05 November 2019

GST transitional credit permissible of accumulated credit of Education Cesses and Krishi Kalyan Cess

The Madras High Court has allowed GST transitional credit in respect of accumulated credit of Education Cess, Secondary and Higher Education Cess and Krishi Kalyan Cess. The Court in this regard rejected the department’s contention that the accumulated credit of EC, SHEC and KKC is dead and gone and there is nothing that the assessee could claim for carrying forward.

The High Court in its judgement pronounced in September 2019 but released only recently, noted that there is no notification/circular/instruction that expressly provide that the respective credit of such cesses accumulated earlier would lapse.

It also noted that the credit was carried forward manually and reflected in the returns from time to time by the assessee. It held that the department having permitted the assessee to carry forward the credit, cannot now take a stand that such credit is unavailable for use.

Listing various occasions where the authorities could have stipulated that the accumulated credit would lapse, the Court held that since the department had not done so, the provisions of Section 140 of the Central Goods and Services Tax Act, 2017 should be given full effect and meaning.

It was also observed that the intention of the Government was evidently to provide a seamless model for transitioning of all credits hitherto availed of by an assessee under the erstwhile VAT and other indirect tax levies to the Goods and Services Tax regime.

The assessee had a centralized registration under Service Tax regime and had sought transitional credit under Section 140(1) and Section 140(8) of CGST Act, 2017. The Court noted that the provisions of sub-section (1) read with sub-section (8) of Section 140, and the Explanation thereunder make it clear that all available credit as on the date of transition would be available to an assessee for set off.

The Court in its judgement in the case Sutherland Global Services Private Limited v. Assistant Commissioner also observed that all conditions under sub-section (1) and (8) of Section 140 were satisfied by the assessee, and the embargo placed by Rule 3(7)(b) of Cenvat Credit Rules, 2004 was long gone with the introduction of GST.