Cess credit can’t be transitioned to GST

By: | Published: May 4, 2018 4:28 AM

The Authority of Advanced Ruling (AAR) under the goods and services tax (GST) in Maharashtra has clarified that accumulated credit of the Krishi Kalyan Cess (KKC) from the pre-GST regime can't be carried forward to the new indirect tax system as relevant laws don’t allow it.

GST, goods and service tax, GST reform, GST regime, GST return, GST network, economy, economic policy, currency ban, note ban, federal system, narendra modi, independence 1947The GST law provides for transition of accumulated credit, which allows existing taxpayers to transfer the input tax credit (ITC) available as closing balance in existing tax returns to the GST returns.

The Authority of Advanced Ruling (AAR) under the goods and services tax (GST) in Maharashtra has clarified that accumulated credit of the Krishi Kalyan Cess (KKC) from the pre-GST regime can’t be carried forward to the new indirect tax system as relevant laws don’t allow it. Referring to transitional provisions under the CGST Act and CENVAT Credit Rules, the AAR noted that it was made expressly clear that KKC credit would only be utilised for payment of KKC, and no other credit could be utilised for payment of the same. Although the ruling was specifically related to KKC, the ruling clarified that the Swachh Bharat Cess would also be treated in the same manner.

“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 the GST. Definition of input tax as given in section 2(62) does not include any cess. So, apparently the Krishi Kalyan Cess will not be allowed to be carried forward,” the AAR observed. The KKC was levied and collected as the service tax on any or all of taxable services at the rate of 0.5% of the value of taxable service. After the GST rollout, such cess were abolished. The GST Act doesn’t explicitly bar transitioning of cess credit into the GST regime. Owing to this, the government has estimated that a large number of taxpayers claimed this credit in the GST regime.

The GST law provides for transition of accumulated credit, which allows existing taxpayers to transfer the input tax credit (ITC) available as closing balance in 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 and local VAT as the opening credit balance in the GST returns.

Abhishek Jain, tax partner, EY India, said: “A long awaited advance ruling was delivered yesterday by the Maharashtra Advance Ruling Authority, upholding non-admissibility of the KKC credit as an eligible input tax credit under the GST regime. While the ruling is in the context of a particular fact pattern, it does concur with the revenue authorities view of ineligibility of transitioning of KKC credits. A long drawn legal battle seems inevitable on this issue.”

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