Assistant Commissioner of CGST and Central Excise Vs Sutherland Global Services Private Limited (Madras High Court)
Whether the Assessee is entitled to utilise and set off the accumulated unutilised amount of Education Cess (EC), Secondary and Higher Education Cess (SHEC) and Krishi Kalyan Cess (KKC), all jointly referred to as the “Cess” against the Output GST Tax Liability after the switch over of Indirect Taxation System to GST Regime with effect from 01.07.2017, which GST (Goods and Services Tax) levy subsumed within its fold 16 indirect taxes earlier leviable like Excise Duty, VAT, etc.
Admittedly, since the cross utilization of Education Cess and Secondary and Higher Education Cess was not allowed against Excise Duty and other duties under existing law prior to GST Regime and they could be set off only against the Output Education Cess and Secondary and Higher Education Cess liability, once the levy itself ceased and dropped in 2015, the question of their carry forward and utilization becomes only academic. Sub-section (8) of Section 140 and for that other matter, any of the Sub-sections of Section 140 are not the provisions in watertight compartments and do not operate in silos and a harmonious reading of various Sub-sections of Section 140, together with the three Explanations at the end of Section 140, has to be made by the Court to give it a purposeful meaning for transition of the Input Tax Credit, against Output GST Liability. The different Sub-sections of Section 140 only identify the class of Assessee; but a common thread of entitlement to carry forward and set off runs through them, of course, subject to Explanations 1, 2 and 3 appended to Section 140 of the Act. If one carefully compares all Sub-sections of Section 140, one can discern that while all other Sub-sections talk of “entitled to take credit”, Sub-section (8) uses the word “allowed to take”. The utilisation of such credit, even if taken in Electronic Ledger and notified in Form TRAN-1, does not guarantee any such right of utilisation independent of other parts of Section 140 specially ignoring Explanation 3. Subsection (8), therefore, cannot be said to be an independent Code of law for the dealers holding centralised registration, as canvassed.
The contention of the learned counsel for the Assessee that the Assessee was having a centralized registration and Input Education Cess and Secondary and Higher Education Cess being CENVAT under Cenvat Rules, 2004, deserve to be carried forward and allowed as set off against GST Liability, merely because it had carried forward the same in the Centralised Electronic Credit Ledger, has no substance. Merely because the revenue authorities, after the cessation of levy of Education Cess and Secondary and Higher Education Cess in the year 2015 did not take any action in the contemporary period, until the impugned communication was issued to the Assessee on 09.02.2018, which triggered the filing of the writ petition and asked the Assessee to reverse that entry in the Electronic Ledger, it does not mean that the Assessee became so entitled to carry forward even a dead claim of unutilised Education Cess and Secondary and Higher Education Cess against the Output GST Liability after 01.07.2017. The set off and such adjustments could be allowed only if it clearly fell within the definition of “Eligible Duties” or “Eligible Taxes and Duties” as defined in Explanations 1 and 2. On the contrary, Explanation 3 clearly excluded Cess to be so eligible for carry forward and set off. Therefore, there is no iota of doubt that Cess of any kind except National Calamity Contingent Duty (NCCD), which was so specified in Explanations 1 and 2 specifically could be allowed to be carried forward and adjusted against Output GST Liability. It may be noted here that this NCCD is allowed to be transitioned not as CENVAT credit, but because it is specifically included as “Eligible Duties” in Explanations 1 and 2 of Section 140 of the Act.
We found considerable force in the contention raised on behalf of the Revenue before us that credit of such Education Cess and Secondary and Higher Education Cess which could not be utilised against the Output Education Cess and Secondary and Higher Education Cess Liability, while the said impost was in force prior to Finance Act, 2015, became a dead claim in the year 2015 itself and therefore, there was no question of allowing a carry forward and set off after a gap of two years against the Output GST Liability with effect from 01.07.2017.
