 (a) of the TRAN1 would clarify that the TRAN1 has only one Column for ‘Cenvat Credit’. As per the Cenvat details reflected in the Form ER 1, Cenvat Credit means the figures which are shown at column (2) and (9) of the ER 1 Return. Therefore, the amounts shown in these columns as closing balance of ‘Cenvat Credit’ would be eligible for transitioning. The other columns (3), (4), (5), (6) (7), (8), (10) and (11) are primarily excluded from being transitioned - since Explanation 1 and 2 have clearly specified the ‘inclusive list of duties and taxes’ that can be transitioned, by way excluding the Education Cess and SHE cess under these Explanations 1 and 2, would on its own would be sufficient to move them from the ambit of ‘eligible duties and taxes’, without having to go into the issue as to whether the exclusion in terms of Explanation 3 for Section 140 (5) was notified or not. With the Education Cess and SHE Cess, KKC getting subsumed within Excise Duty and Service Tax way back in 2015, with no similar Cess imposed under the CGST Act, it leaves no scope to view that the Ceses would be treated as being eligible as Input Tax Credit [ITC] under the GST regime. Therefore, even on this ground, the Education Cess and SHE Cess and KKC could not have been transitioned. In the case of Nu Vista, the appellant had not transitioned the Edu Cess SHE Cess and KKC. They had directly filed the refund application. Therefore, there are no reason to go into the provisions of Section 140, and hence were not analysed in detail - In NMDC case, it has been held that the refund would not be eligible under Section 142 (3) of the CGST Act 2017. Now coming back to the present case, it is found that the Appellants have not brought in any case law to the consideration of this Bench [LB] to the effect that prior to 1.7.2017, the Edu Cess and SHE Cess were eligible as refund as against the two discussed High Court judgements in Cellular – Delhi [2018 (2) TMI 1264 - DELHI HIGH COURT] and Banswara – Rajasthan [2018 (10) TMI 1064 - RAJASTHAN HIGH COURT] cited by the Revenue. In respect of post GST regime, the Appellant and interveners have brought in decisions of DB and SM of Tribunals, which have overwhelmingly relied on Slovak [2006 (7) TMI 9 - KARNATAKA HIGH COURT], Eicher [1999 (1) TMI 34 - SUPREME COURT] and Samtel [2003 (3) TMI 121 - SUPREME COURT], cases which are not applicable to the facts of the present case. The ratio laid down in the detailed and considered decision of Madras High Court in the case of Sutherland, would be squarely applicable to the facts of the present case. Whether filing of claim of refund after 2017 will be affected by limitation? - HELD THAT:- The appellant [KEI] has filed the Refund claim on 11th October 2021, whereas admittedly the blockage of the Cesses took place on 1.3.2015 and 1.6.2015. If they wanted the cash refund, they should have filed the same within one year from these dates, as per the CEA 1944 provisions prevailing at that point of time. The Banswara Syntex case [2018 (10) TMI 1064 - RAJASTHAN HIGH COURT] shows that there were assesses who took this route. Therefore, their filing of the refund would be time barred by 1.3.2016 / 1.6.2016. It is obvious that with the only provision under Rule 5 of CCR 2004 being clearly inapplicable [applicable only in respect of export of goods] and Section 11B also not clearly in their favour, they chose not to file the refund claim between 2015 to 2017. On the other hand, they have quietly transitioned to TRAN 1 on 1.7.2017, waited for the Revenue to point out the error in 2018 / 2019, reversed the same and now they have filed the refund claim by taking refuge under Section 142 (3) to the effect that the Section 11B time bar provision would not be applicable - it is held that once they did not utilize the normal avenue within the framework of CCR 2004 / CEA 1944, they cannot take recourse to the new regime’s law to claim immunity from time-bar. This is thoroughly misconceived - thus the refund claim is hopelessly timebarred. The decision arrived at by the Tribunal in the case of NMDC agreed with and it is held that no refund can be granted for the blocked Education Cess, SHE Cess and KKC under the provisions of Section 142(3) - the refund claims, if filed after 1.3.2016 / 1.6.2016 would be time-barred. This Order is being forwarded to the respective Benches of the Tribunal for finalizing the orders. 