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Corporate News *  Service tax penalty can’t survive when assessee acted on dept.’s own view of non-taxability: Delhi High Court. *  GST section 74 extended limitation questionable when form 26AS mismatch was already known: Karnataka High Court grants interim relief. *  CGST demand prima facie impermissible after state GST settlement under section 128A: Bombay High Court. *  Supreme Court asks GSTAT to sympathetically consider delay as taxpayers pursued remedy before wrong forum. *  Supreme Court stays Tripura High Court ruling protecting genuine buyers from ITC denial over supplier’s GST default. *  Diary entries alone can’t prove clandestine removal of goods: CESTAT quashes excise penalty on steel trader. *  Customs could investigate preferential tariff claims even before sec. 28DA: Delhi High Court. *  Customs dept. relied on fake AI generated case laws: supreme court quashes Rs. 425.28 crore penalty. *  No GST exemption in affiliation and annual registration charges for admission or conduct Of examinations: GSTAT. *  Mere invoices, cheque payments insufficient to establish genuine movement of goods: GSTAT restores Rs. 43.44 lakh ITC demand. *  Consolidated GST show cause notice covering multiple financial years is not without jurisdiction: Delhi High Court. *  Construction of independent houses on separate plots not taxable as ‘Residential Complex’ without common facilities: CESTAT. *  GST penalty exceeding statutory maximum unsustainable; Allahabad High Court quashes ? 50,000/- penalty after taxpayer filed return and paid late fee. *  GST order against standard chartered bank passed without hearing set aside by Bombay High Court. *  Retracted statements can’t be relied upon without cross-examination: CESTAT quashes gold confiscation. *  Burden to prove misclassification lies on customs department: CESTAT. *  CESTAT quashes Rs. 98 lakh excise demand on clearance of used refractory brick scrap. *  Service tax demand on irrigation works quashed: Karnataka High Court rules sale of goods component not taxable as service. *  GSTAT restores tax and penalty for transporting iron scrap without E-way bill citing intent to evade tax. *  Madras High Court stays GST recovery from directors without opportunity to show cause under section 89. *  Madras high court stays GST recovery notice against directors; finds prima facie case on applicability of section 79(1)(c). *  Procedural lapses can’t justify harsh punishment without serious customs breach: CESTAT quashes customs broker licence revocation. *  Service tax payable on land leasing and sports complex charges: CESTAT. *  Settled customs dispute can’t be reopened through Article 226 challenge to interest liability: Delhi High Court. *  Mere facilitation of customs clearance can’t establish knowledge of smuggling: Madras High Court. *  GST registration cancellation stayed: Allahabad High Court questions 99% ITC utilisation cap under rule 86B. *  Composition scheme lapses automatically on crossing Rs. 1.5 crore turnover: GSTAT. *  Gujarat High Court quashes GST cancellation orders after officer relied on non-existent AI-generated case laws. *  Importers liable for customs duty benefits availed through manipulated scrips: Delhi High Court. *  Procedural E-way bill lapse alone can’t justify penalty where genuine transaction and absence of tax evasion are established: GSTAT.
Subject News *  Documentary evidence dominates probe, further custody unwarranted: mumbai court grants bail in Rs. 22.44 crore customs duty evasion case. *  Business premises can’t remain sealed for non-participation in GST search: Allahabad High Court. *  GST pre-deposit must be refunded proportionately when taxpayer partly succeeds in appeal: Bombay High Court. *  Supreme Court grants 30 days to file GST appeal; keeps pre-deposit issue open due to deposit in parallel CGST proceedings. *  GST demand can’t exceed amount proposed in SCN: Allahabad High Court quashes Rs. 20.47 Crore order. *  Hundreds-of-crores GST demand and heavy 10% pre-deposit no ground to bypass statutory appeal: Punjab & Haryana High Court. *  Delhi High Court refuses to entertain challenge to gold confiscation due to statutory appeal remedy and unexplained delay. *  Procedural error in customs broker licence inquiry can be rectified through remand: Delhi High Court. *  GSTR-2A mismatch alone can’t justify ITC denial without invoice-wise verification; personal hearing mandatory: GSTAT. *  GST order passed without uploading personal hearing notices violates sec. 75(4): Allahabad High Court. *  TAX EVASION - Sec. 74 GST SCN quashed for not spelling out fraud, wilful misstatement or suppression: Allahabad High Court. *  STPI’s SOFTEX certification and NoC charges taxable as business support services: CESTAT. *  Suspicion can’t replace proof: CESTAT quashes penalty in alleged gold-smuggling operation. *   Limitation runs from communication of order: Madras High Court upholds rejection of delayed GST Appeals. *  Rajasthan High Court quashes GST demand over unsigned show cause notice. *  ITC recovery upheld where supplier failed to deposit GST: Rajasthan High Court. *  Customs commissioner’s empowered to make port trust liable for duty on pilfered goods: Supreme Court. *  Rectification proceedings can’t be used to challenge an uncontested GST assessment through a writ petition: Andhra Pradesh HC. *  GST proceedings against deceased proprietor unsustainable without notice to legal heir: GSTAT. *  Mere availment of ineligible self-assessed ITC doesn’t amount to suppression without evidence of fraud or wilful misstatement: GSTAT. *  Disposal of mining overburden by entity authorised by mining lease holder constitutes taxable service: CESTAT. *  Toll plaza data not mandatory for ITC refund: GSTAT. *  Disputed GST fraud allegations require investigation: Punjab and Haryana High Court makes interim bail absolute in alleged fraud and GST fraud case. *  Non-manufacturer contractor liable to deposit excess excise duty collected from buyer: CESTAT. *  GST order can’t reject taxpayer’s reply as “not satisfactory” without reasons: Madhya Pradesh High Court. *  Uncorroborated statements can’t establish alleged diversion of duty-free goods: CESTAT. *  Erection services were not liable to service tax prior to 10th september 2004: CESTAT. *  Sec. 74 GST notice must spell out statutory ingredients for invoking extended tax demand proceedings: Allahabad High Court. *  No jurisdictional bar under section 6(2)(b) in parallel CGST SGST proceedings: Delhi High Court refuses to bypass GST appeal remedy. *  Madras High Court remits GST demand for fresh adjudication after taxpayer claims it was unaware of SCN following business closure.  

