Whether accumulated credit of Krishi Kalyan Cess (KKC) allowed to be carried forward as admissible input tax credit under GST regime?

Case: KANSAI NEROLAC PAINTS LIMITED

Citation: 2018(12) G.S.T.L 526 (A.A.R-GST)
Issue: Whether accumulated credit of Krishi Kalyan Cess (KKC) allowed to be carried forward as admissible input tax credit under GST regime?
Brief facts: M/s Kansai Nerolac Paints Limited are engaged in business of manufacture of paints and engaged in provision of works contract service as well. The works contract services are carried out from the company's Head Office.
The appellant filed an application for advance ruling u/s 98 of the CGST Act 2017 and the MGST Act 2017 raising the question as to whether the accumulated credit by way of Krishi Kalyan Cess( KKC) as appeared in the service tax return of Input Service Distributor (ISD) on June 30, 2017 which is carried forward in the electronic credit ledger maintained by the company under CGST Act, 2017 will be considered as admissible input tax credit. It was decided by the ARA through order ( No GST-ARA-18/2017-18/B-25 dt 5.4.2018) that KKC as appeared in the service tax return of Input Service Distributor (ISD) on June 30, 2017 which is carried forward in the electronic ledger maintained by the Appellant under CGST Act, 2017, will not be considered as admissible input tax credit. The appellant has therefore filed an appeal against the said order under section 100 of the CGST Act 2017/MGST Act 2017.
Appellant’s contention: KKC is levied as per Section 161 of the Finance Act, 2016 (Please refer para 2)
Sec. 161(5) of the Finance Act specified that for levy and collection of KKC, chapter V of Finance Act, 1994 (Service Tax) will be applicable.
Entry 92C of Union List I of Indian Constitution empowers Legislature to levy service tax as provided under Chapter V of Finance Act, 1994.
122nd amendment of Constitution deletes Entry 92C of Union List I in view of implementation of Goods and Services Tax.
It implies KKC is also subsumed in Goods and Services Tax along with Service Tax. In other words CGST liability as accrued under CGST Act, 2017 contains liability on account of KKC as well.
Rule 3(la) of CCR includes KKC as Cenvat credit.
CCR provides KKC liability could be set off with KKC credit only. CGST liability subsumed KKC liability in view of 122nd amendment of Constitution. Therefore migrated KKC credit will be admissible to set-off with CGST liability.
Section 140(1) allows a registered person to carry forward the CENVAT credit in return to electronic credit ledger provided the said credit is admissible under CGST Act, 2017.
Sections 16 and 17 of CGST Act determines which credit will be admissible under CGST Act, 2017. There is no restriction on admission of KKC as Cenvat credit under the aforesaid provisions of the Act. Therefore KKC credit will also be considered as admissible CENVAT credit as per proviso (1) to Section 140(1) read with Section 16 and Section 17 of the CGST Act, 2017.

