NOVEMBER 12, 2015

By Monarch Bhatt, Advocate

THIS write up is about Notification 22/2015-CE (N.T.) dated 29.10.2015.

As per this notification, the credit can be utilised by the output service provider in the following scenarios.

a) The credit of Education Cess and Secondary and Higher Education Cess paid on inputs or capital goods can be utilized for payment of service tax on any output service. However, such "inputs" or "capital goods" must be received in the premises of the provider of output service on or after the 1st day of June 2015.

b) The capital goods received by the output service provider in the financial year 2014-2015, the unutilised 50% balance credit of Education Cess and Secondary and Higher Education Cess on such capital goods can be utilised for payment of service tax on any output service.

c) The notification also provides that the credit of Education Cess and Secondary and Higher Education Cess paid on "input service" can also be utilised for payment of service tax on any output service. However, invoice, bill, challan or Service Tax Certificate (Transportation of Goods by Rail) must be received by the provider of output service on or after the 1st day of June 2015.

It is to be noted that a similar notification 12/2015-CE (N.T.) was issued on 30th April 2015 to allow the credit of Education Cess and Secondary and Higher Education Cess used by the manufacturer. There also the credit was allowed only on the "inputs", "capital goods" and "input services" received on or after 01 st March 2015.

By both the notifications, the credit has been allowed only when liability to discharge Education Cess has ceased on the manufacturer or on the output service provider. However, both the notifications nowhere mention about the utilisation of education cess and higher & secondary education cess credit lying unutilised with manufacturer as on 28th February, 2015 and lying unutilised with the output service provider as on 31st May, 2015.

It is to be noted that the credits lying unutilized as on 28.02.2015 & 31.05.2015 have been rightfully availed by the manufacturer/service provider. These are not tainted credits.

It is settled by the Supreme Court in the case of Eicher Motors - 2002-TIOL-149-SC-CX-LB & Dai Ichi Karkaria - 2002-TIOL-79-SC-CX-LB that a right accrued to the assessee on the date when they paid the tax on the raw materials or the inputs and that right would continue until the facility available thereto gets worked out or until those goods existed.

The Board keeping mum on its cross utilization as enabled for the latter period by notifications 12/2015-CE(NT) and 22/2015-CE(NT) is doing a great disservice to the assessees and tantamount to nullifying the avowed objective of preventing cascading effect of taxes.

So also, by not allowing the utilization of the balance credits, the CENVAT chain is being broken. Decisions in All India Federation of Tax Practitioners - 2007-TIOL-149-SC-ST & Coca Cola India Ltd. - 2009-TIOL-449-HC-MUM-ST refers.

The Central Government should not delay this issue further and make its mind clear. Either it should say that the Credit lapses or for that matter this credit can be allowed by service tax assessees towards payment of the Swachh Bharat Cess imposed from 15.11.2015.

Let's get over it as quickly as possible or is the government interested in carrying this relic to the GST era?