1. ISSUES PRESENTED AND CONSIDERED (1) Whether Education Cess, Secondary and Higher Education Cess and Krishi Kalyan Cess, lying as unutilised CENVAT credit as on 30.06.2017, could either be transitioned as eligible credit under Section 140 of the Central Goods and Services Tax Act, 2017, or be refunded in cash under Section 142(3) of that Act read with Section 11B of the Central Excise Act, 1944. (2) Whether refund claims in respect of such blocked cess credits, filed in October 2021, were barred by limitation in terms of the existing Central Excise law. 2. ISSUE-WISE DETAILED ANALYSIS Issue (1): Refund / transition of unutilised EC, SHEC and KKC credit under Sections 140 and 142(3) of the CGST Act (a) Legal framework as discussed (i) Section 140(1) of the CGST Act allows a registered person to take, in the electronic credit ledger, the amount of CENVAT credit of 'eligible duties' carried forward in the last return filed under the existing law, subject to conditions and provisos. (ii) Explanation 1 to Section 140 defines 'eligible duties' (for subsections (1), (3), (4) and (6)), and Explanation 2 defines 'eligible duties and taxes' (for subsections (1) and (5)). Neither includes Education Cess, Secondary & Higher Education Cess or Krishi Kalyan Cess. (iii) Explanation 3 to Section 140 clarifies that 'eligible duties and taxes' exclude any cess not specified in Explanations 1 or 2, and any cess collected as additional duty of customs. (iv) Form ER-1 separately reflects closing balances of CENVAT credit and various cesses; Form TRAN-1, table 5(a), provides only one field for 'CENVAT credit' to be carried forward without separate heads for cesses. (v) Board Circulars clarified: (a) under Circular No. 267/8/2018-CX-8, that education / secondary education cess / KKC / SBC cannot be transitioned through TRAN-1; (b) under Circular No. 87/06/2019-GST, that 'eligible duties' under Section 140(1) are confined to the duties listed in Explanations 1 and 2 and that no transition of credit of cesses is permissible. (vi) Under the CENVAT Credit Rules, 2004, Rule 3(7) and its provisos allowed credit of EC, SHEC and KKC only for payment of the corresponding cess on output, with cross-utilisation against basic excise duty / service tax largely prohibited, save for a limited window for specified post-2015 receipts. (vii) Section 142(3) of the CGST Act mandates that refund claims of CENVAT credit, duty, tax, interest or other amounts paid under the existing law, filed before/on/after the appointed day, shall be disposed of under the existing law, and 'any amount eventually accruing shall be paid in cash, notwithstanding anything to the contrary contained in the existing law other than Section 11B(2) of the Central Excise Act.' The second proviso prohibits refund of CENVAT credit where the balance has been carried forward under the CGST Act. (viii) Section 11B of the Central Excise Act and Rule 5 of the CENVAT Credit Rules govern refund of duty and refund of CENVAT credit (confined to specified export situations). Transitional Rule 11 of the CENVAT Credit Rules governs carry-forward, not cash refund, of unutilised credit. (b) Interpretation and reasoning (1) Nature and status of cess credits prior to 01.07.2017 (i) Education Cess and Secondary & Higher Education Cess on excisable goods were fully exempted from 01.03.2015; the corresponding cesses on services, and Krishi Kalyan Cess, ceased to operate by 2015/2016. Thereafter, no further levy of these cesses existed either under Central Excise or Service Tax law. (ii) The CENVAT Credit Rules restricted utilisation of credit of EC, SHEC and KKC strictly to payment of those very cesses; cross-utilisation with excise duty/service tax was generally barred, except a narrow concession in respect of specified inputs/input services received on or after the dates of withdrawal. (iii) After exemption/omission of these cesses, the unutilised balances became 'blocked' because there was no remaining taxable output on which they could be utilised. The Court held that such blocked balances did not confer any continuing enforceable or 'indefeasible' right to refund or cross-utilisation once the levy itself ceased, in the absence of any express statutory provision for cash out or merger with other duties. (iv) Judicial decisions prior to GST (notably decisions rejecting cross-utilisation and cash refund of EC/SHEC) were noted as having already foreclosed both routes: (a) merger of cess credit with excise duty/service tax; and (b) cash refund of unutilised cess credit under Section 11B. The Court concluded that, even