CENVAT credit or Input Tax Credit under the GST Regime is a concession and a facility and not a vested right. Even if one were to rank such a right of CENVAT credit on the pedestal of a statutory right, even that right can be curtailed and regulated by conditions for availing such right. It is clear from the Scheme of Section 140 of the GST Act that the transition and carryforward of the Input Tax Credit of the taxes and duties paid under the earlier Indirect Tax Regimes was subject to conditions and specifications given in Section 140 of the Act and unless specifically allowed. Such carry forward or set off could not be claimed by any implied intention or so called vested right theory. In our opinion, the unutilised Education Cess and Secondary and Higher Education Cess in the hands of the Assessee had become dead CENVAT Credit claim in the year 2015 itself with these levies dropped by the Finance Act 2015 and therefore, there is no question of it being claimed as a right to be carried forward and set off after 01.07.2017 against Output GST Liability.
The GST Law spared and did not include within its ambit and scope only six commodities which were left out and continued to be covered by the earlier existing laws of Excise Duty and VAT Law and for that purpose, Entry 54 of the State List and Entry 84 of the Union List were also suitably amended by 101st Constitutional Amendment Act. Six items which are not covered by GST are (a) Petroleum Crude, (b) High Speed Diesel, (c) Motor Spirit (commonly known as Petrol), (d) Natural Gas, (e) Aviation Turbine Fuel and (f) Tobacco and Tobacco products. Except the aforesaid 16 taxes and duties specified in different enactments, no other tax or duty were subsumed under the new GST Regime with effect from 01.07.2017.
Obviously, the transition of unutilised Input Tax Credit could be allowed only in respect of taxes and duties which were subsumed in the new GST Law. Admittedly, the three types of Cess involved before us, namely Education Cess, Secondary and Higher Education Cess and Krishi Kalyan Cess were not subsumed in the new GST Laws, either by the Parliament or by the States. Therefore, the question of transitioning them into the GST Regime and giving them credit under against Output GST Liability cannot arise. The plain scheme and object of GST Law cannot be defeated or interjected by allowing such Input Credits in respect of Cess, whether collected as Tax or Duty under the then existing laws and therefore, such set off cannot be allowed.
For these reasons also, in our opinion, the learned Single Judge, with great respects, erred in allowing the claim of the Assessee under Section 140 of the CGST Act. The main pitfalls in the reasoning given by the learned Single Judge are (a) the character of levy in the form of Cess like Education Cess, Secondary and Higher Education Cess and Krishi Kalyan Cess was distinct and stand alone levies and their input credit even under the Cenvat Rules which were applicable mutatis mutandis did not permit any such cross Input Tax Credit, much less conferred a vested right, especially after the levy of these Cesses itself was dropped; (b) Explanation 3 to Section 140 could not be applied in a restricted manner only to the specified Sub-sections of Section 140 of the Act mentioned in the Explanations 1 and 2 and as a tool of interpretation, Explanation 3 would apply to the entire Section 140 of the Act and since it excluded the Cess of any kind for the purpose of Section 140 of the Act, which is not specified therein, the transition, carry forward or adjustment of unutilised Cess of any kind other than specified Cess, viz. National Calamity Contingent Duty (NCCD), against Output GST liability could not arise.
For the aforesaid reasons, we are inclined to allow the appeal of the Revenue and with all due respect for the learned Single Judge, set aside the judgment of the learned Single Judge dated 05.09.2019 and we hold that the Assessee was not entitled to carry forward and set off of unutilised Education Cess, Secondary and Higher Education Cess and Krishi Kalyan Cess against the GST Output Liability with reference to Section 140 of the CGST Act, 2017. The appeal of the Revenue is allowed. CMP No.690 of 2020 is closed. Costs easy.
FULL TEXT OF THE HIGH COURT ORDER /JUDGEMENT
The interesting and important question which arises in the present intra Court appeal from the judgment of the learned Single Judge dated 05.09.2019 allowing the writ petition of the Assessee M/s. Sutherland Global Services Private Limited in W.P.No.4773 of 2018, is as to whether the Assessee is entitled to utilise and set off the accumulated unutilised amount of Education Cess (EC), Secondary and Higher Education Cess (SHEC) and Krishi Kalyan Cess (KKC), all jointly referred to as the “Cess” against the Output GST Tax Liability after the switch over of Indirect Taxation System to GST Regime with effect from 01.07.2017, which GST (Goods and Services Tax) levy subsumed within its fold 16 indirect taxes earlier leviable like Excise Duty, VAT, etc.
