The 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.
The Tax Department appealed before the larger bench against the ruling by Single Judge’s order in a matter of Sutherland Global case. The impugned order pronounced on September 5, 2019, 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.
The division bench of Justice Vineet Kothari and Justice Krishnan Ramaswamy mentioned that the matter deals with section 140 of the GST Law which specifies some duty/taxes in the pre-GST regime as ‘Eligible Duties’ to be used for calculating tax credit to be carried forward. There are three lists which are called as Explanation 1, 2 and 3.
“Therefore, only the seven specified duties in respect of inputs held in stock and inputs contained in semi-finished or finished goods held in stock on the appointed date i.e. July 1, 2017 will be eligible to be carried forward and adjusted against GST Output Tax Liability. Apparently, EC, SHEC and KKC are absent from the seven categories in Explanation 1 of Section 140 of the CGST Act. Therefore, on a plain meaning, such three cesses in question cannot be inserted in Explanation 1 to cover them for being carried forward with reference to Explanation 1 which applies for specified four sub-sections of Section 140 of the CGST Act.” the bench said.
“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,” the bench said while setting aside Single Judge’s ruling.
Read the Judgment Here: