In re: Kansai Nerolac Paints Ltd.
GST
2018 (5) TMI 458 – AUTHORITY FOR ADVANCE RULINGS MAHARASHTRA – 2018 (12) G. S. T. L. 526 (A. A. R. – GST)
AUTHORITY FOR ADVANCE RULINGS MAHARASHTRA – AAR
Dated:- 5-4-2018
GST-ARA-18/2017-18/B-25
GST
B.V. BORHADE AND PANKAJ KUMAR, MEMBER
PROCEEDINGS
(under section 98 Of the Central Goods and Services Tax Act, 2017 and the Maharashtra Goods and Services Tax Act, 2017)
The present application has been filed under section 97 of the Central Goods and Services Tax Act, 2017 and the Maharashtra Goods and Services Tax Act, 2017 [hereinafter referred to as “the CGST Act and MGST Act”] by KANSAI NEROLAC PAINTS LIMITED, the applicant, seeking an advance ruling in respect of the following question :
Whether accumulated credit by way of Krishi Cess (KKC) as appeared in the Service tax return of Input Service Distributor (ISD) ON June 30, 2017 which is carried forward in the electronic credit ledger maintained by the company under CGST
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e company's Head Office. Under chapter V of Finance Act 1994, the Company has a centralized registration for Head Office, factories and depots at its Head Office (HO) in Mumbai, Apart from centralized registration, the Company also has a separate registration as Input Service Distributor (ISD) for its HO to distribute the eligible CENVAT credit to its factories and Head Office according to Rule 2(m) of Cenvat Credit Rules 2004 (herein after referred as CCR), read with Rule 7 and Rule 7A of CCR.
Rule 9(10) of the CCR requires the input service distributor to file the half yearly return in the statement giving the detail of the credit received and distributed during the said half yearly period by the end of the following months.
As an input service distributor, the company received CENVAT credit at head office. Those CENVAT credit also included Krishi Kalyan Cess (KKC) as well but the company could not distribute KKC to its factories as because, KKC credit could be utilized only with K
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pre GST regime, that is prior to July 1, 2017, company was engaged in manufacture and sale of goods across the states and in the state of Maharashtra Company was engaged in works contract service as well. Accordingly under chapter V of Finance Act 1994, company took centralized registration for its Head Office located (HO) in the state of Maharashtra. Apart from centralized registration, company also obtained registration as Input Service Distributor (ISD) for its HO to distribute eligible credit to its respective manufacturing units according to Rule 2(m) of Cenvat Credit Rules 2004 (herein after referred as CCR), read with Rule 7 and Rule 7A of CCR.
1.3 CBEC had vide Circular No. 97 dated 23.8.2007 clarified that input service distributor is an office or premises of the manufacturer or taxable service provider which receives bills/invoices etc., of input services. The input service distributor can distribute the eligible credit to any unit of the manufacturer or any premises/office
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onic credit register maintained under CGST ACT 2017.
Statement containing the applicant's interpretation of law and/or facts, as the case may be, in respect of the aforesaid question(s) (i.e. applicant's view point and submissions on issues on which the advance ruling is sought),
1.1 KKC is levied as per sec 161 of the Finance Act 2016
1.2 Sec 161(5) of the Finance Act specified that for levy and collection of KKC, Chapter V of Finance Act 1994 (Service Tax) will be applicable.
1.3 Entry 92C of Union List I of Indian Constitution empowers legislature to levy service tax as provided under Chapter V of Finance Act 1994.
1.4 122nd amendment of Constitution deletes Entry 92C of Union List I, in view of implementation Of Goods and Service Tax.
1.5 It implies KKC is also subsumed in Goods and Service Tax along with service tax. In other words CGST liability under CGST Act 2017 contains liability on account of KKC as well.
1.6 Rule 3(1a) of CCR includes KKC as cenvat credit.
1
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s.
As an input service distributor, company received cenvat credit at its head office. Those cenvat credit includes Krishi Kalyan Cess (KKC) as well but the company could not distribute KKC to its manufacturing units as because KKC credit could be utilised only with KKC liability and recipient entity being manufacturing entity did not have any KKC liability to set off KKC credit, resulting in accumulation of KKC credit.
In Post GST regime neither there is any specific restriction in law regarding admissibility of KKC nor there any specific provision in law regarding admissibility of KKC as input tax credit.
In view of the aforesaid facts, our question regarding admissibility of input tax credit is duly covered under clause (d) of section (2) of section 97 of CGST,/MGST Act 2017 and thus the said question is duly covered under the provision of Advance Ruling as provided under CGST/MGST Act 2017.