2. It may be noted that all the aforesaid three types of Cess were imposed by different Finance Acts which are enumerated hereafter and Education Cess and Secondary and Higher Education Cess were also abolished much before the enforcement of GST Regime with effect from 01.07.2017 and during the contemporary period of the levy of the Cess, they were allowed to be set off or adjusted under CENVAT Credit Rules against the Output Cess Liability only and no cross utilisation of the Cess was allowed to be set off against the normal excise duty or customs duty payable by the Assessee, even though the Cess imposed under the Finance Act were collected in the form of Duty or Tax, as the case may be, by reading mutatis mutandis the provisions of those parent enactments.
3. The fine distinction between Cess, Tax and Duty will also be discussed hereafter. But, by way of introductory remark, it can be stated here that while Cess is collected from the person on whom such liability is fixed to meet a particular kind of expenditure incurred by the Government and its collection and expenditure is dedicated to that particular object or purpose of imposition of Cess. While Tax is a General Revenue, which can be spent by the Government for general public purposes and Duty is imposed on manufacture in the form of Excise Duty or Customs Duty on Imports, under those specified laws, which also go to the General Revenue of the State. Fees is yet another impost which has the basis of quid pro quo at its back.
4. The controversy involved in the present case is about the set off, adjustment or utilisation of the Input Tax Credit of Cess paid at the time of manufacture or import by the Assessee, which provides Technical and Call Centre Services all over the country, namely as to whether such Cess in the form of Education Cess, etc. can be adjusted against the Output GST liability under the provisions of CGST Act, 2017 (Central Goods and Service Tax Act, 2017).
5. The learned Single Judge, by a detailed discussion of the statutory provisions and relevant case laws, has held in favour of the Assessee that the Assessee was entitled to adjust such unutilised CENVAT credit carried forward in its Electronic Ledger, which was so lying unutilised as on 30th June 2017, to be adjusted against the Output GST Liability with effect from 01.07.2017 in terms of Section 140 of the CGST Act, 2017.
6. However, for the reasons to be discussed below, we have found ourselves unable to subscribe to the same view as that of the learned Single Judge and we find that there is a considerable merit in the present writ appeal filed by the Revenue and it deserves to be allowed.
7. Before coming to the reasons for our aforesaid conclusion, let us discuss the relevant provisions of the relevant enactments involvedi n the present matter to understand the controversy in a better manner.
8. Section 140 of the CGST Act, 2017, which is most crucial for this case and which provides for the transitional arrangement for Input Tax Credit is quoted below for ready reference:
“Transitional arrangements for input tax credit.
140. (1) A registered person, other than a person opting to pay tax under section 10, shall be entitled to take, in his electronic credit ledger, the amount of CENVAT credit 3[of eligible duties] carried forward in the return relating to the period ending with the day immediately preceding the appointed day, furnished by him under the existing law in such manner as may be prescribed:
Provided that the registered person shall not be allowed to take credit in the following circumstances, namely:—
(i) where the said amount of credit is not admissible as input tax credit under this Act; or
(ii) where he has not furnished all the returns required under the existing law for the period of six months immediately preceding the appointed date; or
(iii) where the said amount of credit relates to goods manufactured and cleared under such exemption notifications as are notified by the Government.
3. Inserted by the CGST (Amdt.) Act, 2018 (31 of 2018), dt. 30.8.2018, w.r.e.f. 1-7-2017.
(2) A registered person, other than a person opting to pay tax under section 10, shall be entitled to take, in his electronic credit ledger, credit of the unavailed CENVAT credit in respect of capital goods, not carried forward in a return, furnished under the existing law by him, for the period ending with the day immediately preceding the appointed day in such manner as may be prescribed:
Provided that the registered person shall not be allowed to take credit unless the said credit was admissible as CENVAT credit under the existing law and is also admissible as input tax credit under this Act.
Explanation.––For the purposes of this sub-section, the expression “unavailed CENVAT credit” means the amount that remains after subtracting the amount of CENVAT credit already availed in respect of capital goods by the taxable person under the existing law from the aggregate amount of CENVAT credit to which the said person was entitled in respect of the said capital goods under the existing law.
