GST Update on amendment of Section 140(1)

Retrospective Effect of denial on credit of cess
The government has excluded the credit that taxpayers could avail at the time of transitioning to GST for the cesses paid in the previous indirect tax regime, according to amendments in the Central Goods and Services Tax Act moved in the Lok Sabha. The change in the amendment bill has been made effective from from July 1, 2017 i.e. retrospectively.
Prior to the amendment, many experts were of the view that this credit shall be carried forward as Section 140(1) didn't place a bar on transition of various cesses which were part of the Central Value Added Tax credit ledger of companies. Krishi Kalyan Cess, education Cess and secondary and higher eduction cess were included in the CENVAT credit ledger of companies.
Section 140 (1) of the CGST Act reads as follows-
“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. Provided that the registered person shall not be allowed to take credit in the following circumstances, namely:-
(1)where the said amount of credit is not admissible as input tax credit under this Act; or
(2) 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
(3)where the said amount of credit relates to goods manufactured and cleared under such exemption notifications as are notified by the Government”
As there was no specific restriction for transition of this credit under GST, many taxpayers took a view that the cess paid can be carried forward in the GST regime. But the FAQ released by CBIC clearly said that the balance of cess cannot be carry forward in GST regime. But many scholars opined against this FAQ and held that FAQ do not legal binding and its balance can be carried forward.
However,Authority of Advance Ruling pronounced in case of KANSAI Nerolac Paints Limited in favour of department wherein carry forward of credit in KKC of service tax has been denied. The head note of this decision read as under:-
GST - Migration - Cenvat credit - Carry forward of accumulated credit by way of Krishi Kalyan Cess (KKC) appearing in Service Tax return of Input Service Distributor in electronic credit ledger maintained under Central Goods and Services Tax Act, 2017 - Admissibility as input tax credit - Insertion of sub-rule (1a) to Rule 3 of Cenvat Credit Rules, 2004 allowing provider of output services credit of KKC on taxable services leviable under Section 161 of Finance Act, 2016 - Cenvat credit was available in respect of KKC - However it was to be utilised only towards payment of KKC - KKC cannot be treated as Excise duty or Service Tax and Cenvat credit as referred to in Section 140(1) of Central Goods and Services Tax Act, 2017 would not include credit in respect of KKC - Non-availability of carry forward of credit with respect to KKC has been clarified to Trade in Frequently Asked Questions (FAQ) issued by Central Board of Excise and Customs - Accumulated credit by way of KKC as it appeared in Service Tax return of Input Service Distributor (ISD) on June 30, 2017 which was carried forward in electronic credit ledger maintained under Central Goods and Services Tax Act, 2017, will not be considered as admissible input tax credit.
But after this amendment, there is no ambiguity and this credit will be denied after assent of these bills. The impact shall be that the taxpayers aren’t eligible to transfer the credit of various cesses, they may be required to reverse the credit they have availed. Even the department will demand the interest on the same.
Taxpayers may question the retrospective applicability of the proposed amendment.They may take the support in the landmark Income tax case of Vodafone Limited wherein the Government introduced a retrospective clarification to the Income-Tax (I-T) Act, 1961, virtually amending the law to ensure that cross-border transactions are taxable. There was all round protest against the Government in the international arena at that time and the Government has promised at that time that no retrospective amendment will be made in the tax law against the assessee.
But again retrospective amendment has been made against the assessee. This will again prove that the Government is not keeping its words and amending the law retrospectively which affect badly the interests of the poor taxpayers.
Thus government shall consider the plea of the taxpayers and allow carry forward of credit of Cess.

The content of this GST update is for educational purpose only and not intended for solicitation.
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GST Update on amendment of Section 140(1)

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