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GST Update on Amended Section 140(1) of the CGST Act, 2017 restricting carry forward of Cess

GST Update on Amended Section 140(1) of the CGST Act, 2017 restricting carry forward of Cess
 
GST Update on Amended Section 140(1) of the CGST Act, 2017 restricting carry forward of Cess:-
The carry forward of the balance of education cess and SHE cess in the GST regime has been a point of discussion for a long time. Although, we had explained in our earlier update that there is no legal prohibition in the CGST Act, 2017 as regards carry forward of the cenvat credit balance of education cess and SHE Cess, but the FAQs and tweets released by the government have unanimously held that it is not permissible to carry forward the balance of cess in the GST regime under section 140(1) of the CGST Act, 2017. It is pertinent to mention that even the Maharashtra Authority for Advance Ruling in the case of Kansai Nerolac Paints Limited [2018 (12) G.S.T.L. 526 (A.A.R.-GST)] has held that the carry forward of accumulated credit by way of KKC appearing in service tax return is not allowed in the GST regime on the basis of FAQs released by the government. As there was no legal prohibition as regards carry forward of Cesses in the GST regime, the government came up with amendment in section 140 of the CGST Act, 2017. The amended section reads as follows:- 
 
140. (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 of eligible duties 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:
 
Provided that the registered person shall not be allowed to take credit in the following circumstances, namely:—
 
(i) where the said amount of credit is not admissible as input tax credit under this Act; or
 
(ii) where he has not furnished all the returns required under the existing law  for the period of six months immediately preceding the appointed date; or
 
(iii) where the said amount of credit relates to goods manufactured and cleared under such exemption notifications as are notified by the Government.
 
Explanation 1.—For the purposes of sub-sections(1), (3), (4) and (6), the expression “eligible duties” means––
 
(i) the additional duty of excise leviable under section 3 of the Additional Duties of Excise (Goods of Special Importance) Act, 1957;
 
(ii) the additional duty leviable under sub-section (1) of section 3 of the Customs Tariff Act, 1975;
 
(iii) the additional duty leviable under sub-section (5) of section 3 of the Customs Tariff Act, 1975;
 
(iv) the additional duty of excise leviable under section 3 of the Additional Duties of Excise (Textile and Textile Articles) Act, 1978;
 
(v) the duty of excise specified in the First Schedule to the Central Excise Tariff Act, 1985;
 
(vi) the duty of excise specified in the Second Schedule to the Central Excise Tariff Act, 1985; and
 
(vii) the National Calamity Contingent Duty leviable under section 136 of the Finance Act, 2001,
 
in respect of inputs held in stock and inputs contained in semi-finished or finished goods held in stock on the appointed day.
 