(3) A registered person, who was not liable to be registered under the existing law, or who was engaged in the manufacture of exempted goods or provision of exempted services, or who was providing works contract service and was availing of the benefit of notification No. 26/2012— Service Tax, dated the 20th June, 2012 or a first stage dealer or a second stage dealer or a registered importer or a depot of a manufacturer, shall be entitled to take, in his electronic credit ledger, credit of eligible duties in respect of inputs held in stock and inputs contained in semi-finished or finished goods held in stock on the appointed day subject to the following conditions, namely:––
(i) such inputs or goods are used or intended to be used for making taxable supplies under this Act;
(ii) the said registered person is eligible for credit on such inputs under this Act;
(iii) the said registered person is in possession of invoice or other prescribed documents evidencing payment of duty under the existing law in respect of such inputs;
(iv) such invoices or other prescribed documents were issued not earlier than twelve months immediately preceding the appointed day; and
(v) the supplier of services is not eligible for any abatement under this Act:
Provided that where a registered person, other than a manufacturer or a supplier of services, is not in possession of an invoice or any other documents evidencing payment of duty in respect of inputs, then, such registered person shall, subject to such conditions, limitations and safeguards as may be prescribed, including that the said taxable person shall pass on the benefit of such credit by way of reduced prices to the recipient, be allowed to take credit at such rate and in such manner as may be prescribed.
(4) A registered person, who was engaged in the manufacture of taxable as well as exempted goods under the Central Excise Act, 1944 (1 of 1944) or provision of taxable as well as exempted services under Chapter V of the Finance Act, 1994 (32 of 1994), but which are liable to tax under this Act, shall be entitled to take, in his electronic credit ledger, —
(a) the amount of CENVAT credit carried forward in a return furnished under the existing law by him in accordance with the provisions of sub-section (1); and
(b) the amount of CENVAT credit of eligible duties in respect of inputs held in stock and inputs contained in semi-finished or finished goods held in stock on the appointed day, relating to such exempted goods or services, in accordance with the provisions of sub-section (3).
(5) A registered person shall be entitled to take, in his electronic credit ledger, credit of eligible duties and taxes in respect of inputs or input services received on or after the appointed day but the duty or tax in respect of which has been paid by the supplier under the existing law, subject to the condition that the invoice or any other duty or tax paying document of the same was recorded in the books of account of such person within a period of thirty days from the appointed day:
Provided that the period of thirty days may, on sufficient cause being shown, be extended by the Commissioner for a further period not exceeding thirty days:
Provided further that said registered person shall furnish a statement, in such manner as may be prescribed, in respect of credit that has been taken under this sub-section.
(6) A registered person, who was either paying tax at a fixed rate or paying a fixed amount in lieu of the tax payable under the existing law shall be entitled to take, in his electronic credit ledger, credit of eligible duties in respect of inputs held in stock and inputs contained in semi-finished or finished goods held in stock on the appointed day subject to the following conditions, namely:––
(i) such inputs or goods are used or intended to be used for making taxable supplies under this Act;
(ii) the said registered person is not paying tax under section 10;
(iii) the said registered person is eligible for input tax credit on such inputs under this Act;
(iv) the said registered person is in possession of invoice or other prescribed documents evidencing payment of duty under the existing law in respect of inputs; and
(v) such invoices or other prescribed documents were issued not earlier than twelve months immediately preceding the appointed day.
(7) Notwithstanding anything to the contrary contained in this Act, the input tax credit on account of any services received prior to the appointed day by an Input Service Distributor shall be eligible for distribution as credit under this Act even if the invoices relating to such services are received on or after the appointed day.
(8) Where a registered person having centralised registration under the existing law has obtained a registration under this Act, such person shall be allowed to take, in his electronic credit ledger, credit of the amount of CENVAT credit carried forward in a return, furnished under the existing law by him, in respect of the period ending with the day immediately preceding the appointed day in such manner as may be prescribed:
Provided that if the registered person furnishes his return for the period ending with the day immediately preceding the appointed day within three months of the appointed day, such credit shall be allowed subject to the condition that the said return is either an original return or a revised return where the credit has been reduced from that claimed earlier:
Provided further that the registered person shall not be allowed to take credit unless the said amount is admissible as input tax credit under this Act:
Provided also that such credit may be transferred to any of the registered persons having the same Permanent Account Number for which the centralised registration was obtained under the existing law.
