The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), New Delhi, has ruled that with the Education Cess and Krishi Kalyan Cess (KKC), getting subsumed within Excise Duty and Service Tax way back in 2015, with no similar Cess imposed under the CGST Act, there is no scope that the Cesses would be treated as being eligible as Input Tax Credit [ITC] under the GST regime.

The Appellate Tribunal, therefore, clarified that the Education Cess and KKC could not have been transitioned to the GST regime. Reference was made to Rule 3(7) of the CENVAT Credit Rules, 2004, which stated that the Education Cess, while being eligible to be taken as CENVAT Credit, was specifically to be used for the discharge of the Education Cess only for the finished goods cleared / service provided.

Hence, when the Education Cess on goods became fully exempt in view of the Notifications issued under Section 5A of the CEA, 1944, the utilisation of the existing Education Cess left as the closing balance as of March 01, 2015, also got fully blocked. Similar is the situation with respect to services being fully exempt from the payment of Education Cess and KKC, whereafter the closing balance as of June 01, 2015, was fully blocked.

The Larger Bench comprising R Muralidhar (Judicial Member), Binu Tamta (Judicial Member) and P Anjani Kumar (Technical Member) observed that the ‘Vested Right’, if any, was conferred on the appellants on March 01, 2015 and June 01, 2015, the notified date after which they could not utilise the available balance of Education Cess. But the appellants did not press for the refund of such blocked credits. Rather, they were simply carrying forward the balance for more than 2 years in the returns filed by them.

The Bench noted that immediately after March 01, 2015, after the blockage of the Cesses, they had two options, i.e., either: (a) file for refund of the blocked amounts of Education Cess and SHE cess; or (b) seek permission to merge the Education Cess and KKC with the CENVAT Credit of Excise Duty / Service Tax and start utilizing the same.

Since in the present case, the appellants did not seek recourse to any of the two options during the earlier Central Excise / Service Tax regime for the next two years, the Bench clarified that the likely remedies got negated, and after the onset of the GST regime, the blocked Cesses were held as lapsed. Hence, the Bench refuses to subscribe to the views of the appellants that they had the ‘vested right’ / ‘indefeasible right’.

The Bench further noted that upon finding the mismatch between the Return figures as on account of CENVAT credit [bare Excise Duty and bare Service Tax] as on June 30, 2017, with the figures shown in TRAN 1, the Department had asked the appellant to reverse the amount pertaining to the Education Cess and the KKC. Since the appellant, on their own volition, had opted for transition of Cesses to GST in terms of Section 140(1) by showing the consolidated amount in TRAN-1 Form, their vested right gets waived.

Accordingly, the Larger Bench concluded that no refund can be granted for the blocked Education Cess, and KKC under the provisions of Section 142(3) CGST Act. The Bench also held that the refund claims, if filed after March 01, 2016, would be time-barred.

Appearances:

Advocate Priyanka Goel, for the Appellant/ Taxpayer

Advocates Z U Alvi, A K Prasad, and Surabhi Sinha, for the Respondent/ Revenue