Respondent’s Contention and Judgment: We have gone through the facts of the case. The issue put before us is whether accumulated credit by way of KrishiKalyanCess (KKC) as appeared in the Service Tax return of Input Service Distributor (ISD) on June 30, 2017 which is carried forward in the electronic credit ledger maintained by the company under CGST Act, 2017, will be considered as admissible input tax credit. Krishi Kalyan Cess was brought into implementation by Chapter VI of the Finance Act, 2016. Since the applicant mentions about accumulated credit as carried forward in the Service Tax return on 30th June, 2017, we would refer to the relevant transitional provision as available in the GST Act -
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 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 manufacturedand cleared under such exemption notifications as are notified by the Government.
The GST Act does not have a definition of the words “CENVAT credit”. The words have also not been defined under the Excise and Service Tax laws. However, we find CENVAT Credit Rules, 2004 wherein the word “credit” is said to mean “CENVAT credit” as can be seen thus -
Rule 3- CENVAT credit.-(1) A manufacturer or producer of final products or a provider of taxable service shall be allowed to take credit (hereinafter referred to as the CENVAT credit) of -
(i)    the duty of excise specified in the First Schedule to the Excise Tariff Act, leviable under the Excise Act;
(ii)   the duty of excise specified in the Second Schedule to the Excise Tariff Act, leviable under the Excise Act;
(iii) the additional duty of excise leviable under Section 3 of the Additional Duties of Excise (Textiles and Textile Articles) Act, 1978 (40 of 1978);
(iv) the additional duty of excise leviable under Section 3 of the Additional Duties of Excise (Goods of Special Importance) Act, 1957 (58 of 1957);
(v)   the National Calamity Contingent duty leviable under Section 136 of the Finance Act, 2001 (14 of 2001);
(vi) the Education Cess on excisable goods leviable under Section 91 read with Section 93 of the Finance (No. 2) Act, 2004 (23 of 2004);
(via) the Secondary and Higher Education Cess on excisable goods    leviable under Section 136 read with Section 138 of the Finance Act, 2007 (22 of 2007);
(vii)the additional duty leviable under Section 3 of the Customs Tariff Act, equivalent to the duty of excise specified under clauses (i), (ii), (iii), (iv), (v) (vi) and (via);
(viia) the additional duty leviable under sub-section (5) of Section 3 of the Customs Tariff Act, 1975 (51 of 1975).
        Provided that a provider of taxable service shall not be eligible to take credit of such additional duty;
(viii) the additional duty of excise leviable under Section 157 of the Finance Act, 2003 (32 of 2003);
(ix) the service tax leviable under Section 66 of the Finance Act;
(x)   the Education Cess on taxable services leviable under Section 91 read with Section 95 of the Finance (No. 2) Act, 2004 (23 of 2004); and
(xa)the Secondary and Higher Education Cess on taxable services leviable under Section 136 read with Section 140 of the Finance Act, 2007 (22 of 2007); and
(xi) the additional duty of excise leviable under Section 85 of Finance Act, 2005 (18 of 2005).
The enumerated list of items in respect of which CENVAT credit is available makes no reference to the KKC. By the Notification No. 28/2016-Central Excise (N.T.), dated the 26th May, 2016, the Central Government made the following rules, which came into force on 1st of June, 2016, to amend the CENVAT Credit Rules, 2004. In Rule 3, as reproduced above, after sub-rule (1), the following sub-rule was inserted: -
“(la) A provider of output service shall be allowed to take CENVAT credit of the Krishi Kalyan Cess on taxable services leviable under Section 161 of the Finance Act, 2016 (28 of 2016);”

Thus, CENVAT credit was available in respect of KKC. However, we need to see the following amendments, too, as were brought by the aforesaid Notification No. 28/2016-Central Excise (N.T.), dated the 26th May, 2016 -

in sub-rule (4), after the ninth proviso, the following proviso was inserted –

“Provided also that the Cenvat credit of any duty specified in sub-rule (1) shall not be utilised for payment of KrishiKalyanCessleviable under Section 161 of the Finance Act, 2016 (28 of 2016);”