(9) Where any CENVAT credit availed for the input services provided under the existing law has been reversed due to non-payment of the consideration within a period of three months, such credit can be reclaimed subject to the condition that the registered person has made the payment of the consideration for that supply of services within a period of three months from the appointed day.
(10) The amount of credit under sub-sections (3), (4) and (6) shall be calculated in such manner as may be prescribed.
Explanation 1.—For the purposes of 1[sub-sections (1), (3), (4)] and (6), the expression “eligible duties” means––
(i) the additional duty of excise leviable under section 3 of the Additional Duties of Excise (Goods of Special Importance) Act, 1957;
(ii) the additional duty leviable under sub-section (5) of section 3 of the Customs Tariff Act, 1975;
(iii) he additional duty leviable under sub-section (5) of section 3 of the Customs Tariff Act, 1975;
(iv) [….] (Omitted ibid)
(v) he duty of excise specified in the First Schedule to the Central Excise Tariff Act, 1985 (5 of 1986);
(vi) the duty of excise specified in the Second Schedule to the Central Excise Tariff Act, 1985; and
(vii) the National Calamity Contingent Duty leviable under section 136 of the Finance Act, 2001 (14 of 2001)
in respect of inputs held in stock and inputs contained in semi-finished or finished goods held in stock on the appointed day.
1. Substituted for “sub-sections (3), (4)” by the CGST (Amdt.) Act, 2018 (31 of 2018), dt. 30.8.2018, w.r.e.f. 1-7-2017.
Explanation 2.—For the purposes of 3[sub-sections (1) and (5), the expression “eligible duties and taxes” means–– the additional duty leviable under sub-section (1) of section 3 of the Customs Tariff Act, 1975.
(i) the additional duty of excise leviable under section 3 of the Additional Duties of Excise (Goods of special Importants) Act, 1975
(ii) the additional duty leviable under sub-section (1) of section 3 of the Customs Tariff Act, 1975;
(iii) the additional duty leviable under sub-section (5) of section 3 of the Customs Tariff Act, 1975;
(iv) […]
(v) the duty of excise specified in the First Schedule to the Central Excise Tariff Act, 1985;
(vi) the duty of excise specified in the Second Schedule to the Central Excise Tariff Act, 1985;
(vii) the National Calamity Contingent Duty leviable under section 136 of the Finance Act, 2001; and
(viii) the service tax leviable under section 66B of the Finance Act, 1994,in respect of inputs and input services received on or after the appointed day.
[Explanation 3 – For removal of doubts, it is hereby clarified that the expression “eligible duties and taxes” excludes any cess which has not been specified in Explanation 1 or Explanation 2 and any cess which is collected as additional duty of customs under sub-section (1) of section 3 of the Customs Tariff Act, 1975 (51 of 1975)].
8. Rule 117 of the CGST Rules, 2017, providing of furnishing of Form No.GST TRAN-1 in terms of Section 140 is also quoted below for ready reference:
Rule 117. Tax or duty credit carried forward under any existing law or on goods held in stock on the appointed day.-(1) Every registered person entitled to take credit of input tax under section 140 shall, within ninety days of the appointed day, submit a declaration electronically in FORM GST duly signed, on the common portal therein, separately, the amount of input tax credit of eligible duties and taxes, as defined in Explanation 2 to section 140, to which he is entitled under the provisions of the said section:
Provided that the Commissioner may, on the recommendations of the Council, extend the period of ninety days by a further period not exceeding ninety days.
Provided further that where the inputs have been received from an Export Oriented Unit or a unit located in Electronic Hardware Technology Park, the credit shall be allowed to the extent as provided in sub-rule (7) of rule 3 of the CENVAT Credit Rules, 2004.
