Education Cess & SHEC balance, Goods and Services Tax - GST

[Vishnu Dutt Gupta]

Transfer of EC & SHEC balance in GST is possible or not. If not the what we will do of balances.

Rgds,

MJ

Posts / Replies

[Vishnu Dutt Gupta]

Awaited your valuable comments.

[GOKARNESAN.S SUBRAMANIAN]

Sri Vishnu Dutt Gupta

According to me you are entitled to transfer the closing balance of credit declared in your June 2017 ER-1 return or ST-3 service tax return for the quarter ending June 2017 to the GST credit account on the following grounds:-

a) In 2015 Budget, the Finance Minister has stated in his Budget Speech that "the rate of duty for excise is fixed as 12.5% from 12.36% (12% basic + 2% Edu cess on Basic duty + 1% She Cess on Basic duty) since Education and SHE Cess have been subsumed in the basic rate of duty. Similarly for service tax from 12.36% to 14% .

b) Further, Cenvat credit Rules have been amended in 2015 to allow to take credit Edu Cess and SHE Cess on goods received on or after 1.3.2015 with invoice dated prior to 1.3.2015 with CESS charged and to utilise the same against payment of Basic Excise Duty.

c) Once the FM has said both Edu cess and SHE Cess rate has been subsumed with Basic Rate, it is needless to say that goods manufactured prior to 1.3.2015 with the usage of inputs charged with Edu Cess and SHE Cess has to be cleared on payment of 12.5% ED , it is implied that the Content of Closing Balance of Edu cess and SHE Cess also automatically subsumed with the Basic Cenvat Credit. IN other words, the closing balance of CESS Credit has no longer been treated or called as 'Edu Cess or SHE Cess' and instead it is merged with Basic cenvat credit and as such the same can be utilised for payment of basic excise duty.

d) Further, the closing balance of unutilised credit of Edu Cess and SHE cess as on 1.3.2015 has already been earned by the manufacturer during the period such credit was allowed. The Hon'ble Supreme Court has already held that "once the credit is taken during the period when the same is allowed to be taken, the Department cannot deny such credit subsequently when exemption is given.

e) Because of the Policy of Government that both Cesses have been subsumed with Basic Rate, one could not utilise the same . As such, the credit can be eligible for utilisation against basic duty.

f) Further, Government allows the credit of Edu cess / SHE Cess on goods received on or after 1.3.2015 and also allow the same to utilise against basic duty. This clearly proves the intention of Government that since both Cessess have been subsumed with Basic rate, the said credit of cessess have been allowed to be utilised for payment of basic duty. The same analogy is applicable to closing balance lying in ER-1 as on 1.3.2015.

g) Further, the Department has never insisted the manufacturers to reverse the credit lying in closing balance as on 1.3.2015 and even till the return for JUNE 2017, manufacturers are showing the same as closing balance unutilised and there is no objection from the Department

TRANSITIONAL PROVISIONS UNDER GST:-

Assessees are entitled to transfer the closing balance of Edu Cess and SHE cess along with Basic credit from the ER-1 declaration to GSTN credit account on the following grounds:

Section 140 of CGST Act deals with Transitional Provisions.

This section allows a Registered person to carry forward the closing balance of credit shown in June 2017 ER-1 return to GST Electronic Credit Account.

Even in the First Proviso to Sec 140, only three situations given for not allowing the transfer of credit:

1) The said credit is not admissible as input tax credit under this Act.

2) If no return is filed for six months the return prescribed under the existing law.

3) If credit relates to exempted goods.

The Second Proviso to sub section (2) of Sec 140 says that " ...the registered person shall not be allowed to take credit unless the said credit was admissible as Cenvat credit under the existing Law and is also admissible as input tax credit under this Act.

Further the Explanation says that ".....unavailed credit means the amount that remains after substracting the amount of credit already availed in respect of capital goods by the taxable person under the existing law from the aggregate amount of cenvat credit to which the said person was entitled in respect of the said capital goods under the existing law.

There is no doubt that "the Education Cess / SHE cess were allowed as eligible credit in terms of the provisions of Rule 3 of Cenvat Credit Rules, 2004 till June 2017. Since the Transitional Provision clearly says that "the credit was allowed under the existing Law", there is no problem in transferring such unavailed credit of Edu Cess and SHE cess along with basic credit.

I request the Expers to given their views on this for the benefit of readers.

S. Gokarnesan

Advocate, Chennai

16.7.2017

 

[Vishnu Dutt Gupta]

Lot of Thanks for brief reply Sir.

Rgds

MJ

[Monika Bansal]

Dear Sir,

With all due respect, I would like to keep my view points. The credit of eligible duties is only allowed to be carried forward. Since as per explanation 2 to section 140 service tax levied u/s 66B is allowed to be carried forward and it does not include EC and SHEC. Therefore, credit of ec and shec is not allowed. Please share your views.