Submission of NIL date
2. Legislative provisions.
2.1 Sec 161 of Finance Act 2016 read
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es specified in sub-section (2), as it may consider necessary.
(5) The provisions of Chapter V of the Finance Act, 1994 and the rules made thereunder, including those to refunds and exemptions from tax, interest and imposition or penalty shall, as far as may be, apply in relation to the levy and collection of the Krishi Kalyan Cess on taxable services, as they apply in relation to the levy and collection of tax on such taxable services under the said Chapter or the rules made thereunder, as the case may be.” (Emphasis supplied)
2.2 Deletion of entry 92C vide constitution 122nd amendment
“17. In the Seventh Schedule to the Constitution.
(a) an List I Union List, (i) for entry 84, the following entry shall be substituted namely:
“84. Duties of excise on the following goods manufactured or produced in India namely:-
(a) petroleum crude:
(b) high speed diesel:
(c) motor spirit (commonly known as petrol)
(d) natural gas
(e) aviation turbine fuel; and
(f) tobacco and tobacco
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rs conferred by section 37 of the Central Excise Act, 1944 (1 of 1944) and section 94 of the Finance Act, 1994 (32 of 1994), the Central Government hereby makes the following rules further to amend the CENVAT Credit Rules, 2004, namely : –
1. (1) These rules may be called the CENVAT Credit (Seventh Amendment) Rules, 2016.
(2) They shall come into force on 1st of June, 2016.
2. In the CENVAT Credit Rules, 2004, in rule 3,
(a) after sub-rule (1), the following sub-rule shall be inserted, namely :-
“(1a) A provider of output service shall be allowed to take CENVAT credit of the Krishi Kalyan Cess on taxable services leviable under section 161 of the Finance Act, 2016 (28 of 2016);”;
(b) in sub-rule (4), after the ninth proviso, the following proviso shall be inserted, namely,-
“Provided also that the Cenvat credit of any duty specified in sub-rule (1) shall not be utilised for payment of Krishi Kalyan Cess leviable under section 161 of the Fin
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2) Sec 161(5) of the Finance Act specified that for levy and collection of KKC, Chapter V of Finance Act 1994 (Service Tax) will be applicable.
4.2 Entry 92C of Union List I of Indian constitution empowers legislature to levy service lax as provided under Chapter V or Finance Act 1994.
4.3 122nd amendment of Constitution deletes Entry 92C of Union List l, in view of implementation and Service Tax.
4.4 It implies is also subsumed in Goods and Service Tax along with service tax. In other words CGST liability as accrued under CGST Act, 2017 contains liability on account or KKC as well..
4.5 Rule 3(1a) of CCR includes KKC as cenvat credit.
4.6 CCR provides KKC liability could be set off with KKC credit only CGST liability subsumed KKC liability in of 122nd amendment of constitution. Therefore migrated KKC credit will be admissible to setoff with CGST liability.
4.6 Sec 140(1) allows a registered person to carry forward the CENVAT credit in return to electronic credit ledger provide
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alue of taxable service.
What about carry forward of credit of Krishi Kalyan Cess, to GST Regime?
Section 140 (1) of the GST law permits carry forward of Credit of GST regime.
Transitional provisions have been prescribed in the GST law which provids tax treatment for transitional matters like spill over transactions, transitional credits etc. It allows existing taxpayers to transfer the input tax credit available as closing balance in the existing tax returns to the GST returns. Therefore, assesses were able to transfer the closing balance of credit in respect of Central Excise duty, Service Tax, Local VAT etc. As the opening credit balance in the GST returns.
As specified in the proviso to Section 140(1) of the Act, the taxable person is allowed to carry forward the credit to the extent admissible as INPUT TAX CREDIT under GST.
Definition of Input tax as given in section 2(62) does not include any cess.
So apparently Krishi Kalyan Cess, will not be allowed to be carried forword.
