1. Earlier we have opined that registered tax payer can carry forward the balance of any cesses forming part of last return filed under earlier regime in view of express provisions of Sec. 140(1) of the Central Goods & Services Tax (“CGST”) Act, 2017.
2. Recently it has been reported in the media that post the decision of Hon. Delhi High Court in the case of Cellular Operators Association of India and Others vs UOI and Others 2018-TIOL-310-HC-DEL-ST, such carry forward will not be permitted. We beg to differ with the said view. In order to appreciate our view it is first worthwhile to consider the ruling of Delhi High Court.
3. Under the CENVAT Credit Rules (“CCR”), 2004 credit of Education Cess (“EC”) as well as Secondary Higher Education Cess (“SHE Cess”) was allowed. However the utilization of said cesses was permitted only against the corresponding cesses payable on removal of manufactured goods or provision of taxable service. Hence cross utilization of cesses against the duty/tax amount payable was not permitted.
4. W.e.f. 01.03.2015, EC as well as SHE Cess were abolished in case of excisable goods vide Notification No. 14/2015-CE and 15/2015-CE respectively. Similarly w.e.f. 01.06.2015 such cesses were also abolished in case of taxable services vide Notification No. 14/2015-ST. CCR, 2004 however permitted cross utilization of such cesses availed on goods received on or after 01.03.2015 or on input services on or after 01.06.2015 against the duty/tax payable. Issue before the Hon. Delhi High Court was with respect to the balance of such cesses lying as on 28.02.2015 (in case of manufacturer) or 31.05.2015 (in case of service provider). CCR, 2004 did not allow cross utilization of such balances against duty/tax payment thereafter. Hence a writ petition was filed before the Court seeking a direction to permit cross utilization of such balances of cesses against tax payable.
5. It was contended by the petitioners that when the credit of such cesses was availed, a vested right has been created and hence law cannot take away the said right post valid availment of credit. Reliance was placed upon the judgment of the Supreme Court in Eicher Motors Limited and Another versus Union of India and Others, (1999) 2 SCC 361 and Samtel India Limited versus Commissioner of Central Excise, Jaipur, (2003) 11 SCC 324. It was also contended that as per the Budget Speech of the Hon. Finance Minister as well as the memorandum explaining provisions of Finance Bill, 2015, EC & SHE Cess have been subsumed with the excise duty (general rate increased from 12% to 12.5%) and service tax (general rate increased from 12 %to 14%) and hence utilization of balance of such cesses should be permitted against the higher duty/tax payable which indirectly includes the cess amount (since the same is subsumed). Reliance was placed on the dictionary definition of the term “subsumed”, which means to include, absorb in something else or incorporated into something larger or more general. Reference was also made to the Explanation given by the Joint Secretary, Tax Research Unit, Ministry of Finance, Government of India, vide letter F.No.334/5/2015-TRU dated 28th February, 2015
6. Court however rejected the contentions of the petitioner and held that balance of such cesses cannot be permitted to be cross utilized against the duty/tax payable in view of express provisions of CCR, 2004. Provisos added vide clause (b) to Rule 3(7) permitting cross utilization of such cesses availed on inputs, capital goods or input services after the specified date is a concession limited to narrow set of cases and same cannot be implied to grant cross utilization of balance of such cesses on 28.02.2015 or 31.05.2015. Carving out of such exceptions is not violative of Article 14 of the Constitution of India. Court also held that there is no provision in law which states that such cesses have been subsumed. A speech by Hon. Finance Minister or memorandum explaining provisions of Finance Bill, 2015 is an economic, political and policy statement. Raising or increasing taxes often meets resistance, and on most occasions has to be justified and explained. It was held that in the present context there was a clear intention to increase the taxes and hence the contention of such cesses having been “subsumed” and thus cross utilization must be permitted cannot be accepted. Court also distinguished the decision in the case of Eicher Motors Limited (supra) by referring to the context in which said decision was arrived. Reliance was placed on the decision in the case of Osram Surya (P) Ltd. Versus Commissioner of Central Excise, Indore, 2002 (142) ELT 5 (SC) wherein challenge to introduction of six months’ time limit for claiming MODVAT credit benefit did not find favor with the Apex Court.
From the above ruling one can observe that the issue involved was with respect to cross utilization of balances of cesses lying on the date when the same were abolished against the duty/tax payable. Issue was not of availment of credit of such cesses. Hence we submit that the above ruling shall not affect the availment of such cesses and hence such balance carry forwarded in the earlier regime was not prohibited. Further it is worthwhile to refer to the concerned provisions of Sec. 140(1) of the CGST Act, 2017. Same is reproduced below:
“140. Transitional arrangements for input tax credit. — (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 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 :”
8. Above provision thus provides that a registered person can carry forward amount of “CENVAT credit”. CENVAT Credit is further defined by an Explanation to Chapter XX as it shall have the same meaning as assigned in the Central Excise Act, 1944 (1 of 1944) or the rules made thereunder. Rule 3 of CCR, 2004 which includes such cesses as CENVAT Credit clearly supports our view that the same will be regarded as “CENVAT Credit” for the purpose of Sec. 140(1) of the CGST Act, 2017. Even Krishi Kalyan Cess is regarded as “CENVAT Credit” (please refer our earlier article for detained analysis).
9. Hence we are of the view that the ruling by Hon. Delhi High Court shall not affect carry forward of balance of such cesses validly availed in the earlier regime. Media reports are not to be trusted when it comes to nuances of law.