The division bench of Madras High Court on Friday disallowed transition of Education Cess (EC), Secondary and Higher Education Cess (SHE Cess) and Krishi Kalyan Cess (KKC) into GST regime through the TRAN-1 declaration.
In a matter of Sutherland Global case, the tax department appealed before the larger bench against the ruling by Single Judge’s order. The order had allowed the company, to utilise and set off the accumulated unutilised amount of Education Cess (EC), Secondary and Higher Education Cess (SHEC) and Krishi Kalyan Cess (KKC) against the output GST tax liability.
Explanation to “Eligible Duties” such as Excise Duty, Additional Excise Duty, Additional Duty under Custom & Tariff Act, Additional Customs Duty on Taxable Articles and National Calamity Contingency Duty. Explanation 2 added Service Tax to the previous seven. Explanation 3 clarified that such eligible duties and taxes would exclude a Cess which has not been specified in the first two explanations.
Therefore, “only the seven specified duties as ‘Eligible Duties’ in respect of inputs held in stocks and inputs contained in semi-finished goods held in stock on the appointed date, i.e. 01.01.2017 will be eligible to be carried forward and adjusted against GST Output Tax Liability,” the bench said while adding that three cesses are not listed as ‘Eligible Duties’ which mean these cannot be included in tax credit to be carried forward. The bench specifically mentioned that three cesses did not operate beyond 1st July 2017. Also, the exclusion of three cesses are to carry forward and set off under Section 140 of GST law is provided explicitly under Explanation 3.
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 use namely Education Cess, Secondary & 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.