The Kerala High Court has held that there is no Provision to enable Muthoot Finance to claim transition of Education Cess (EC), Secondary and Higher Education Cess (SHEC) and Krishi Kalyan Cess (KKC) to GST regime.
The bench of Justice Gopinath P has observed that since the petitioner is not entitled to transition of amounts paid as EC, SHEC and KKC to the GST regime, the question of directing the authority to consider and pass orders does not arise for consideration.
Background
The petitioner, Muthoot Finance is a Public Limited Company incorporated under the provisions of the Companies Act, 1956. It is engaged in financing, providing personal and business loans upon the security of gold.
The petitioner had filed returns under the provisions of the Finance Act, 1994 disclosing payment of Service Tax Education Cess (EC), Secondary and Higher Education Cess (SHEC) and Krishi Kalyan Cess (KKC).
Following the 101st amendment to the Constitution and the introduction of GST, the petitioner was under the impression that unutilized credit on account of payment of Service Tax including amounts paid towards EC, SHEC and KKC could be transitioned to the GST regime.
According to the petitioner, the provisions of Section 140(8) of the CGST Act permitted transition.
However, by the CGST (Amendment) Act 2018 introduced with retrospective effect from 01.07.2017, Section 140(1) of the CGST Act was amended to replace the term ‘CENVAT credit’ with the term ‘CENVAT credit of eligible duties’. It was to prevent the transition of accumulated credit on account of payment of various amounts as Cess to the GST. The petitioner submitted that the amendment was notified vide notification No.2/2019-Central Tax dated 29.01.2019.
The petitioner relied on the decision of Madras High Court in the case of Assistant Commissioner of CGST and Central Excise and Others v. Sutherland Global Services Private Limited and Other in which the Madras High Court took the view that Cess such as EC, SHEC and KKC could not be transitioned with reference to the provisions of Section 140 of the CGST Act.
The petitioner reversed the transitional credit claimed on account of payment of EC, SHEC and KKC and on such reversal, the petitioner became entitled to seek a refund in terms of the provisions contained in Section 142(3) of the CGST/SGST Acts under the existing law (Finance Act, 1994) and therefore, the petitioner filed a claim for refund.
The application which is on record was rejected finding that the claim was time-barred in terms of the provisions contained in Section 11B of the Central Excise Act, 1944 as made applicable to Service Tax by virtue of the provisions contained in the Finance Act, 1994.
The order of the competent authority rejecting the refund claimed it as time-barred. In the meanwhile, the petitioner had also filed an application for refund under Section 54 of the CGST Act clearly stating that it needs to be processed only if the application is rejected by the competent authority.
Arguments
The petitioner contended that the rejection of the application for refund filed by the petitioner in terms of the provisions contained in Section 142 (3) of the CGST Act as time-barred is clearly unsustainable in law.
The petitioner argued that going by the provisions as they stood at the time of the introduction of GST, the petitioner was entitled to transitional credit available on account of payment of EC, SHEC and KKC and it is only with the retrospective amendment of Section 140 of the CGST/SGST Acts that such transition became impossible.
The petitioner submitted that the application for refund in terms of the provisions contained in Section 142(3) of the CGST Act should therefore be considered with reference to the date on which the amendment came into force. It is only on reversal of the transitional credit claimed that the petitioner could maintain an application for refund in terms of the provisions contained in Section 11B of the Central Excise Act, 1944 as made applicable to Service Tax.
The petitioner submitted that in such circumstances, the dismissal of the application for refund as time-barred is clearly illegal and unsustainable in law. There are several judgments of the Tribunal holding in similar circumstances that the assessee is entitled to a refund of EC, SHEC and KKC on account of the fact that they could not be transitioned in terms of the provisions contained in Section 140 of the CGST Act.
The department contended that the petitioner is clearly not entitled to the benefit of refund of transitioning the amounts paid as EC, SHEC and KKC in terms of the provisions contained in the CENVAT Credit Rules, 2004. The EC, SHEC and KKC could be set off in terms of the provisions contained in the CENVAT Rules only against payment of similar Cess. The EC and SHEC were abolished on 01.03.2015 and 01.06.2015 respectively. It is submitted that the provisions for collecting KKC continued till the introduction of GST and were abolished with effect from the coming into force of the Taxation Law (Amendment) Act 2017.
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Conclusion
The court held that the petitioner has not made out any case for the grant of any of the reliefs sought in the writ petition. A reading of the provisions of the CENVAT Rules indicates that the EC, SHEC and KKC can be utilised only for payment of such Cess and not for any other purposes (See the First and Second proviso to Rule 3(7)(b) & Rule 3(7)(d) of the CENVAT Credit Rules, 2004). It is clear that there is no cross-utilization of EC, SHEC and KKC against tax payable on account of Service Tax under the provisions of the Finance Act, of 1994.
Case Title: M/S.Muthoot Finance Limited V/S Union Of India And Ors
Citation: WP(C) NO. 28282 OF 2022
Counsel for the Petitioner: Jazil Dev Ferdinanto
Counsel for the Respondent: Sreelal N. Warrier, SC