(2) Every declaration under sub-rule (1) shall-
(a) in the case of a claim under sub-section (2) of section140, specify separately the following particulars in respect of every item of capital goods as on the appointed day-
(i) the amount of tax or duty availed or utilized by way of input tax credit under each of the existing laws till the appointed day; and
(ii) the amount of tax or duty yet to be availed or utilized by way of input tax credit under each of the existing laws till the appointed day;
(b) in the case of a claim under sub-section (3) or clause (b) of sub-section (4) or sub-section (6) or (8) of section 140, specify separately the details of stock held on the appointed day;
(c) in the case of a claim under sub-section (5) of section 140, furnish the following details, namely:
(i) the name of the supplier, serial number and date of issue of the invoice by the supplier or any document on the basis of which credit of input tax was admissible under the existing law;
(ii) the description and value of the goods or services;
(iii) the quantity in case of goods and the unit or unit quantity code thereof;
(iv) the amount of eligible taxes and duties or, as the case may be, the value added tax [or entry tax] charged by the supplier in respect of the goods or services; and
(v) the date on which the receipt of goods or services is entered in the books of account of the recipient.
(3) The amount of credit specified in the application in FORM GST TRAN-1 shall be credited to the electronic credit ledger of the applicant maintained in FORM GST PMT2 on the common portal.
(4) (a) (i) A registered person who was not under the existing law shall, in accordance with the proviso to sub-section (3) of section 140, be allowed to avail of input tax credit on goods (on which the duty of central excise or, as the case may be, additional duties of customs under subsection (1) of section 3 of the Customs Tariff Act, 1975, is leviable) held in stock on the appointed day in respect of which he is not in possession of any document evidencing payment of central excise duty.
(ii) The input tax credit referred to in sub-clause (i) shall be allowed at the rate of sixty per cent. on such goods which attract central tax at the rate of nine per cent. or more and forty per cent. for other goods of the central tax applicable on supply of such goods after the appointed date and shall be credited after the central tax payable on such supply has been paid:
Provided that where integrated tax is paid on such goods, the amount of credit shall be allowed at the rate of thirty per cent. and twenty per cent. respectively of the said tax;
(iii) The scheme shall be available for six tax periods from the appointed date.
(b) The credit of central tax shall be availed subject to satisfying the following conditions, namely:-
(i) unconditionally exempt from the whole of the duty of excise the First Schedule to the Central Excise Tariff Act, 1985 or were not nil rated in the said Schedule;
(ii) the document for procurement of such goods is available with the registered person; The registered person availing of this scheme and having furnished the details of stock held by him in accordance with the provisions of clause (b) of sub-rule (2), submits a statement in FORM GST TRAN 2by 31st March 2018, or within such period as extended by the Commissioner, on the recommendations of the Council, for each of the six tax periods during which the scheme is in operation indicating therein, the details of supplies of such goods effected during the tax period;
(iii) The registered person availing of this scheme and having furnished the details of stock held by him in accordance with the provisions of clause (b) of sub-rule (2), submits a statement in FORM GST TRAN 2by 31st March 2018, or within such period as extended by the Commissioner, on the recommendations of the Council, for each of the six tax periods during which the scheme is in operation indicating therein, the details of supplies of such goods effected during the tax period;
(iv) the amount of credit allowed shall be credited to the electronic credit ledger of the applicant maintained in FORM GST PMT-2 on the common portal; and
(v) the stock of goods on which the credit is availed is so stored that it can be easily identified by the registered person.”
9. The Ministry of Finance, Department of Revenue (Central Board of Indirect Taxes and Customs), New Delhi, issued a Circular No.87/06/2019-GST on 02nd January 2019 addressed to all Chief Commissioners and other Authorities clarifying the said provisions of CGST Amendment Act, 2018. The said Circular is also found to be relevant and therefore, it is quoted in extenso below.
Dated 2nd January, 2019
F. No. 267/80/2018-CX.8
Government of India
Ministry of Finance
Department of Revenue
(Central Board of Indirect Taxes and Customs)
New Delhi
To
The Principal Chief Commissioners/ Chief
Commissioners/Principal Commissioners/
Commissioner of Central Tax (All)
The Principal Director Generals/ Director Generals
(All)
Sub: Central Goods and Services Tax (Amendment) Act, 2018- Clarification regarding section 140(1) of the CGST Act, 2017-reg.