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ulated credit as carried forward in the Service Tax return on 30th June, 2017, we would refer to the relevant transitional provision as available in the CST Act-
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 noti
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al Importance) Act. 1957 (58 of 1957);
(v) the National Calamity Contingent duty leviable under section 136 of the Finance Act, 2001 (14 of 2001);
(vi) the Education Cess on excisable goods leviable under section 91 read with section 93 of the Finance (No.2) Act, 2004 (23 of 2004);
(via) the Secondary and Higher Education Cess on excisable goods leviable under section 136 read with section 138 of the Finance Act, 2007 (22 of2007):
(vii) the additional duty leviable under section 3 of the Customs Tariff Act, equivalent to the duty of excise specified under clauses (i), (ii), (iii), (iv), (v) (vi) and (via);
(viia) the additional duty leviable under sub-section (5) of section 3 of the Customs Tariff Act,
Provided that a provider of taxable service shall not be eligible to take credit of such additional duty;
(viii) the additional duty of excise leviable under section 157 of the Finance Act, 2003 (32 of 2003);
(ix) the service tax leviable under section 66 of the Finance Act'
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Thus, CENVAT credit was available in respect of KKC. However, we need to see the following amendments, too, as were brought by the aforesaid Notification No. 28/ 2016 – Central Excise (N.T.), the 26th May, 2016 –
i. in sub-rule (4), after the ninth proviso, the following proviso was inserted –
“Provided also that the Cenvat credit of any duty specified in sub-rule 1 shall not be utilised for payment of Krishi Kalyan Cess leviable under section 161 of the Finance Act, 2016 (28 of 2016);”;
ii. in sub-rule (7), after clause (c), the following clause was inserted –
“(d) Cenvat credit in respect or Krishi Kalyan Cess on taxable services leviable under section 161 of the Finance Act, 2016 (28 of 2016) shall be utilised only towards payment of Krishi Kalyan Cess on taxable services leviable under section 161 of the Finance Act, 2016 (28 of 2016)”;
It can be seen that by express provision, it was made clear that KKC would be utilised towards payment of KKC only, Further, it was express
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ENVAT Credit Rules, 2004 (CCR. for short), credit of EC and SHE was admissible and could be utilised for payment of EC and SHE respectively. In other words. CENVAT credit on EC and SHE on inputs, capital goods and input services could be utilised and availed of for payment of EC and SHE on manufactured goods and output services. Input EC and SHE credit had the effect of preventing cascading effect on EC and SHE payable down the line. It is an accepted and admitted case that benefit of EC and SHE on inputs, etc. could not have been utilised for payment of excise duty service tax on the output, i.e, manufactured goods or taxable services Thus, cross utilization of EC and SHE towards excise duty or service tax was impermissible and not permitted.
4. EC and SHE were abolished and were not payable on excisable goods with effect from 1st March, 2015 vide Notification Nos. 14/2015-CE and 15/2015-CE both dated 1st March, 2015. EC and SHE were also abolished and ceased to be payable on taxable
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xcise duty or service tax. They were specific cesses for the objective and purpose specified……………………………………………………………………………………………………… As noticed above, in the present case, credit of EC and SHE could be only allowed against EC and SHE and could not be cross-utilized against the excise duty or service tax. In fact, what the petitioners seek is an amendment of the scheme to allow them to take cross utilization of the unutilized EC and SHE upon the two cesses being Withdrawn against excise duty and service tax, though this was not the position even earlier,”
The Hon. Court dismissed the Writ Petition. In the present case, KKC is to be utilized for payment of KKC only. Therefore, KKC cannot be treated as excise duty or service tax. in view thereof, the CENVAT credit as referred to in sub-section (1) of section 140 would not include the credit in respect of KKC. We can also see the position in respect of the Swachh
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vernment may, by notification in the Official Gazette, appoint.
(2) There shall be levied and collected in accordance with the provisions of this Chapter, a cess to be called the Swachh Bharat Cess, as service tax on all or any of the taxable services at the rate of two per cent. on the value of such services for the purposes of financing and promoting Swachh Bharat initiatives or for any other purpose relating thereto.
The Swachh Bharat Cess leviable under sub-section (2) shall be in addition to any cess or service lax lev table on such taxable services under Chapter of the Finance Act, 1994, or under any other law for the time being in force.
(4) The proceeds of the Swachh Bharat Cess levied under sub-section (2) shall first be credited to the Consolidated Fund of India and the Central Government may, after due appropriation made by Parliament by law in this behalf utilise such sums of money of the Swachh Bharat Cess for such purposes specified in sub-section (2), as it may consid
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e in addition to any cess or service tax leviable on such taxable services under Chapter V of the Finance Act, 1994, or under any other law for the time being in force.
(4) The proceeds of the Krishi Kalyan Cess levied under sub-section(2) shall first be credited to the Consolidated Fund of India and the Central Government may, after due appropriation made by Parliament by law in this behalf utilise such sums of money of the Krishi Kalyan Cess for such purposes specified in sub-section (2), as it may consider necessary.
(5) The provisions of Chapter V of the Finance Act, 1994 and the rules made thereunder, including those relating to refunds and exemptions from tax, interest and imposition of penalty shall, as far as may be, apply in relation to the levy and collection Of the Krishi Kalyan Cess on taxable services, as they apply in relation to the levy and collection of tax on such taxable services under the said Chapter or the rules made thereunder, as the case be.
As can b
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