before 01.07.2017, blocked cess credits stood, in effect, as lapsed or 'dead' credit without statutory support for refund. (2) Inapplicability of the 'vested / indefeasible right' theory from Eicher Motors and Slovak India (i) The appellants and intervenors relied heavily on the proposition that CENVAT / MODVAT credit, once validly taken, constitutes a vested, indefeasible right that cannot be taken away by repeal/omission without express lapsing provisions, invoking judgments such as Eicher Motors and Slovak India. (ii) The Court distinguished those authorities on the grounds that they concerned: - credit of excise duty under a continuing levy, where a rule sought to lapse already-accrued credit while the duty remained in force; and - situations of closure of factory or exit from scheme, where the earlier view favouring cash refund under Rule 5 has since been overruled by a larger Bench. (iii) Relying on later authoritative analysis (including a three-Judge decision holding that neither Section 11B nor Rule 5 permit cash refund of unutilised credit merely because it cannot be utilised, and that Slovak India is not a declaration of law), the Court held that there is no general statutory right to encash unutilised CENVAT credit absent explicit provision. (iv) It was emphasised that Eicher Motors specifically spoke of a right that 'continues until the facility available thereto gets worked out'; once the levy itself is abolished and no output liability remains, the 'facility' cannot be worked out, and the earlier ratio cannot be extended to demand refund of obsolete cess credit. (v) The Court accepted the reasoning of High Court decisions that have already rejected the application of Eicher Motors and Slovak India to EC/SHEC/KKC, and declined to treat those precedents as conferring a vested right to refund of blocked cess balances. (3) Eligibility of cesses for transition under Section 140 CGST Act (i) From the structure of Form ER-1 and Form TRAN-1, and the language of Section 140 read with Explanations 1 and 2, the Court found that 'CENVAT credit' eligible for transition under Section 140(1) refers only to duties/taxes specifically enumerated as 'eligible duties' or 'eligible duties and taxes'. (ii) As EC, SHEC and KKC are not mentioned in Explanations 1 and 2, and Explanation 3 clarifies that any cess not so specified is excluded, such cesses fall outside the scope of 'eligible duties and taxes' for transition. (iii) The argument that Explanation 3 was not properly notified or did not apply to Section 140(1) was rejected. The Court reasoned that, even leaving Explanation 3 aside, the inclusive lists in Explanations 1 and 2, by positively specifying what may be transitioned, impliedly exclude cesses omitted therefrom. Hence, cesses stand excluded from transition by the positive structure of the definition itself. (iv) Additionally, the proviso to Section 140(1) bars transition where the credit is 'not admissible as input tax credit under this Act'. Since no corresponding cess exists under the CGST regime and cesses were not subsumed as eligible ITC under GST, credit of EC, SHEC and KKC cannot be regarded as admissible ITC. On this independent ground also, such cesses are ineligible for transition under Section 140(1). (v) The fact that the appellants initially included cess balances in the consolidated CENVAT figure in TRAN-1 was treated as an incorrect self-assessment later rectified on departmental pointing out; it did not create any right to transition cesses contrary to the statutory scheme. (4) Scope of refund under Section 142(3) CGST Act and its interplay with existing law (i) Section 142(3) does not create a new substantive right to refund of any amount merely because a balance exists at the time of transition. It only preserves and provides the mode of disbursal (in cash) of such amounts as are found refundable 'in accordance with the provisions of the existing law.' (ii) The non obstante clause in Section 142(3) is confined to permitting payment of an amount 'eventually accruing' as refund in cash, instead of re-credit, notwithstanding contrary provisions of existing law, but expressly spares Section 11B(2). It does not override the substantive and procedural refund conditions (including eligibility and time bar) under Section 11B and the CENVAT Credit Rules. (iii) The second proviso to Section 142(3) further restricts refund of CENVAT credit where the same has been carried forward under the CGST Act. Where cess balances were