Attention is invited to sub-section (a) of section 28 of the CGST (Amendment) Act, 2018 (No. 31 of 2018) which provides that section 140(1) of the CGST Act, 2017 be amended with retrospective effect to allow transition of CENVAT credit under the existing law viz. Central Excise and Service Tax law, only in respect of “eligible duties”. In this regard, doubts have been expressed as to whether the expression “eligible duties” would include CENVAT credit of Service Tax within its scope or not.
2. Therefore, in exercise of powers conferred under section 168 of the Central Goods and Services Act (hereinafter referred to as “Act”), for the purposes of uniformity in the implementation of the Act, the Central Board of Indirect Taxes and Customs hereby directs the following:
3.1 The CENVAT credit of service tax paid under section 66B of the Finance Act, 1994 was available as transitional credit under section 140(1) of the CGST Act and that legal position has not changed due to amendment of section 140(1) on account of following reasons:
i) The amendment in provisions of section 140(1) and the explanations to section 140 need to be read harmoniously such that neither any provision of the amendment becomes otiose nor does the legislative intent of the amendment get defeated.
ii) The intention behind the amendment of section 140(1) to include the expression “eligible duties” has been indicated in the “Rationale/ Remarks” column (at Sl. No. 37) of the draft proposals for amending the GST law which was uploaded in the public domain for comments. It is clear that the transition of credit of taxes paid under section 66B of the Finance Act, 1994 was never intended to be disallowed under section 140(1) and therefore no such remark was present in the document.
iii) Under tax statutes, the word “duties” is used interchangeably with the word “taxes” and in the present context, the two words should not be read in a disharmonious manner.
3.2 Thus, expression “eligible duties” in section 140(1) which are allowed to be transitioned would cover within its fold the duties which are listed as “eligible duties” at sl. no. (i) to (vii) of explanation 1, and “eligible duties and taxes” at sl. no. (i) to (viii) of explanation 2 to section 140, since the expression “eligible duties and taxes” has not been used elsewhere in the Act.
3.3 The expression “eligible duties” under section 140(1) does not in any way refer to the condition regarding goods in stock as referred to in Explanation 1 to section 140 or to the condition regarding inputs and input services in transit, as referred to in Explanation 2 to section 140.
4. Further, it has been decided not to notify the clause (i) of sub-section (b) of section 28 and clause (i) of subsection (c) of section 28 of CGST (Amendment) Act, 2018 which link Explanation 1 and Explanation 2 of section 140 to section 140(1). This would ensure that the credit allowed to be transitioned under section 140(1) is not linked to credit of goods in stock, as provided under Explanation 1, and credit of goods and services in transit, as provided under Explanation 2. However, the duties and taxes for which transaction is allowed shall be governed by para 3.2 above.
5. No transition of credit of cesses, including cess which is collected as additional duty of customs under subsection (1) of section 3 of the Customs Tariff Act, 1975, would be allowed in terms of Explanation 3 to section 140, inserted vide sub-section (d) of section 28 of CGST Amendment Act, 2018 which shall become effective from the date the same is notified giving it retrospective effect.
Trade may be suitably informed and difficulty, if any, in the implementation of this circular may be brought to the notice of the Board.
Yours faithfully,
(KUMAR VIVEK)
OSD (CX.3/8)”
Levies of different Cess like Education Cess, Secondary and Higher Education Cess, etc.
10. Finance Act No.2 of 2004 introduced the levy of Education Cess in Sections 91 to 94 of Finance Act, 2004, at the rate of 2% which shall be charged as duty of Excise as the Education Cess on the excisable goods to fulfil the commitment of the Government to provide and finance universalised quality basic education. The said provisions of Sections 91 to 95 in Chapter VI of Finance Act, 2004 are also quoted below for ready reference.
“91. Education Cess. – (1) Without prejudice to the provisions of sub-section (11) of section 2, there shall be levied and collected, in accordance with the provisions of this Chapter as surcharge for purposes of the Union, a cess to be called the Education Cess, to fulfil the commitment of the Government to provide and finance universalised quality basic education.