in sub-rule (7), after clause (c), the following clause was inserted –

“(d) Cenvat credit in respect of KrishiKalvanCess on taxable services leviable under Section 161 of the Finance Act, 2016 (28 of 2016) shall be utilised only towards payment of KrishiKalyanCess on taxable services leviable under Section 161 of the Finance Act, 2016 (28 of 2016)”;
It can be seen that by express provision, it was made clear that KKC would be utilized towards payment of KKC only. Further, it was expressly provided that the list of items in respect of which CENVAT credit is available, as enumerated above, would not be utilized for payment of KKC. Thus, there was a clear demarcation of the credit in respect of KKC. Under GST, there is no levy of KKC. Now, we know that tax and duty and cess are distinct levies.
In Cellular Operators Association of India v. Union of India [Writ Petition (Civil) No. 7837/2016, dated 15-2-2018], the Hon. Delhi High Court was dealing with the petition for direction that the credit accumulated on account of Education Cess (EC, for short) and Secondary and Higher Education Cess (SHE, for short) should be allowed to be utilized for payment of service tax leviable and payable on telecommunication services. The facts of this case were thus -
- Finance (No. 2) Act, 2004 had introduced levy of EC on excisable goods and taxable services. SHE on excisable goods and taxable services was imposed vide Finance Act, 2007.
- Under the CENVAT Credit Rules, 2004 (CCR, for short), credit of EC and SHEcess was admissible and could be utilized for payment of EC and SHEcess respectively. In other words CENVAT credit on EC and SHEcess on inputs, capital goods and input services could be utilized and availed of for payment of EC and SHEcess on manufactured goods and output services. Input EC and SHEcess credit had the effect of preventing cascading effect on EC and SHEcess payable down the line. It is an accepted and admitted case that benefit of EC and SHE on inputs, etc., could not have been utilized for payment of excise duty service tax on the output, i.e., manufactured goods or taxable services. Thus, cross utilization of EC and SHE towards excise duty or service tax was impermissible and not permitted.
- EC and SHE were abolished and were not payable on excisable goods with effect from 1st March, 2015 vide Notification Nos. 14/2015-C.E. and 15/2015-C.E. both dated 1st March, 2015. EC and SHE were also abolished and ceased to be payable on taxable services when Section 95 of Finance (No. 2) Act, 2004 and Section 140 of Finance Act, 2007 were omitted by Finance Act, 2015. The omission was to take effect from 1st June, 2015 vide Notification No. 14/2015-S.T., dated 19th May, 2015. As a result, levy of EC and SHEcess on excisable goods was withdrawn with effect from 1^st March, 2015 and in respect of taxable services with effect from 1^st June, 2015. The petitioners do not have any grievance against the withdrawal or abolition of levy of EC and SHEcess.
- The grievance of the petitioners is, and they claim a vested right to avail benefit of the unutilized amount of EC or SHE credit, which was available and had not been set off as on 1st March, 2015 and 1st June, 2015 for payment of tax on excisable goods and taxable services respectively.”
The Hon’ble Court observed thus -
“It is no doubt true that the two cesses, in the present case, were in the nature of taxes and not fee, but it would be incorrect and improper to treat the two cesses as excise duty or service tax. They were specific cesses for the objective and purpose specified ….…….......................................................................................................... ….. As noticed above, in the present case, credit of EC and SHEcess could be only allowed against EC and SHEcess and could not be cross-utilized against the excise duty or service tax. In fact, what the petitioners seek is an amendment of the scheme to allow them to take cross-utilization of the unutilized EC and SHEcess upon the two cesses being withdrawn against excise duty and service tax, though this was not the position even earlier.”
The Hon’ble Court dismissed the writ petition. In the present case, KKC is to be utilized for payment of KKC only. Therefore, KKC cannot be treated as excise duty or service tax. In view thereof, the CENVAT credit as referred to in sub-section (1) of Section 140 would not include the credit in respect of KKC. We can also see the position in respect of the Swachh Bharat Cess (SBC) which was brought in force by Chapter VI (Section 119) of the Finance Act, 2015. The Frequently Asked Questions (FAQ) issued by the Central Board of Excise and Customs (C.B.E. & C.) in regard to SBC explained the new levy thus -
Q.1 What is Swachh Bharat Cess (SBC)?
Ans. It is a Cess which shall be levied and collected in accordance with the provisions of Chapter VI of the Finance Act, 2015, called Swachh Bharat Cess, as service tax on all the taxable services at the rate of 0.5% of the value of taxable service.
Q.14 Whether Cenvat Credit of the SBC is available?
Ans. SBC is not integrated in the Cenvat Credit Chain. Therefore, credit of SBC cannot be availed. Further, SBC cannot be paid by utilizing credit of any other duty or tax.
Chapters of the Finance Act by which SBC and KKC were brought into effect could be had a look at thus –

CHAPTER VI SWACHH BHARAT CESS

CHAPTER VI - KRISHI KALYAN CESS

119.(1) This Chapter shall come into force on such date as the Central Government may, by notification in the Official Gazette, appoint.