included in the amount carried forward and later reversed, the Court treated them as amounts that had been attempted to be carried forward, thus falling within the mischief of this restriction. (iv) Since existing Central Excise/CENVAT law did not permit either (a) refund of unutilised EC/SHEC/KKC merely because they became unusable, or (b) their merger with other duty or tax credit, the 'amount eventually accruing' as refund under existing law, in respect of such cesses, is nil. Section 142(3) cannot be invoked to resurrect a claim that was never recognised under the existing regime. (v) The Court declined to accept the contention that Section 142(3), read with Section 142(9)(b), obliterates the limitation or other restrictions of Section 11B for cess-credit refunds. It held instead that Section 142(3) specifically requires disposal 'in accordance with the provisions of the existing law' and that only the manner of refund (cash vs re-credit), not the underlying conditions of entitlement, is modified. (vi) It was further held that transitional provisions, including Rule 11 of the CENVAT Credit Rules, cannot be used to read in a right to cash refund of unutilised credit where the substantive rules restrict refund to defined situations (e.g., exports under Rule 5) and are otherwise silent. (5) Evaluation of conflicting Tribunal and High Court precedents (i) The Court undertook a comparative review of Tribunal decisions (including those in favour of refund under Section 142(3)) and held that many of them rested on: - reliance on Slovak India and Eicher Motors without appreciating their later limitation/overruling; and - failure to consider binding High Court precedents specifically on EC/SHEC/KKC and on the construction of Section 140/142. (ii) In contrast, High Court decisions analysing EC/SHEC/KKC credits, the bar on cross-utilisation and the inability to claim refund under Section 11B, as well as decisions construing Section 140/142 in the GST context, were considered detailed and directly on point. (iii) The Court particularly adopted the reasoning that: - credit of EC/SHEC/KKC, after cessation of the levy and in the absence of cross-utilisation, becomes a 'dead credit' with no statutory basis for encashment; and - input tax credit / CENVAT credit is a concession structured by statute and subject to conditions, not an absolute property right unfettered by legislative change. (iv) The Tribunal's own earlier decision favouring refund (Nu Vista) was found to have proceeded without full notice of subsequent/larger-bench High Court authority and without detailed analysis of Section 140, and was therefore not followed. The contrary Tribunal view (NMDC), which had examined Section 140, Section 142(3), and the relevant High Court case law, was approved. (6) Application to the present case (i) The appellant had carried forward the balances of EC, SHEC and KKC as on June 2017 in the ER-1/ST-3 returns, attempted transition of these cesses through TRAN-1 by including them in consolidated CENVAT credit, later reversed such credit upon audit objection, and then filed a refund claim in October 2021 under Section 142(3) read with Section 11B for the blocked cess balances. (ii) Applying the above legal reasoning, the Court held that: - EC/SHEC/KKC ceased to be leviable in 2015, and due to the utilisation restrictions in the CENVAT scheme, the balances became non-utilisable from 01.03.2015 / 01.06.2015; - there was no provision under the then-existing law to either merge such blocked cess credits with excise duty/service tax credit, or obtain cash refund of such credit merely because it could not be utilised; and - the balances, therefore, constituted lapsed / dead credit before the introduction of GST and could not be revived under the CGST Act. (iii) Since the earlier law itself did not recognise any enforceable refund entitlement for such cess balances, Section 142(3) could not be deployed to generate or 'transition' a right that did not exist. Consequently, no amount 'eventually accruing' to the appellant in respect of the blocked cesses was found refundable in cash. (c) Conclusion on Issue (1) (i) EC, SHEC and KKC are not 'eligible duties and taxes' within the meaning of Section 140 of the CGST Act and, by design of the statute, cannot be transitioned into the GST electronic credit ledger. (ii) The balances of EC, SHEC and KKC that became unusable upon abolition of the levies in 2015 did not give rise to any legally enforceable right to refund or