Madras High Court allows credit transition of education, farm-related cesses into GST

The Madras High Court has allowed credit transition of Education Cess, Secondary/Higher Education Cess and Krishi Kalyan Cess into the Goods & Services Tax (GST) regime.

Since the High Court’s orders have precedent value, this particular order can bring relief to many companies, whose cases are pending in various judicial forums. Education Cess (EC), Secondary and Higher Education Cess (SHEC) and Krishi Kalyan Cess (KKC) were levied during the pre-GST regime.

The EC was introduced in 2004, SHEC in 2017 and KKC in 2016. All these cesses were subsumed in the GST, which was introduced on July 1, 2017.

Commenting on the ruling, Tanushree Roy, Director (GST) with Nangia Andersen Consulting, said that keeping in line with the settled legal position that credit once availed is ‘ indefeasible’, the judgment by the High Court allowing transitional credit of EC, SHEC and KKC into GST regime by filing Form TRAN-1 is very sound and welcome judgment and would bring relief for the assessees (especially those who transitioned such credit into the GST regime).

“It would be interesting to see how the government creates sufficient legal machinery for allowing assessees to avail themselves of credit of the said levies, wherever assessees were made to reverse or did not avail, such credit,” she said.

Accumulated credit

After the introduction of GST, the petitioner sought to avail accumulated credit of cesses against its tax liability. However, this request was rejected by the tax authority on the ground that credit could be set-off only against the specific duties and taxes enumerated in the explanation to Section 140 of the GST law.

According to the Assessing Officer, since the explanation did not cover cesses such as EC, SHEC and KKC, the same could not be carried forward.

The petitioner was thus directed to reverse the aforesaid credits after which the company moved the High Court.

The petitioner argued that the purpose of the Central Excise Act and Rules, EC, SHEC as well as KKC are ‘credits’ and thus, in the light of the explanation to Section 140, such credits would also be eligible to be credited, transitioned and utilised.

Further, he added that the proviso to Section 140(1) specifically delineates those circumstances/conditions under which credit availed may not be utilised and there is nothing thereunder, to militate against the availment in question.

Tax Department claims

In its response, the Tax Department said claims of the petitioner for transition of EC, SHEC and KKC are not tenable in law. It pointed out that though the right to input tax credit ITC) is a statutory right it may not be claimed by the assessee as a vested right and it is only when all conditions under the statute are complied with in full that the petitioner may claim utilisation of ITC.

The Department also said in the present case, the scheme of Section 140 nowhere provides for utilisation of EC, SHEC and KKC. With the abolishing of EC, SHEC and KKC in 2015 and 2016 respectively, the levy as well as availment of credit with regard to the aforesaid cesses were removed from the sweep of the Act.

After hearing arguments from both the sides, the court rejected the argument of the Tax Department which said the accumulated credit of EC, SHEC and KKC is dead and gone and there is nothing that the assessee could claim as having been carried forward.

“Accumulated credit cannot be said to have been wiped out unless there is a specific order under which it lapses,” it said while noting that there has been no instructions/notification/circular from the Central Board of Indirect Taxes and Customs (CBIC) till date to state that the accumulated credit has lapsed. Following this, it set aside order by the Tax Department.

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