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 (SHE) 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.
FULL TEXT OF THE CESTAT BANGALORE ORDER
The present appeal is directed against the impugned order dt. 10/12/2020 passed by the Commissioner of Central Tax(Appeals), Bangalore whereby the appeal filed by the appellant has been rejected and the Order-in-Original has been upheld.
2. Briefly the facts of the present case are that the appellants are engaged in the manufacture of excisable goods viz. HDPE/PP woven fabrics falling under Tariff heading No.39269080 of CETA 1985, HDPE/PP Woven sacks under Tariff Heading 60069000 and AGRI under Tariff heading 39232990. They are also registered with the Service Tax for payment of service tax on GTA, Business Auxiliary Service and Business Support Service. During the course of audit on the records of the appellant for the period from July 2014 to June 2015, the Department observed that the appellant has irregularly transitioned the cenvat credit of education cess and secondary and higher education cess to GST which was not permitted under the law. As per the Department, perusal of ER1 return for June 2017, shows that out of sum of rs.39,59,655/- lying in the CENVAT closing balance, only Rs.38,68,197/- is eligible credit for carrying forward, excluding education cess and secondary higher education cess as on 30.06.2017 whereas the appellant has carried forward the credit of Rs.40,09,855/-in TRAN-1 dt. 10.07.2017 and therefore the difference of Rs.1,41,658/-is ineligible credit carried forward to Electronic Credit Ledger under the GST regime is recoverable in terms of Rule 14 of CENVAT Credit Rules, 2004 (CCR, for short) read with Section 11A of Central Excise Act, 1944 (CEA, for short), along with interest under Rule 14(1)(ii) of CCR read with Section 11AA of CEA and penalty under Rule 15 of CCR read with Section 11AC(1)(c) of CEA. On these allegations, a show-cause notice dt. 12.09.2018 was issued proposing to recover the ineligible cenvat credit relating to education cess and higher secondary education cess transitioned into GST along with interest and penalty. After following the due process, the adjudicating authority confirmed the demand under proviso to Rule 14 of CCR read with Section 11A of CEA along with interest under Rule 14(1)(ii) pf CCR read with Section 11AA of CEA and penalty under Rule 15(2) of CCR. Aggrieved by the said order, appellant filed appeal before the Commissioner(Appeals) who rejected the said appeal.
3. Heard both sides and perused the records.
4. Learned counsel appearing for the appellant submitted that the impugned order is not sustainable in law as the same has been passed without appreciating the facts and the law. He further submitted that impugned order has been passed only relying upon the Board circular dt. 02.01.2019 and the said circular is in violation of the decision of the Apex Court in Orient Paper Mills ltd. Vs UOI [1978(2) ELT J345 (SC)]. He further submitted that the adjudicating authority has not appreciated the provisions of Finance Act, 2004 and 2007 which levies of education cess and secondary higher education cess. He also submitted that both the authorities have wrongly calculated the amount of Rs.1,41,658/- whereas the appellant has submitted evidence that out of this amount, Rs.10,403/- relates to cenvat credit carried forward from the PLA and Rs.39,839/- related to cenvat credit of freight inwards. But both the authorities have not considered this aspect and have wrongly confirmed the demand of Rs.1,41,658/-. He further submitted that the education cess and higher secondary education cess are duties of excise and in view of the decision in the case of Shree Renuka Sugar Limited Vs. CCE [2007(218) ELT 388 (Tri. Bang.)], appellant had a right to transition the same into GST regime. They have also relied upon the decision in the case of Sutherland Global Services Pvt. Ltd. Vs. Asst. Commissioner of CGST&CE [2019(30) GSTL 628 (Mad.)] wherein the Single Judge of the Madras High Court has allowed the transition of education cess and higher education cess into GST.
5. On the other hand, the learned AR defended the impugned order and submitted that the decision of the Single Judge in the case of Sutherland Global Services Pvt. Ltd. relied upon by the appellant has been set aside by the Division Bench of the Madras High Court reported in 2020(10) TMI 804- MADRAS HIGH COURT in Writ Appeal No.53 of 2020 decided on 16/10/2020. She further submitted that the allegation of the appellant that the quantification is wrong and the impugned demand includes certain amount which includes demand of Rs.10,403/-which relates to cenvat credit carried forward from PLA and Rs.39,838/-relates to cenvat credit of freight inward is not justified as there was no discussion with regard to these cenvat credit in both the orders passed by the authorities below.
6. After considering the submissions of both the parties and perusal of the material on record, I find that as far as transition of cenvat credit relating to education cess and higher education cess is concerned, the matter has been finally decided by the Hon’ble Division Bench of the Madras High Court in the case of Sutherland Global Services Pvt. Ltd. cited supra, wherein the Hon’ble Division while setting aside the decision of the Single Judge has held in paras 60, 61 and 62 as under:-
60. 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.
61. 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.
62. 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.
7. In view of the judgment of the Madras High Court, I hold that the appellant has wrongly transferred the cenvat credit of education cess and higher education cess into TRAN1 under GST which is liable to be recovered from the appellant along with interest and penalty. Further the contention of the appellant that the amount determined by the Department is not correct because they have submitted the evidence before the adjudicating authority and it is coming out from the audit report also that out of the impugned demand, an amount of Rs.10,403/- relates to cenvat credit carried forward from the PLA and Rs.39,839/- relates to cenvat credit of freight involved but the same has been considered by both the authorities. Since there is no finding with regard to these two claims and the nature of the claim, in the absence of the finding, I am of the opinion that for verification of these facts, the case needs to be remanded back to the original authority and the original authority will examine the evidences which may be submitted by the appellant relating to these two amounts and thereafter will pass a fresh decision relating to the demand of cenvat credit irregularly transferred to TRAN1 and accordingly interest and penalty will be imposed by the original authority. For this purpose of quantification, I remand the matter back to the original authority who will pass a fresh order after complying with the principles of natural justice. Appeal is disposed of by way of remand.
(Order was pronounced in Open Court on 18/08/2021)