cross-utilisation under the then-existing Central Excise / Service Tax / CENVAT regime, and were effectively 'dead' credit even before 01.07.2017. (iii) Section 142(3) of the CGST Act does not confer an independent substantive right to cash refund of such blocked cess credits; it only prescribes the mode of disbursement of refunds that are otherwise admissible under the existing law. As no such refund entitlement existed under the earlier law, no refund 'eventually accrues' under Section 142(3) in respect of these cesses. (iv) Accordingly, refund of the unutilised balances of Education Cess, Secondary & Higher Education Cess and Krishi Kalyan Cess as on 30.06.2017 is not admissible under Section 142(3) of the CGST Act read with Section 11B of the Central Excise Act. Issue (2): Limitation for refund claim of blocked cess credits (a) Legal framework as discussed (i) Section 11B(1) of the Central Excise Act requires any person claiming refund of duty or other amounts to file an application within one year from the 'relevant date', in the prescribed form, supported by evidence and subject to the bar of unjust enrichment under Section 11B(2). (ii) Under Section 142(3) of the CGST Act, refund claims relating to amounts paid under the existing law are to be disposed of 'in accordance with the provisions of the existing law', with the only express exception that, where refund is found admissible, it must be paid in cash notwithstanding contrary provisions, except as to Section 11B(2). (b) Interpretation and reasoning (i) The blockage of EC and SHEC on goods occurred effectively from 01.03.2015, and of EC/SHEC on services and KKC from 01.06.2015, when the levies were exempted/omitted. From those dates, the appellant was no longer in a position to utilise the cess credits, and any claim for refund on the footing of non-utilisability, if maintainable at all, arose then. (ii) The Court noted that some assessees, faced with blocked cess balances, did in fact attempt to file refund claims under Section 11B soon after 2015, which were litigated and rejected on merits. This demonstrated that the cause of action, if any, accrued from the date of abolition/blockage of cesses, not from the introduction of GST. (iii) Measured against this, the appellant's refund application, filed on 11.10.2021, was clearly far beyond the one-year period from 01.03.2015 / 01.06.2015 prescribed in Section 11B(1). (iv) The Court rejected the argument that Section 142(3) of the CGST Act overrides the time-limit under Section 11B. On the language 'shall be disposed of in accordance with the provisions of the existing law', it held that the limitation provisions of Section 11B(1) remain fully applicable, and only the mode of payment (cash vs re-credit) is altered by the non obstante clause. (v) The filing of TRAN-1 in 2017, the subsequent audit objection and reversal of cess amounts, and thereafter the 2021 refund claim, could not postpone the accrual of the cause of action or re-open limitation. The attempt to seek shelter under the new regime's transitional provisions, after remaining inactive during the original limitation period, was held to be misconceived. (c) Conclusion on Issue (2) (i) The right, if any, to seek refund of blocked EC/SHEC/KKC arose when such cesses were abolished and became non-utilisable, i.e., on 01.03.2015 / 01.06.2015. (ii) Under Section 11B(1) of the Central Excise Act, any refund claim in respect of such amounts ought to have been filed within one year from those dates. (iii) The refund claim filed on 11.10.2021 is therefore hopelessly time-barred even on the assumption that such a claim were substantively maintainable. (iv) Section 142(3) of the CGST Act does not displace or relax the limitation prescribed under Section 11B(1) for pre-GST refund claims; it only prescribes that refunds found admissible under the existing law shall be paid in cash. Overall disposition (i) There is no substantive right under either the pre-GST law or the CGST transitional provisions to obtain cash refund of unutilised Education Cess, Secondary and Higher Education Cess or Krishi Kalyan Cess lying as credit as on 30.06.2017. (ii) Even assuming arguendo such a right existed, the refund claim filed in October 2021 would be barred by limitation under Section 11B(1) of the Central Excise Act. (iii) The appeal and the intervenors' requests for refund of cess credits are accordingly rejected, and the interpretation adopted in the earlier decision denying such refunds is affirmed.