JUNE 29, 2017

By R K Singh

1. AS the date of transition to GST regime is almost upon us, the government has launched a massive outreach program. The queries relating to GST received from various sectors of the trade and industry and their so-called "answers" published in all the leading newspapers today i.e. 29.6.2017 is a laudable effort in that direction.

However, perusal of the given "replies" makes it evident that many of the "replies" do not really 'answer' the queries; for example, replies to queries nos. 28 and 29 are identical (although the queries are different) and hardly make the persons who raised those queries any wiser. Such replies, even if not wrong, do not really serve the intended purpose.

Buta matter of great concern are the wrong replies…

2. What is particularly a matter of grave concern though is that some of the repliesaremisleading and not in conformity with the legal provisions. As an example, consider the following two queries and the replies thereto:

Section 140 of the CGST Act, 2017defines"eligible duties and taxes"as under:

"Explanation 2. - For the purposes of sub-section (5), the expression "eligible duties and taxes" means––

(i) the additional duty of excise leviable under section 3 of the Additional Duties of Excise (Goods of Special Importance) Act, 1957;

(ii) the additional duty leviable under sub-section (1) of section 3 of the Customs Tariff Act, 1975;

(iii) the additional duty leviable under sub-section (5) of section 3 of the Customs Tariff Act, 1975;

(iv) the additional duty of excise leviable under section 3 of the Additional Duties of Excise (Textile and Textile Articles) Act, 1978;

(v) the duty of excise specified in the First Schedule to the Central Excise Tariff Act, 1985;

(vi) the duty of excise specified in the Second Schedule to the Central Excise Tariff Act, 1985;

(vii) the National Calamity Contingent Duty leviable under section 136 of the Finance Act, 2001; and

(viii) the service tax leviable under section 66B of the Finance Act, 1994,

in respect of inputs and input services received on or after the appointed day."

It is thus obvious that the definition of "eligible duties and taxes" contained in Section 140 ibid is only for the purpose of Sub-section(5) of that Section and that too only in respect of inputs and input services received on or after 1 July 2017. The said Sub-section (5) deals with a situation where the inputs or input services are received after the appointed day (1.7.2017) but duties and taxes thereon were paid under the 'existing laws'. As this situation is not really the subject matter of the above quoted queries, there is no need to dwell thereon vis-a-vis the definition of "eligible duties and taxes".

3. For the purpose of this article, the provisions relating to the entitlement to take, in the 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 a registered person under the existing law,are essentially contained in Sub Section(1) of Section 140 ibid which is reproduced below:

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 manufactured and cleared under such exemption notifications as are notified by the Government.

It is evident that Sub Section(1)of Section 140 ibid does not contain/make any reference to "eligible duties and taxes". Further as already stated , the definition of "eligible duties and taxes" quoted above does not even apply to the said Subsection (1). Therefore, the above quoted replies based (in the case of reply to query no. 43 manifestly so) on the inapplicable ground that the said cesses are not covered under the definition of " eligible duties and taxes" simply cannot be right . In fact, there is nothing in the said Subsection (1) or anywhere else in the CGST Act which has the implication that cenvat credit in respect of education cess,secondary & higher education cess or Krishi Kalyan cess would not be allowed to be taken credit of in the electronic credit ledger because these cesses are not covered under the definition of "eligible duties and taxes".

Indeed, under Section 140(1) ibid, if in a given set of circumstances, credit of the cenvat credit relating to excise duty paid under the Central Excise Act, 1944 and service tax paid on the Finance Act, 1994 is allowed to be taken in the electronic credit ledger, there is no provision of law which would disallow taking credit of the cenvat credit relating to education cess, secondary and higher education cess and Krishi Kalyan cess in the electronic credit ledgerin the same set of circumstances. It needs to be remembered that the Central Excise Act, 1944, the Finance Act 1994 and the relevant Acts levying education cess, secondary and higher education cess and Krishi Kalyan cess are all covered in the definition of 'existing law' given in Section 2(48) ibid.

Incidentally, if it is attempted to be contended by some that under Section 140(1), the credit, in the electronic credit ledger, of the cenvat credit relating to the said cesses is not allowed because those cesses are not covered under the definition of 'input tax' given in Section 2 (62) ibid, then even the credit, in the electronic credit ledger, of cenvat credit relating to central excise duty paid under the Central Excise Act, 1944 and service tax paid under the Finance Act, 1994 (which is indisputably allowed) will not be allowed because central excise duty paid under Central Excise Act, 1944 and service tax paid under Finance Act, 1994 are also not covered in the definition of 'input tax'.

4. It is, thus, evident from the foregoing analysis that the replies to query nos. 41 and 43 quoted above are not in conformity with law. As the revenue implications of the said replies are obviously huge, it will be in the fitness of things that the policymakers review the said replies with a view to clarifying the correct position of law in this regard.

(The author is Retired Chief Commissioner/Member CESTAT and the views expressed are strictly personal.)

Editor: Kindly also see DDT 2741–The Board's Bombshell.

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