Explanation 2.—For the purposes of sub-sections (1) and (5), the expression “eligible duties and taxes” means––
 
(i) the additional duty of excise leviable under section 3 of the Additional Duties of Excise (Goods of Special Importance) Act, 1957;
 
(ii) the additional duty leviable under sub-section (1) of section 3 of the Customs Tariff Act, 1975;
 
(iii) the additional duty leviable under sub-section (5) of section 3 of the Customs Tariff Act, 1975;
 
(iv) the additional duty of excise leviable under section 3 of the Additional Duties of Excise (Textile and Textile Articles) Act, 1978;
 
(v) the duty of excise specified in the First Schedule to the Central Excise Tariff Act, 1985;
 
(vi) the duty of excise specified in the Second Schedule to the Central Excise Tariff Act, 1985;
 
(vii) the National Calamity Contingent Duty leviable under section 136 of the Finance Act, 2001; and
 
(viii) the service tax leviable under section 66B of the Finance Act, 1994, in respect of inputs and input services received on or after the appointed day.
 
Explanation 3.- For removal of doubts, it is hereby clarified that the expression ‘eligible duties and taxes’ excludes any cess which has not been specified in Explanation 1 or Explanation 2 and any cess which is collected as additional duty of customs under sub-section (1) of section 3 of the Customs Tariff Act, 1975;
It is submitted that the motive of the amendment in the above cited section is to disallow carry forward of cess balance in the GST regime. However, the amendment done by the government has given rise to more confusion and disputes in the days to come.
Firstly, we discuss the impact of including the word ‘eligible duties’ in section 140(1). As the erstwhile section 140(1) mentioned only cenvat credit, the meaning of which was to be taken according to Rule 3 of the Cenvat Credit Rules, 2004 which also included cesses, the addition of words ‘cenvat credit of eligible duties’ has been resorted to by the government. Now, the meaning of eligible duties as given in Explanation no. 1 and 2 of section 140 has also been amended so as to include reference of sub-section (1) in the same. However, the inclusion of reference of sub-section (1) seeks to bring absurd interpretation for the reason that the meaning of ‘eligible duties’ as given in the explanations was originally in the context of sub-section (3), (4) and (6) which pertained to credit admissibility on stock of inputs, semi-finished goods and finished goods as on appointed day. Similarly, explanation 2 specifying meaning of eligible duties in the context of sub-section (5) pertained to credit of goods/input services in transit. However, the government while adding reference of sub-section (1) in the said explanations, that too retrospectively, has forgotten this vital aspect which has huge ramifications for the assessees. It is submitted that the meaning of eligible duties in the explanation 1 clearly states that it is with respect to inputs held in stock and inputs contained in semi-finished or finished goods held in stock on the appointed day but the sub-section (1) of the CGST Act, 2017 pertains to carry forward of balance of cenvat credit in the return filed by the assessee. This is the major point to ponder as one may interpret that this amendment seeks to restrict carry forward of the cenvat credit of eligible duties of inputs held in stock and inputs contained in semi-finished goods or finished goods held in stock on the appointed date. Say for example- if the total cenvat credit to be carried forward in the return is Rs. 20,00,000/- but the closing stock available with the assessee reflects cenvat credit of Rs. 12,00,000/- only, then in that case, whether the assessee will be allowed to carry forward cenvat credit only to the extent of Rs. 12,00,000/-? This situation may arise due to many reasons including if the rate of tax on output is less than rate of tax on inputs in Excise and Service Tax regime. Not only this, the bifurcation of the cenvat credit according to the closing stock and exclusion of cesses will be a complex activity. It is submitted that though the intention of the government is not to restrict carry forward of cenvat credit to the extent of stock but the meaning of eligible duties definitely indicates so.
We also wish to point that the reference of sub-section has been included in both the explanations thereby leading to two questions as follows:-
  1.  Whether the carry forward of balance of service tax credit is allowable? This is for the reason that there is no mention of service tax in the meaning of eligible duties given in Explanation no. 1 whereas in Explanation no. 2, service tax leviable in respect of inputs and input services received on or after the appointed day is being mentioned and not that accumulated in the erstwhile regime. Since there is no specific mention of service tax in either of the explanations, can it be presumed that the assessees have wrongly carried forward their service tax credit balance in the GST regime?
  2. Another question that arises is which of the explanation is required to be referred for the meaning of eligible duties for sub-section (1)? Both the explanations provide meaning of eligible duties and both the explanations have reference of sub-section (1) of section 140. Moreover, certain duties such as excise duty is appearing in both the explanations. 
 It is submitted that the amendment in section 140 was made with a view to settle down issues cropping in the GST regime but the manner in which amendment has been done has led to more anomalies in the drafting of GST Law. As such, the government should resolve the confusion created by the amendment made in section 140 of the CGST Act, 2017.  
We hope the above is useful to you. This update is solely for educational purpose.
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