(2) The Central Government may, after due appropriation made by Parliament by law in this behalf, utilise, such sums of money of the Education Cess levied under sub-section (11) of section 2 and this Chapter for the purposes specified in sub-section (1), as it may consider necessary.
92. Definition. The words and expressions used in this Chapter and defined in the Central Excise Act, 1944 (1 of 1944), the Customs Act, 1962 (52 of 1962) or Chapter V of the Finance Act, 1994 (32 of 1994), shall have the meanings respectively assigned to them in those Acts or Chapter, as the case may be.
93. Education Cess on excisable goods. – (1) The Education Cess levied under section 81, in the case of goods specified in the First Schedule to the Central Excise Tariff Act, 1985 (5 of 1986), being goods manufactured or produced, shall be a duty of excise (in this section referred to as the Education Cess on excisable goods), at the rate of two per cent, calculated on the aggregate of all duties of excise (including special duty of excise or any other duty of excise but excluding Education Cess on excisable goods) which are levied and collected by the Central Government in the Ministry of Finance (Department of Revenue), under the provisions of the Central Excise Act, 1944 (1 of 1944) or under any other law for the time being in force.
(2) The Education Cess on excisable goods shall be in addition to any other duties of excise chargeable on such goods, under the Central Excise Act, 1944 (1 of 1944) or any other law for the time being in force.
(3) The provisions of the Central Excise Act, 1944 (1 made thereunder, including those to refunds and exemptions from imposition of penalty shall, as far as may be, apply in relation to the levy and collection of the Education Cess on excisable goods as they apply in relation to the levy and collection of the duties of excise on such goods under the Central Excise Act, 1944 or the rules, as the case may be.
94. Education Cess on imported goods. – (1) The Education Cess levied under section 81, in the case of goods specified in the First Schedule to the Customs Tariff Act, 1975 (51 of 1975), being goods imported into India, shall be a duty of customs (in this section referred to as the Education Cess on imported goods), at the rate of two per cent calculated on the aggregate of duties of customs which are levied and collected by the Central Government in the Ministry of Finance (Department of Revenue), under section 12 of the Customs Act, 1962 (52 of 1962) and any sum chargeable on such goods under any other law for the time being in force, as an addition to, and in the same manner as, a duty of customs, but not including—
(a) the safeguard duty referred to in sections 8B and 8C of the Customs Tariff Act, 1975 (51 of 1975),
(b) the countervailing duty referred to in section 9 of the Customs Tariff Act, 1975 (51 of 1975),
(c) the anti-dumping duty referred to in section 9A of the Customs Tariff Act, 1975 (51 of 1975), and
(d) the Education Cess on imported goods.
(2) The Education Cess on imported goods shall be in addition to any other duties of customs chargeable on such goods, under the Customs Act, 1962 (52 of 1962) or any other law for the time being in force.
(3) The provisions of the Customs Act, 1962 (52 of 1962) and the rules and regulations made thereunder, including those relating to refunds and exemptions from duties and imposition of penalty shall, as far as may be, apply in relation to the levy and collection of the Education Cess on imported goods as they apply in relation to the levy and collection of the duties of customs on such goods under the Customs Act, 1962 or the rules or the regulations, as the case may be.
95. Education Cess on taxable services. – (1) The Education Cess levied under section 81, in the case of all services which are taxable services, shall be a tax (in this section referred to as the Education Cess on taxable services) at the rate of two per cent, calculated on the tax which is levied and collected under section 66 of the Finance Act, 1994 (32 of 1994). The Education Cess on taxable services shall be in addition to the tax chargeable on such taxable services, under Chapter V of the Finance Act, 1994 (32 of 1994).
(3) The provisions of Chapter V of the 1994 (32 of 1994) and the rules made thereunder, including those relating to refunds and exemptions from tax and imposition of penalty shall, as far as may be, apply in relation to the levy and collection of the Education Cess on taxable services, as they apply in relation to the levy and collection of tax on such taxable services under Chapter V of the Finance Act, 1994 or the rules, as the case may be.
THE SECOND SCHEDULE
[See section 88(1)]
