The Madras High Court has in its recent judgment while reversing the single bench judgment has held that the appellant, Sutherland Global Services Private Limited is not entitled to Education Cess (EC), Secondary and Higher Education Cess (SHEC), and Krishi Kalyan Cess (KKC) against the Output GST Tax Liability.
The issue involved in the present case is about the set-off, adjustment or utilization of the Input Tax Credit of Cess paid at the time of manufacture or import by the Appellant, 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.
The Single Judge had earlier held in favor of the Appellant, that the Appellant, was entitled to adjust such unutilized CENVAT credit carried forward in its Electronic Ledger, which was so lying unutilized as on 30th June 2017, to be adjusted against the Output GST Liability in terms of Section 140 of the CGST Act, 2017.
It may be noted here that all the aforesaid three types of Cess were imposed by different Finance Acts. The levy of Education Cess and Secondary and Higher Education Cess was however dropped and deleted by the Finance Act, 2015 by Section 153, of which, Section 95 of the Finance Act 2004, Education Cess was omitted and by Section 159, Section 140 of the Finance Act, 2007 was also omitted.
The Krishi Kalyan Cess was however abolished only with effect from July 1, 2017 vide Taxation Laws (Amendment) Act, 2017.
However, there was no claim of CENVAT Credit with regard to Krishi Kalyan Cess and the reason which apply to Education Cess and Secondary and Higher Education Cess will equally apply to Krishi Kalyan Cess also for the purpose of Section 140 of the CGST Act.
The division Judge bench of Justice Vineet Kothari and Justice Krishnan Ramasamy held that the learned Single Judge erred in allowing the claim of the Assessee under Section 140 of the CGST Act, on the following grounds.
- The character of the 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.
- Explanation 3 to Section 140 could not be applied in a restricted manner only to the specified Subsections 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 unutilized Cess of any kind other than specified Cess, viz. National Calamity Contingent Duty (NCCD), against Output GST liability, could not arise.
- 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.
In view of above the court allowed the appeal of the revenue and held that the Assessee was not entitled to carry forward and set off of unutilized 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.
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Frah Saeed is a law graduate specializing in the core field of indirect taxes and is the Co-founder of taxwallah.com. She has authored many publications on GST and is into full-time consultancy on GST to big corporates. She as a part of taxwallah.com heads a team comprising of Chartered Accountants and Advocates and plays a key role in our mission to disseminate GST knowledge to all.