(2) There shall be levied and collected in accordance with the provisions of this Chapter, a cess to be called the Swachh Bharat Cess, as service tax on all or any of the taxable services at the rate of two per cent. on the value of such services for the purposes of financing and promoting Swachh Bharat initiatives or for any other purpose relating thereto.

(3) The Swachh Bharat Cessleviable under sub-section (2) shall be in addition to any cess or service tax leviable on such taxable services under Chapter V of the Finance Act, 1994. or under any other law for the time being in force.
(4) The proceeds of the Swachh Bharat Cess levied under sub-section (2) shall first be credited to the Consolidated Fund of India and the Central Government may, after due appropriation made by Parliament by law in this behalf, utilise such sums of money of the Swachh Bharat Cess for such purposes specified in sub-section (2), as it may consider necessary.

(5) The provisions of Chapter V of the Finance Act, 1994 and the rules made thereunder, including those relating to refunds and exemptions from tax, interest and imposition of penalty shall, as far as may be, apply in relation to the levy and collection of the Swachh Bharat Cess on taxable services, as they apply in relation to the levy and collection of tax on such taxable services under Chapter V of the Finance Act, 1994 or the rules made thereunder, as the case may be.

161(1) This Chapter shall come into force on the 1st day of June, 2016.

(2) There shall be levied and collected in accordance with the provisions of this Chapter, a cess to be called the KrishiKalyanCess, as service tax on all or any of the taxable services at the rate of 0.5 per cent. on the value of such services for the purposes of financing and promoting initiatives to improve agriculture or for any other purpose relating thereto.

(3) The KrishiKalyanCessleviable under sub-section (2) shall be in addition to any cess or service tax leviable on such taxable services under Chapter V of the Finance Act, 1994, or under any other law for the time being in force.

(4) The proceeds of the KrishiKalyanCess levied under sub-section (2) shall first be credited to the Consolidated Fund of India and the Central Government may, after due appropriation made by Parliament by law in this behalf, utilise such sums of money of the KrishiKalyanCess for such purposes specified in sub-section (2), as it may consider necessary.

(5) The provisions of Chapter V of the Finance Act, 1994 and the rules made thereunder, including those relating to refunds and exemptions from tax, interest and imposition of penalty shall, as far as may be, apply in relation to the levy and collection of the Krishi Kalyan Cess on taxable services, as they apply in relation to the levy and collection of tax on such taxable services under the said Chapter or the rules made thereunder, as the case may be.

As can be seen, both SBC and KKC are on the same lines. Therefore, the FAQs explaining SBC apply with equal force to KKC. Under the GST Act too, the FAQs issued by C.B.E. & C. clarify thus -

112

Can ITC of Swachh Bharat Cess or Krishi Kalyan Cess be carried forward under GST?

Thus, it can be seen that the non-availability of carry forward of credit with respect to KKC has been clarified to the Trade. In view thereof, we are convinced that accumulated credit by way of KrishiKalyanCess (KKC) as appeared in the Service Tax return of Input Service Distributor (ISD) on June 30, 2017 which is carried forward in the electronic credit ledger maintained by the company under CGST Act, 2017, will not be considered as admissible input tax credit.
Decision: Ruling in favour of department
Comment: The kernel of the case is that the credit of Krishikalyancess is not allowed to be carried forward under GST regime as it is considered that cess and duty are two separate levies and thus KKC cannot be treated as excise and service tax, can be utilized only for the payment of KKC only.
Prepared by: Arundhati Bajpai

Comments

PJ/Case Law/2016-2017/3461

Post a Comment

Query